UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1994
Commission File No. 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter.)
State or other juristdiction 56-0506342
of incorporation or (I.R.S. Employer Identification No.)
organization: North Carolina
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 704 874-2261
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value (Stated Value of $0.66 Per Share)
(Title of Class)
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 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 [ ]
Indicate by check mark if a disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant (computed by reference to the average
<PAGE>
bid and asked price as of February 16, 1995) was $6,001,157.
The number of shares outstanding of the registrant's only
class of common stock as of March 1, 1995 is 2,741,168 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement of the registrant to be sent
to security holders of the registrant prior to the annual meeting
of shareholders to be held May 16, 1995 are incorporated by
reference in Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. The general
development of the business of Burke Mills, Inc. ("the company")
during the fiscal year ended December 31, 1994 was marked by the
efforts of the Company to concentrate on maintaining its existing
products and its existing markets. The Company continued its
efforts to operate as efficiently and cost-effectively as possible
while maintaining product quality.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The
Company had only one industry segment during the fiscal year ended
December 31, 1994.
(c) NARRATIVE DESCRIPTION OF BUSINESS. The Company is
engaged in twisting, texturing, winding, dyeing and processing and
selling of filament, novelty and spun yarns and in the dyeing and
processing of these yarns on a commission basis.
The principal market served by the Company are upholstery,
apparel and industrial uses through the knitting and weaving
industry.
The Company's products are sold in highly competitive markets
primarily throughout the United States. Competition in the
Company's products is on the basis of combination of price, service
and product quality. Many of the Company's competitors are
divisions or segments of larger, diversified firms with greater
financial resources than those of the Company.
The methods of distributions of the Company's products consist
of the efforts of the Company's sales force which makes contact
with existing and prospective customers. The Company markets its
products throughout the United States, with the bulk of business
being primarily in the eastern United States, through two salesmen
employed directly by the Company on salary and a number of
commissioned sales agents working on various accounts.
The dollar amount of backlog of unshipped orders as of
December 31, 1994 was $3,907,000 and as of January 1, 1994 was
$3,213,000. Generally, all orders in backlog at the end of a year
are shipped the following year. The backlog has been calculated by
the Company's normal practice of including orders which are
deliverable over various periods and which may be changed or
cancelled in the future.
The most important raw materials used by the Company are
unprocessed raw yarn, dyes and chemicals. The Company believes
<PAGE>
that its sources of supply for these materials are adequate for its
needs and that it is not substantially dependent upon any one
supplier.
With respect to the practices of the Company relating to
working capital items, the Company generally carries enough
inventory for approximately 53 days. On the average, the Company
turns its inventory approximately 5 to 7 times each year. The
Company has been able to meet its delivery schedules and has been
able to enjoy a ready supply of raw materials from suppliers. In
the fiscal year ended December 31, 1994, approximately 16.5% of the
Company's sales was from dyeing and processing of yarn for
customers who supplied the yarn. The Company does not allow
customers the right to return merchandise except where the
merchandise is defective. The Company rarely allows payment terms
to its customer beyond sixty (60) days, and the Company has
experienced no significant problems in collecting its accounts
receivable. The Company believes that industry practices are very
similar to that of the Company in regard to these matters.
The Company sells a substantial portion of its accounts
receivable to a commercial factor so that the factor assumes the
credit risk for these accounts and effects the collection of these
accounts. The Company has the right to borrow from the factor up
to ninety percent (90%) of the face amount of each account sold to
the factor. The Company believes that many companies in the
industry factor their receivables in the same or similar fashion.
Substantially all of the Company's manufacturing operations
are run by electrical energy purchased from local utility companies
and its premises are heated with oil and gas. The Company has not
experienced any shortages in electricity, oil or gas during the
fiscal year. The Company has made no arrangements for alternate
sources of energy. While energy related difficulties are not
expected to prevent the Company from achieving desired production
levels, energy shortages of extended duration could have an adverse
impact on the Company's operations.
The Company has established a recycling program for its major
waste items: yarn, cardboard, plastic tubes and cleaning fluid.
The Company's efforts in recycling earned the 1989 North Carolina
Small Business Recycling Award.
