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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
For the quarterly period ended September 29, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
COMMISSION FILE NUMBER 1-333-36675
---------------
BURKE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3081144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13767 FREEWAY DRIVE
SANTA FE SPRINGS, CALIFORNIA 90670
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 221-0923
-----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
As of November 20, 2000, the number of shares outstanding of the
Registrant's Common Stock was 3,894,500.
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<PAGE>
BURKE INDUSTRIES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
------ --------------------- -----------
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 29, 2000 and October 1, 1999 3
(unaudited)
Condensed Consolidated Balance Sheets as of September 29, 2000
(unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 29, 2000 and October 1,
1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited)
6-7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 8-11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Month Period Ended For the Nine Month Period Ended
Sept. 29, 2000 Oct. 1, 1999 Sept. 29, 2000 Oct. 1, 1999
--------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales...................... $ 26,641 $ 26,833 $ 81,492 $ 83,894
Costs and expenses:
Cost of sales............ 19,561 19,918 58,416 60,593
Selling, general and
administrative............ 6,321 4,637 16,643 13,335
Amortization of goodwill.. 504 504 1,513 1,513
------------------- ----------------- ----------------- ----------------
Income from operations......... 255 1,774 4,920 8,453
Interest expense, net.......... 3,674 3,600 11,612 11,136
------------------- ----------------- ----------------- ----------------
Loss before income tax
benefit........................ (3,419) (1,826) (6,692) (2,683)
Income tax benefit............. (144) ---- (144) (342)
------------------- ----------------- ----------------- ----------------
Net income (loss).............. $ (3,275) $ (1,826) $ (6,548) $ (2,341)
=================== ================= ================= ================
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Sept. 29, 2000 Dec. 31, 1999
---------------- ---------------------
(Derived from audited
(Unaudited) financial statements)
---------------- ---------------------
ASSETS (In Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................. $ 875 $ 348
Trade accounts receivable, less allowance of $750 in 2000 and $658 in 1999. 14,027 13,627
Inventories................................................................ 16,959 15,585
Prepaid expenses and other current assets.................................. 1,780 1,510
Deferred income tax assets................................................. 503 503
----------- ----------
Total current assets..................................................... 34,144 31,573
Property, Plant and Equipment 35,634 35,489
Accumulated depreciation and amortization.................................. 16,314 14,464
----------- ----------
19,320 21,025
Construction in process.................................................... 1,077 419
----------- ----------
Net property, plant and equipment........................................ 20,397 21,444
Other Assets:
Prepaid pension cost.......................................................... 442 442
Goodwill, net................................................................. 26,205 27,718
Deferred financing costs, net................................................. 5,101 5,718
Other assets.................................................................. 145 139
----------- ----------
Total other assets....................................................... 31,893 34,017
----------- ----------
Total assets....................................................... $ 86,434 $ 87,034
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Revolving line of credit................................................... $8,729 $--
Trade accounts payable and accrued expenses................................ 9,335 8,174
Accrued compensation and related liabilities............................... 2,143 1,743
Accrued interest........................................................... 1,834 5,528
Payable to shareholders.................................................... 785 785
Capital lease obligations.................................................. 514 514
Income taxes payable....................................................... 214 481
------------ ---------
Total current liabilities................................................ 23,554 17,225
Senior notes.................................................................. 110,000 110,000
Floating notes................................................................ 30,000 30,000
Capital lease obligations, non-current ....................................... 244 669
Other non-current liabilities................................................. 488 444
Deferred income tax liabilities............................................... 2,388 2,388
Preferred stock, no par value; 50,000 shares authorized; 30,000 Series A
Redeemable shares designated; 22,744 Series A shares issued and outstanding;
5,000 Series B Redeemable shares designated; 2,847 Series B shares issued
and outstanding (aggregate liquidation and redemption preference
$18,000).................................................................. 23,758 20,536
Shareholders' equity (deficit):
Convertible preferred stock, no par value: 3,000 Series C shares designated,