The Company has made various changes in its plant that
regulate the discharge of materials into the environment. The
Company believes it is in compliance with all presently applicable
federal, state and local legislative and administrative regulations
concerning environmental protection; and, although it cannot
predict the effect that future changes in such regulations may
have, particularly as such changes may require capital expenditures
<PAGE>
or affect earnings, it does not believe that any competitor subject
to the same or similar regulations will gain any significant and
competitive advantages as a result of any such changes. Compliance
by the Company during the fiscal year ended December 31, 1994 with
federal, state and local environmental protection laws had no
material effect on capital expenditures, earnings or the
competitive position of the Company.
On February 16, 1995, the Company had 356 employees.
The Company's yarn division is its only division.
During the fiscal year ended December 31, 1994, sales to Chatham
Manufacturing Company and sales to Milliken Textile Company exceeded ten
percent of the Company's revenue for that year. The loss of either customer
would have a material adverse effect on the Company in the short run; and,
the Company believes that it would be able to replace the business within a
reasonable time.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES. The Company had no material amounts
of sales in foreign markets during the last three fiscal years.
The Company had sales to customers in Mexico during the fiscal
years ended January 2, 1993 and January 1, 1994, which amounted to less than
one percent of its total sales in each year. The Company had sales to
customers in Mexico (2.6% of sales) and Canada (1% of sales) during the
fiscal year ended December 31, 1994.
ITEM 2. PROPERTIES
The executive offices and manufacturing plant of the Company
are located at Valdese, North Carolina, which is 75 miles northwest
of Charlotte, North Carolina, and 60 miles east of Asheville, North
Carolina. The main plant and executive offices are located on a sixteen
acre tract of land owned by the Company. Eleven acres of this
tract are encumbered by a first priority lien deed of trust held by
First Union National Bank of North Carolina. The main plant
building currently used by the Company contains approximately
308,928 square feet. The Company also owns an auxiliary building
containing 36,600 square feet located adjacent to its main plant.
This latter building is currently used for warehousing yarn.
The plant buildings are steel and brick structures protected
by automatic sprinkler systems. The various departments, with the exception
of the production dyehouse, are heated, cooled and humidified.
<PAGE>
The Company considers all its properties and manufacturing
equipment to be in a good state of repair, well maintained and
adequate for its present needs.
The Company utilizes substantially all of the space in its
main plant for its offices, machinery and equipment, storage and
shipping and receiving areas. The Company utilizes about half of the
space in the auxiliary building and plans to utilize all of this building
for warehouse and distribution purposes in the near future.
The approximate maximum capacity in pounds per year of the
Company's machinery and equipment, based upon operating the
machinery and equipment seven (7) days per week fifty (50) weeks
per year, and the approximate percentage of utilization thereof
during the fiscal year ended December 31, 1994 are as follows:
Pounds/Year 1994
Department Capacity Utilization
Twisting Machines 2,500,000 63%
Winding Machines 20,000,000 67%
Texturing Machines 4,835,000 77%
Dyeing Equipment 14,600,000 81%
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party and its property is not subject to
any material pending legal proceedings other than ordinary routine
litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The principal United States (or other) market on which
the Company's common stock is being traded is the United States
over-the-counter market. The range of high and low bid quotations
<PAGE>
for the Company's common stock for each quarterly period during the
past two year period ending December 31, 1994 (as obtained from the
office of the National Association of Securities Dealers in New
York, New York) is as follows:
Quarter Ending High Bid Low Bid
-------------- -------- -------
1993
March 31 $1.00 $0.9375
June 30 $1.625 $1.25
September 30 $1.50 $1.375
December 31 $1.375 $1.25
1994
March 31 $1.25 $1.125
June 30 $2.625 $1.125
September 30 $7.00 $2.50
December 31 $6.50 $3.75
Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
(b) As of February 21, 1995 there were 558 holders of the
common stock of the Company.
(c) The Company has declared no dividends on its common stock
during the past two years.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth on the following page,
for the five years ended December 31, 1994 have been derived from the
audited financial statements of the Company. The data should be
read in conjuction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited
financial statements and related notes thereto and other financial
information included therein.