issued and outstanding (liquidation preference $3,000).................. 3,000 3,000
Class A common stock, no par value: Authorized shares--20,000,000
issued and outstanding shares--3,894,500 in 2000 and 1999. 25,708 25,708
Accumulated deficit........................................................ (132,706) (122,936)
------------ ---------
Total shareholders' equity (deficit)...................................... (103,998) (94,228)
------------ ---------
Total liabilities and shareholders' equity (deficit)...................... $ 86,434 $ 87,034
============ ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Month Period Ended
----------------------------------
Sept. 29, 2000 Oct. 1, 1999
----------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................. $ (6,548) $ (2,341)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization:
Property, plant and equipment...................................... 1,850 1,546
Goodwill........................................................... 1,513 1,513
Debt financing costs............................................... 617 618
Other adjustments to reconcile net loss to net cash used
in operating activities............................................ (4,831) (2,281)
------------- -----------
Net cash used in operating activities.................................... (7,399) (945)
INVESTING ACTIVITIES
Purchases of property, plant and equipment............................... (803) (2,080)
------------- -----------
Net cash used in investing activities.................................... (803) (2,080)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit............................ 8,729 ----
Exercise of stock options................................................ ---- 244
------------- -----------
Net cash provided by financing activities................................ 8,729 244
------------- -----------
Increase in cash and cash equivalents.................................... 527 (2,781)
Cash and cash equivalents at beginning of period......................... 348 2,981
------------- -----------
Cash and cash equivalents at end of period............................... $ 875 $ 200
============= ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of the
Company have been prepared without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The condensed consolidated balance sheet
as of December 31, 1999 was derived from audited financial statements. The
accompanying condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations for the three and nine months ended September
29, 2000 are not necessarily indicative of the results to be expected for the
full year. Certain prior year reclassifications have been made in order to
conform to current year presentation.
The Company uses a 52 to 53-week fiscal year ending on the Friday
closest to December 31. The Company also follows a thirteen-week quarterly
cycle. The nine-month periods ended on September 29, 2000 and October 1, 1999.
2. INVENTORIES
Inventories consist of the following at the period ended:
<TABLE>
<CAPTION>
Sept. 29, 2000 Dec. 31, 1999
--------------------------------
(In thousands)
--------------------------------
<S> <C> <C>
Raw materials................................................... $5,397 $5,540
Work-in-process................................................. 1,963 1,861
Finished goods.................................................. 9,599 8,184
--------------- ---------------
$16,959 $15,585
=============== ===============
</TABLE>
3. SEGMENT INFORMATION
The Company has two reportable business segments: BurkeMercer (organic
products) and Engineered Polymers (silicone products). The BurkeMercer division
produces and distributes rubber and vinyl wall base, other floor covering
accessory products, flexible membranes and other organic rubber products. The
Engineered Polymers division produces and distributes precision silicone seals
and other products used on commercial and military aircraft as well as high
performance silicone truck and bus engine hoses and other silicone rubber
products.
6
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
BurkeMercer Engineered Polymers Total
---------------- -------------------------- ------------
(Amounts in Thousands)
<S> <C> <C> <C>
THREE MONTH PERIOD ENDED SEPTEMBER 29, 2000
Revenues from external customers............ $16,677 $9,964 $26,641
Segment profit (loss)....................... 2,788 (515) 2,273
THREE MONTH PERIOD ENDED OCTOBER 1, 1999
Revenues from external customers............ $17,499 $9,334 $26,833
Segment profit (loss)....................... 3,407 (527) 2,880
NINE MONTH PERIOD ENDED SEPTEMBER 29, 2000
Revenues from external customers............ $48,005 $33,487 $81,492
Segment profit.............................. 8,074 1,911 9,985
NINE MONTH PERIOD ENDED OCTOBER 1, 1999
Revenues from external customers............ $48,657 $35,237 $83,894
Segment profit.............................. 8,992 2,310 11,302
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD FOR THE NINE MONTH PERIOD
ENDED ENDED
SEPT. 29, 2000 OCT. 1, 1999 SEPT. 29, 2000 OCT. 1, 1999
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
PROFIT
Total profit for reportable segments $2,273 $2,880 $9,985 $11,302
Unallocated items:
Corporate general and administrative expenses 1,514 602 3,552 1,336
Amortization of goodwill related to the
Mercer acquisition 504 504 1,513 1,513
Interest expense, net 3,674 3,600 11,612 11,136
----------------- --------------- ----------------- ------------------
Loss before income taxes ($3,419) ($1,826) ($6,692) ($2,683)
================= =============== ================= ==================
</TABLE>
4. BANK CREDIT FACILITY
The Company's Credit Facility contains various financial covenants.
At September 29, 2000, the Company was not in compliance with certain of
these covenants and the Company has an outstanding balance under the Credit
Facility of $8.7 million. The Company obtained a waiver from the bank for
violation of the covenants and the covenants have been amended for future
periods.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
Company's Unaudited Condensed Consolidated Financial Statements and Notes
thereto included elsewhere in this Quarterly Report on Form 10-Q.
This Report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. The words
"anticipates," "believes," "estimates," "expects," "plans," "intends," and
similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company, with respect to future events and are subject to
certain risks, uncertainties and assumptions, that could cause actual results to
differ materially from those expressed in any forward-looking statement,
including, without limitation: competition from other manufacturers in the
Company's aerospace, flooring or commercial product lines, loss of key
employees, general economic conditions and adverse factors impacting the
aerospace industry such as changes in government procurement policies. Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements.
RESULTS OF OPERATIONS
The Company operates within one industry segment, elastomer products,
and is organized into two business segments: BurkeMercer and Engineered
Polymers. The Company's products are organized into three product groups:
Aerospace and Defense Products, which produces precision silicone seals and
other products used on commercial and military aircraft; Flooring Products,
which produces and distributes rubber and vinyl cove base and other floor
covering accessory products; and Commercial Products, which produces various
intermediate and finished silicone and organic rubber products.
The following table sets forth certain income statement information for
the Company for the three month period ended September 29, 2000 compared to the
three month period ended October 1, 1999:
<TABLE>
<CAPTION>
FISCAL THIRD QUARTER
---------------------------------------------------------------------
PERCENTAGE PERCENTAGE
2000 OF NET SALES 1999 OF NET SALES
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Aerospace and Defense Products......... $5,859 22.0% $5,223 19.5%
Flooring Products...................... 12,496 46.9% 12,709 47.4%
Commercial Products.................... 8,286 31.1% 8,901 33.1%
------------------------------ -------------------------------
Net sales....... ........................... 26,641 100.0% 26,833 100.0%
Cost of sales... ........................... 19,561 73.4% 19,918 74.2%
------------------------------ -------------------------------
Gross profit.... ........................... 7,080 26.6% 6,915 25.8%
Selling, general and
administrative expenses................... 6,321 23.7% 4,637 17.3%
Amortization of goodwill.................... 504 1.9% 504 1.9%
------------------------------ -------------------------------
Income from operations...................... 255 1.0% 1,774 6.6%
Interest expense............................ 3,674 13.8% 3,600 13.4%
------------------------------ -------------------------------
Loss before income tax benefit.............. (3,419) -12.8% (1,826) -6.8%
Income tax benefit.......................... (144) 0.5% --- 0.0%
------------------------------ -------------------------------
Net income (loss)........................... ($3,275) -12.3% ($1,826) -6.8%
============================== ===============================
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
FISCAL NINE MONTHS
---------------------------------------------------------------------
PERCENTAGE PERCENTAGE
2000 OF NET SALES 1999 OF NET SALES
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Aerospace and Defense Products......... $20,054 24.6% $22,149 26.4%
Flooring Products...................... 35,956 44.1% 35,854 42.7%
Commercial Products.................... 25,482 31.3% 25,891 30.9%
------------------------------ -------------------------------
Net sales....... ........................... 81,492 100.0% 83,894 100.0%
Cost of sales... ........................... 58,416 71.7% 60,593 72.2%
------------------------------ -------------------------------
Gross profit.... ........................... 23,076 28.3% 23,301 27.8%
Selling, general and
administrative expenses................... 16,643 20.4% 13,335 15.9%
Amortization of goodwill.................... 1,513 1.9% 1,513 1.8%
------------------------------ -------------------------------
Income from operations...................... 4,920 6.0% 8,453 10.1%
Interest expense............................ 11,612 14.3% 11,136 13.3%
------------------------------ -------------------------------
Loss before income tax benefit.............. (6,692) -8.3% (2,683) -3.2%
Income tax benefit.......................... (144) 0.2% (342) 0.4%
------------------------------ -------------------------------
Net income (loss).......................... ($6,548) -8.0% ($2,341) -2.8%
============================== ===============================
</TABLE>
COMPARISON OF THE THREE-MONTH PERIOD ENDED SEPTEMBER 29, 2000 VERSUS THE
THREE-MONTH PERIOD ENDED OCTOBER 1, 1999.