<PAGE>
<TABLE>
BURKE MILLS, INC. - ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data)
<CAPTION>
Year Ended
December 31, January 1, January 2, December 28, December 29,
1994 1994 1993 1991 1990
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA
Net sales $36,194 $26,835 $22,072 $19,784 $20,452
Cost of sales 30,928 24,292 19,861 17,837 19,627
---------- ---------- ---------- ------------ ------------
Gross profit 5,266 2,543 2,211 1,947 825
---------- ---------- ---------- ------------ ------------
Income (loss) before
income taxes 3,376 690 620 172 ( 801)
Income taxes 867 316 211 63
--------- ---------- ---------- ------------ ------------
Net Income (Loss) $ 2,509 $ 374 $ 409 $ 109 ($ 801)
========= ========== ========== ============ ============
Per Share (Note A)
Net Income (Loss) $ .92 $ .14 $ .15 $ .04 ($ .29)
Cash dividends declared
per common share None None None None None
Weighted average number of
common shares outstanding 2,741 2,741 2,741 2,741 2,741
SELECTED CASH FLOW DATA
Capital expenditures $ 1,541 $ 1,374 $ 1,257 $ 278 $ 1,051
Depreciation $ 1,006 $ 903 $ 849 $ 837 $ 797
Cash provided (used) by
operating activities $ 2,186 $ 985 $ 3,219 $ 314 ($ 817)
</TABLE>
<TABLE>
<CAPTION>
December 31, January 1, January 2, December 28, December 29,
1994 1994 1993 1991 1990
------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Current assets $ 8,814 $ 7,382 $ 6,082 $ 5,679 $ 5,215
Current liabilities 2,944 2,923 2,173 1,334 1,169
------------ ---------- ---------- ------------ ------------
Working capital $ 5,870 $ 4,459 $ 3,909 $ 4,345 $ 4,046
============ ========== ========== ============ ============
Current ratio 2.99 2.53 2.80 4.26 4.46
Total assets $16,621 $14,655 $13,086 $12,123 $12,353
Long-term debt $ 995 $ 1,645 $ 1,765 $ 2,249 $ 2,817
Deferred income taxes $ 1,399 $ 1,312 $ 748 $ 548 $ 485
Shareholders' equity $11,284 $ 8,775 $ 8,401 $ 7,992 $ 7,883
</TABLE>
(A) Income per share has been computed based on the weighted average number
of common outstanding during each period.
<PAGE>
ITEM 7. BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth selected operating data of the Company as
percentages of net sales for the periods indicated.
<TABLE>
Relationship to Total Revenue
For the Year Ended Period to Period
------------------------------------ ---------------------
<CAPTION>
December 31, January 1, January 2, Increase (Decrease)
1994 1994 1993 1993-1994 1992-1993
----------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 34.9% 21.6%
Cost of sales 85.5 90.5 90.0 27.3 22.3
----------- --------- ---------- --------- ---------
Gross profit margin 14.5 9.5 10.0 107.0 15.0
Selling, general, administrative
and factoring expenses 5.0 5.8 6.6 18.0 6.6
----------- --------- ---------- --------- ---------
Operating earnings 9.5 3.7 3.4 246.8 31.3
Other income 0.3 0.3 0.4 36.2 ( 5.1)
Other expenses ( 0.5) ( 1.4) ( 1.0) ( 57.6) 75.9
----------- --------- ---------- --------- ---------
Income before income taxes 9.3 2.6 2.8 389.1 11.4
Income taxes 2.4 1.2 0.9 174.3 49.7
----------- --------- ---------- --------- ---------
Net income 6.9% 1.4% 1.9% 570.5% ( 8.4%)
=========== ========= ========== ========= =========
</TABLE>
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
---------------------
1994 Compared to 1993
---------------------
Net Sales
---------
Net Sales for the 1994 year aggregated $36,193,757, representing an
increase of $9,359,110, or 34.9%, as compared to net sales volume of
$26,834,647 recorded by the Company for 1993. Although net sales increased
by 34.9%, total pounds shipped increased by only 30.4%. This is explained
below by the increase in sales mix to a greater portion of full yarn sales.
Full yarn sales dollars increased by 37.8% with a corresponding increase
in full yarn pounds of 42.1%. Sales from commission yarn sales (the
dyeing and processing of customer owned yarns) increased by 22.4% while
commission pounds shipped increased by 10.0%.
The increase in sales to existing customers, to a new customer
who represented 12.9% of the Company's sales and a change in the sales mix
to a greater portion of full yarn sales are the factors responsible for the
increase in 1994 sales over those of 1993.
Cost of Sales and Gross Margin
------------------------------
Cost of sales which aggregated $30,928,103 for 1994 increased by
$6,636,802, or 27.3%.
Material cost increased by $5,294,379, or 38.9%, as compared to 1993.
The major reason material cost increased by 38.9%, while net sales increased
by 34.9%, was a change in sales mix to a greater portion of full yarn sales.
Mill labor increased by $1,063,267, or 18.0%, as compared to 1993.
The major reasons mill labor increased were a 4.8% wage increase that began
in January 1994 and an increase in pounds shipped of 30.4%.
Manufacturing overhead only increased by $279,156, or 5.8%, as
compared to 1993, representing a tight control on fixed and variable
manufacturing costs.
Inasmuch as sales for 1994, as compared to 1993, increased by 34.9%
while cost of sales increased by 27.3%, the 1994 gross profit margin
increased to 14.5%, as compared to 9.5% in 1993.
<PAGE>
Results of Operations (Continued)
---------------------
1994 Compared to 1993
---------------------
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1994 aggregated
$1,597,829, or 4.4%, of net sales, as compared to $1,378,717, or 5.1%, of
net sales in 1993.
Factor's Charges
----------------
Factor's charges for 1994 aggregated $235,253, or .65%, of net
sales as compared to $174,797, representing a like .65%, of net sales in
1993. The ratio of sales made to factored accounts versus nonfactored
accounts for 1994 remained approximately the same as 1993.
Operating Margins
-----------------
As a result of the discussion above with respect to the 1994 increase
in net sales and gross profit percentage, together with the decrease in the
percentage to net sales of selling, general and administrative expenses, the
Company reported operating earnings of $3,432,572, compared to operating
earnings of $989,832 in 1993.
Interest Income
---------------
Interest income for 1994 was $84,306 as compared to $51,464 in 1993.
The interest income was primarily interest earned from matured funds held
by the Company's factor and funds held in a money market account with the
Company's bank.
Sundry Other Income
-------------------
Sundry other income decreased to $5,919, as compared to $23,380 in
1993. The decrease of $17,461 was primarily due to refunds received in 1993
of property taxes for the years 1991 and 1990.
Interest Expense
----------------
Interest expense for the year ended December 31, 1994 decreased to
$158,669 as compared to $179,588 in 1993. Interest expense for 1994 and 1993
resulted from interest on the Company's long-term debt. The reduction results
primarily from the decrease in long-term debt as a result of required monthly
payments. The interest rate on the principal amount of such debt varies with
increases or decreases in the prime rate.
<PAGE>
Results of Operations (Continued)
---------------------
1994 Compared to 1993
---------------------
Gain/Loss on Sale and Disposal of Property Assets
-------------------------------------------------
The gain on sale of property assets in 1994 resulted from sale of
fully depreciated property assets. For 1993, the loss on disposal of
property assets of $194,863 resulted from a gain of $1,800 on equipment sold,
a loss of $64,728 on assets abandoned and a loss of $131,935 on assets no
longer existence determined as a result of a physical inventory of property
assets. In the opinion of management most of the machines which could not be
located in 1993, during the physical inventory of property assets, were used
for replacement of broken or worn-out parts of other machines which are still
in use.
Income before Provision for Income Taxes
----------------------------------------
Income before provision for income taxes for 1994 was $3,375,808, as
compared to $690,225 for 1993. The 1994 increase of $2,685,583 was the result
of a sharp increase in operating earnings, as discussed above, and a small
gain on sale of property assets compared with an approximate loss of $195,000
on disposal of property assets in 1993.