NET SALES. Total net sales decreased 0.7%, from $26.8 million for the
three-month period ended October 1, 1999 to $26.6 million for the same period in
2000. Aerospace and Defense Products sales increased 12.2% from $5.2 million for
the three-month period ended October 1, 1999 to $5.9 million for the same period
in 2000, due to an increase in demand for commercial and military products
during the third quarter. Flooring Products net sales decreased 1.7% from $12.7
million for the three-month period ended October 1, 1999 to $12.5 million for
the same period in 2000, due to lower demand for rubber flooring and cove base
products. Commercial Products sales decreased 6.9%, from $8.9 million for the
three-month period ended October 1, 1999 to $8.3 million for the same period in
2000. The decrease in sales as compared to the prior year was primarily due to
lower demand for commercial rubber specialty products.
COST OF SALES. Cost of sales decreased 1.8%, from $19.9 million for the
three-month period ended October 1, 1999 to $19.6 million for the same period in
2000. The decrease in cost of sales was primarily due to the reduction in sales
and decreased manufacturing expenses, offset by a $0.4 million warranty
provision for potential product quality issues on a defense program. As a
percentage of net sales, gross profit increased from 25.8% for the three-month
period ended October 1, 1999 to 26.6% for the same period in 2000 due to the
reduction in manufacturing expenses and improved average sales prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 36.3%, from $4.6 million for the three-month
period ended October 1, 1999 to $6.3 million for the same period in 2000. As a
percentage of net sales, selling, general and administrative expenses increased
from 17.3% for the three-month period ended October 1, 1999 to 23.7% for the
same period in 2000. The increase in expenses was due to increased shipping and
warehousing costs in the Flooring
9
<PAGE>
Products segment, expenses associated with a corporate initiative to improve
the performance of the Company's information technology system, professional
fees incurred for a study to identify state tax credits available to the
Company, and costs related to management changes within the Company during
the third quarter.
AMORTIZATION OF GOODWILL. Amortization of goodwill was $0.5 million for
the three-month period ended September 29, 2000, which was unchanged from the
same period in 1999.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations decreased from $1.8 million for the three-month period ended October
1, 1999 to $0.2 million for the same period in 2000.
INTEREST EXPENSE. Interest expense increased slightly from $3.6 million
for the three-month period ended October 1, 1999 to $3.7 million for the same
period in 2000. The increase is due to the Company's use of its Credit Facility
during the quarter.
INCOME TAX PROVISION (BENEFIT). The Company has filed for a tax refund
of $144,000 from the state of California as a result of the Company's San Jose
production facility being located within an enterprise zone. In addition to the
refunds currently available to the Company, the Company has additional tax
credit carry-forwards totaling $1.0 million, which may be available to offset
future tax obligations.
NET LOSS. As a result of the above factors, net loss increased from
$1.8 million for the three-month period ended October 1, 1999 to a loss of $3.3
million for the same period in 2000.
COMPARISON OF THE NINE-MONTH PERIOD ENDED SEPTEMBER 29, 2000 VERSUS THE
NINE-MONTH PERIOD ENDED OCTOBER 1, 1999.
NET SALES. Total net sales decreased 2.9%, from $83.9 million for the
nine-month period ended October 1, 1999 to $81.5 million for the same period in
2000. Aerospace and Defense Products sales decreased 9.5%, from $22.1 million
for the nine-month period ended October 1, 1999 to $20.0 million for the same
period in 2000. Demand for commercial and military products during the first six
months of the year was lower than the same period in the prior year. However,
the backlog of Aerospace and Defense Products has increased 8.8% during the year
to $14.7 million at September 29, 2000 compared to $13.5 million at December 31,
1999. Flooring Products net sales increased 0.3%, from $35.9 million for the
nine-month period ended October 1, 1999 to $36.0 million for the same period in
2000, due to marginally higher demand for vinyl flooring and cove base products.
Commercial Products sales decreased 1.6%, from $25.9 million for the nine-month
period ended October 1, 1999 to $25.5 million for the same period in 2000. The
decrease in sales as compared to the prior year was primarily due to lower
demand for the Company's commercial rubber specialty products, offset somewhat
by slightly higher demand for its commercial silicone products.