Provision for Income Taxes
--------------------------
Provision for income taxes for the year ended December 31, 1994, was
impacted by the 1994 reduction in the valuation allowance on deferred tax
assets provided in the 1993 fiscal year. The following represents an analysis
of tax provision for the 1994 year:
Federal income taxes $1,057,900
State income taxes 264,300
----------
$1,322,200
Less: Overaccrual of 1993
valuation allowance on
deferred tax assets 455,400
----------
Provision for income taxes $ 866,800
==========
The provision of $1,322,200 would represent a provision of 39.2%. As
a result of the overaccrual of the valuation allowance on deferred tax assets
in 1993, the provision for 1994 has been decreased to 25.7%, an amount and
percentage which will not recur in succeeding years.
<PAGE>
Results of Operations (Continued)
---------------------
1993 Compared to 1992
---------------------
Net Sales
---------
Net Sales for the 1993 year aggregated $26,834,647, representing an
increase of $4,762,545, or 21.6%, as compared to net sales volume of
$22,072,102 recorded by the Company for 1992. Although net sales increased
by 21.6%, total pounds shipped increased by only 14.7%. This is explained
below by the shift in sales mix to a greater portion of full yarn sales.
Full yarn sales dollars increased by 32.8% with a corresponding increase
in full yarn pounds of 34.8%. Sales from commission yarn sales (the
dyeing and processing of customer owned yarns) decreased by 11.7% with
commission pounds shipped decreasing by 8.8%.
Approximately 48.0% of the increase in sales is attributed to sales
to new customers, while approximately 52.0% of the sales increase was from
existing customers. The Company believes that the improvement in the
economy was a factor in the increase in sales.
Cost of Sales and Gross Margin
------------------------------
Cost of sales which aggregated $24,291,301 for 1993 increased by
$4,430,040, or 22.3%.
Material cost increased by $3,404,619, or 33.4%, as compared to 1992.
The major reason material cost increased by 33.4%, while net sales increased
by 21.6%, was a change in sales mix. Full yarn sales increased while
commission yarn sales decreased, as discussed above.
Mill labor increased by $610,705, or 11.5%, as compared to 1992. The
major reasons mill labor increased were a 5.1% wage increase that began on
January 4, 1993 and an increase in pounds shipped of 14.7%.
Manufacturing overhead increased by $414,716, or 9.5%, as compared
to 1992. The major accounts contributing to the increase in manufacturing
overhead were repairs to equipment and buildings by $201,823, or 39.3%,
utilities by $316,185, or 21.3%, professional services by $56,562, or
126.1%, and depreciation by $54,319, or 6.4%. The cost of these accounts
aggregated $628,889, and all other accounts aggregated a net decrease in
cost of $214,173.
Inasmuch as sales for 1993, as compared to 1992, increased by 21.6%
and cost of sales increased by 22.3%, the gross profit margin decreased to
9.5%, as compared to 10.0% in 1992.
<PAGE>
Results of Operations (Continued)
---------------------
1993 Compared to 1992
---------------------
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses for 1993 aggregated
$1,378,717, or 5.1%, of net sales, as compared to $1,314,132, or 6.0%, of
net sales in 1992. The major contributors to the increase were salaries,
commissions, auditing and attorney fees.
Factor's Charges
----------------
Factor's charges for 1993 aggregated $174,797, or .65%, of net
sales as compared to $143,033, representing a like .65%, of net sales in
1992. The ratio of sales made to factored accounts versus nonfactored
accounts for 1993 remained approximately the same as 1992.
Operating Margins
-----------------
As a result of the discussion above with respect to the increase in
net sales, the decrease in gross profit percentage and a decrease in the
percentage to net sales of selling, general and administrative expenses, the
Company reported operating earnings of $989,832, compared to operating
earnings of $753,676 in 1992.
Interest Income
---------------
Interest income for 1993 was $51,464 as compared to $74,294 in 1992.
The interest income was primarily interest earned from matured funds held
by the Company's factor and funds held in a money market account with the
Company's bank. Interest income decreased in 1993 by $22,830 primarily due
to lower average cash and equivalents available for investment.
Sundry Other Income
-------------------
Sundry other income increased to $23,380, as compared to $4,563 in
1992. The increase of $18,817 was primarily due to refunds received in 1993
of property taxes for the years 1991 and 1990.
Interest Expense
----------------
Interest expense in 1993 increased to $179,588 as compared to
$174,132 in 1992. Interest expense represents interest paid on the Company's
long-term mortgage notes. The increase of $5,456 in interest expense was
primarily due to a larger average balance of long-term debt. Interest
expense began increasing in the second quarter of 1993 due to an increase
in long-term debt on March 23, 1993 of $900,000.
<PAGE>
Results of Operations (Continued)
---------------------
1993 Compared to 1992
---------------------
Loss on Sale and Disposal of Property Assets
--------------------------------------------
Losses on disposal of property assets of $194,863 resulted from a
gain of $1,800 on equipment sold, a loss of $64,728 on assets abandoned and
a loss of $131,935 on assets no longer in existence determined as a result
of a physical inventory of property assets. In the opinion of management most
of the machines which could not be located during the physical inventory of
property assets were used for replacement of broken or worn-out parts of
other machines which are still in use.
Income before Provision for Income Taxes
----------------------------------------
Income before provision for income taxes for 1993 was $690,225, as
compared to $619,699 for 1992. The increase of $70,526 was the result of an
increase in operating earnings, as discussed above, partially offset by
increases in interest expense, loss on disposal of assets and a decrease in
interest income.
Provision for Income Taxes
--------------------------
For the year ended January 1, 1994, the Company made provision for
income taxes of $316,000 based on the pre-tax income of $690,225,
representing an effective rate of tax of 45.8%. This percentage includes a
9.6% increase resulting from the non-deductibility of the loss on disposal
of property assets of $194,863. This loss was not deductible because the
assets were fully depreciated for tax purposes.
Effective January 3, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability method
required by FASB Statement No. 109, "Accounting for Income Taxes". Under
this method, deferred tax assets and liabilities are recognized based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws.
Prior to the adoption of Statement 109, income tax expense was determined
using the deferred method. Deferred tax expense was based on items of income
and expense that were reported in different years in the financial statements
and tax returns and were measured at the tax rate in effect in the year the
differences originated.
The Company did not restate prior period financial statements
because the effects of adopting Statement No. 109 on operations and cash
flows were not material.
<PAGE>
Results of Operations (Continued)
---------------------
Other Matters
-------------
The Company experienced continued strong demand for its products
during 1994 resulting in revenues increasing by 34.9 percent for 1994. Key
factors contributing were increased demand for package dyed yarns,
continuation of a strong economy during the year, and the Company's marketing
efforts focused on the home and automotive upholstery markets. The Company
ended the year with a backlog of $3.9 million.
The Company's major raw materials are yarns, dyes and chemicals.
During 1994, the Company experienced a continuation of price increases
experienced in the previous three years. The increases, as a general rule,
range between 3% - 5%. However, during the fourth quarter of 1994 and
continuing into early 1995, the Company experienced, or received notification
of, additional price increases in all categories of materials. The Company
has historically passed raw material increases through to its customers and
its intentions are to continue this policy.
The continuation in 1994 of low unemployment in the immediate labor
market and surrounding areas has caused the Company difficulties in
maintaining a stable workforce. As a result, the Company experienced above
average turnover in key manufacturing areas impacting both productivity and
training cost.
Capital expenditures in 1994 for plant and equipment totaled $1.5
million with plans for an additional $5.0 million in 1995. These capital
outlays are a continuation of the Company's strategy for continued infusion
of state of the art technology. This technology further enhances the
Company's ability for providing a high quality product with reduced lead
times, competitively priced with existing market conditions.
The Company remains cautiously optimistic about 1995. The impact of
interest rate increases in 1994 affects the Company's key markets and could
adversely impact the Company's ability to increase market share in a very
competitive industry. However, beyond 1995 the Company believes its strategy
should provide above average growth potential, not only in the United States
but also in emerging economies around the world.
Inflation
---------
In spite of the raw material price increases in 1993 and 1994,
continuing into early 1995, the Company does not believe that operations for
the periods discussed have been significantly affected by inflation, because
of its ability to pass on to customers such increases. Further, the Company's
performance in maintaining control over elements of overhead have enabled it
to remain competitive with its competition.