COST OF SALES. Cost of sales decreased 3.6%, from $60.6 million for the
nine-month period ended October 1, 1999 to $58.4 million for the same period in
2000, due primarily to the decrease in net sales and reductions in manufacturing
expenses. As a percentage of net sales, gross profit increased from 27.8% for
the nine-month period ended October 1, 1999 to 28.3% for the same period in 2000
due to an improved sales mix, improved average sales prices and decreased
manufacturing expenses in the nine month period.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 24.8%, from $13.3 million for the nine-month
period ended October 1, 1999 to $16.6 million for the same period in 2000. As a
percentage of net sales, selling, general and administrative expenses increased
from 15.9% for the nine-month period ended October 1, 1999 to 20.4% for the same
period in 2000. The increase in expenses was due to increased shipping and
warehousing costs in the Flooring Products segment, costs associated with
several management changes within the Company this year, and a corporate
initiative to improve the performance of the Company's information technology
system.
AMORTIZATION OF GOODWILL. Amortization of goodwill was $1.5 million for
the nine-month period ended September 29, 2000, which was unchanged from the
same period in 1999.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations decreased 41.8%, from $8.5 million for the nine-month period ended
October 1, 1999 to $4.9 million for the same period in 2000.
INTEREST EXPENSE. Interest expense increased from $11.1 million for the
nine-month period ended October 1, 1999 to $11.6 million for the same period in
2000. The increase is due to the debt service associated with the Company's use
of its Credit Facility during the year, and the interest expense associated with
the capital lease for the Company's new computer system, which was entered into
in March of 1999.
INCOME TAX BENEFIT. The Company has filed for a tax refund of $144,000
from the state of California as a result of the Company's San Jose production
facility being located within an enterprise zone. In addition to the refunds
currently available to the Company, the Company has additional tax credit
carry-forwards totaling $1.0 million, which may be available to offset future
tax obligations.
NET LOSS. As a result of the above factors, net loss increased from
$2.3 million for the nine-month period ended October 1, 1999 to a loss of $6.5
million for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW. The Company's principal uses of cash are to finance working
capital, capital expenditures for property, plant and equipment, internal growth
and debt service.
CAPITAL REQUIREMENTS. The Company expects to spend approximately $1.6
million during 2000 on capital expenditures not directly related to
acquisitions. Cash flow from operations, to the extent available, may also be
used to fund a portion of any acquisition expenditures. The Company anticipates
that its principal use of cash during 2000 will be working capital requirements,
capital expenditures and debt service requirements. Based upon current and
anticipated levels of operations, the Company believes that its cash flow from
operations, together with amounts available under the Credit Facility (described
below), will be adequate to meet its anticipated requirements for the
foreseeable future for working capital, capital expenditures and interest
payments.
SOURCES OF CAPITAL. Under a Loan and Security Agreement with
NationsBank, N.A., as administrative agent, and other lending institutions
party thereto, the Company has a borrowing capacity of $20.0 million (the
"Credit Facility"). The Credit Facility matures in August 2002. Interest on
loans under the Credit Facility bear interest at rates based upon either, at
the Company's options, Eurodollar Rates plus a margin of 3.0% or upon the
Prime Rate plus a margin of 0.5%. Loans under the Credit Facility are secured
by security interests in substantially all of the assets of the Company and
are guaranteed by any and all current or future subsidiaries of the Company,
which guarantees are secured by substantially all of the assets of such
subsidiaries. The Credit Facility contains customary covenants restricting
the Company's
11
<PAGE>
ability to, among other things, incur additional indebtedness, create liens
or other encumbrances, pay dividends or make other restricted payments, make
investments, loans and guarantees or sell or otherwise dispose of a
substantial portion of assets to, or merge or consolidate with, another
entity. The Credit Facility also contains a number of financial covenants
that will require the Company to meet certain ratios and tests and provide
that a change of control of the Company (as defined in the Credit Facility)
will constitute an event of default.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As reported by the Company in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, the Company is exposed to market risks
related to fluctuations in interest rates on its Senior and Floating-Rate Notes.
The Company does not currently use interest rate swaps or other types of
derivative financial instruments.
Management does not believe that the future market rate risk related to
the Senior Notes and Floating-Rate Notes will have a material impact on the
Company's financial position, results of operations or liquidity.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of
the Company (1)
3.2 By-laws of the Company (1)
27 Financial Data Schedule
----------------------------
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4, File No. 333-36675, as filed with the
Securities and Exchange Commission on September 29, 1997, as
amended.
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the nine months
ended September 29, 2000.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Santa Fe Springs, State of California on the 20th day of
November, 2000.
BURKE INDUSTRIES, INC.
By: /s/ STEPHEN G. GEANE
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Stephen G. Geane
Chief Financial Officer
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