<PAGE>
Results of Operations (Continued)
---------------------
1994 - 1992 Sales Analysts
--------------------------
The table below sets forth an analysis of sales volume for the three
year period 1992 to 1994, inclusive. The table discloses that full yarn sales
prices decreased from $3.67 per pound in 1992 to $3.64 in 1993 and $3.58 in
1994. Unit prices for commission sales decreased in 1993 to $1.43 from $1.48
on such sales in 1992, but increased in 1994 to $1.60 from $1.43 in 1993.
Lower prices on full yarn sales resulted from the change in sales mix to less
value-added yarns.
% of Sales $
% of Pounds of Per
Net Sales Yarn Sold Pound
--------- --------- -------
1994:
Yarn Sales 83% 69% $3.58
Commission Sales 17 31 1.60
---- ---- -----
Total 100% 100%
---- ----
1993:
Yarn Sales 82% 64% $3.64
Commission Sales 18 36 1.43
---- ---- -----
Total 100% 100%
---- ----
1992
Yarn Sales 75% 55% $3.67
Commission Sales 25 45 1.48
---- ---- -----
Total 100% 100%
---- ----
<PAGE>
Results of Operations (Continued)
---------------------
Liquidity and Capital Resources:
The Company sells a substantial portion of its accounts receivable to
a commercial factor so that the factor assumes the credit risk for these
accounts and effects the collection of the receivable. The Company has the
right to borrow from the factor up to 90% of the face amount of each account
sold to the factor, but the Company has not borrowed any funds from its
factor during the three year period ended December 31, 1994. As of December
31, 1994, the Company had $3,074,169 due from its factor, of which amount
$10,763 was in matured funds held by the factor and $3,063,406 had a maturity
date in January 1995.
The Company had inventories of $2,924,194 as of December 31, 1994.
The Company's average inventories aggregated approximately $2,847,000 for
1994, representing approximately 53 days inventory on hand. The Company's
inventories turn approximately 5 to 7 times each year.
The Company's working capital increased by approximately $1,411,000
at December 31, 1994 from that of January 1, 1994, primarily as a result of
the net income earned in 1994. The working capital of the Company is deemed
adequate for the operational needs of the Company. The following table sets
forth the Company's working capital and working capital ratios as of the
close of the last three years:
1994 1993 1992
Working capital $5,870,156 $4,459,101 $3,908,952
Working capital ratio 3.0 to 1 2.5 to 1 2.8 to 1
As a measure of current liquidity, the Company's quick position
(cash, cash equivalents and receivable over current liabilities) discloses
the following at December 31, 1994 and January 1, 1994:
December 31, January 1,
1994 1994
Cash, cash equivalents
and receivables $5,126,145 $4,273,608
Current liabilities 2,943,835 2,922,711
---------- ----------
Excess of quick assets
over current liabilities $2,182,310 $1,350,897
========== ==========
<PAGE>
Results of Operations (Continued)
---------------------
Liquidity and Capital Resources: (Continued)
--------------------------------
Cash used in investing activities consisted primarily of the
acquisition of plant and equipment aggregating $1,540,952. The Company's
depreciation expense of $1,006,448 provided a source of funds for these
property assets.
The aggregate long-term debt including current maturities at December
31, 1994 was $1,810,897 compared to $2,536,972 at January 1, 1994. This
occurred as a result of the payments of principal during 1994 of $874,455,
and an advance of $148,380 on a long-term line of credit.
The Company's long-term debt (exclusive of current maturities) to
equity ratios aggregated 8.8% at December 31, 1994, 18.7% at January 1, 1994
and 21.0% at January 2, 1993.
Capital expenditures are expected to aggregate $4,500,000 to
$5,000,000 during 1995. These capital acquisitions will be financed by a line
of credit aggregating $5,000,000 obtained from the bank, which borrowing will
be repaid on a monthly basis over a five year period beginning in the fourth
quarter of 1995, and a final balloon payment at the end of the five year
period.
<PAGE>
Independent Auditors' Report
To the Board of Directors of
Burke Mills, Inc.
We have audited the accompanying balance sheets of Burke Mill, Inc.
as of December 31, 1994 and January 1, 1994, and the related statements of
operations, changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)2. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Burke Mills, Inc.
as of December 31, 1994 and January 1, 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As discussed in Note 9 of the financial statements, Burke Mills, Inc.
changed its method of accounting for income taxes effective January 3, 1993,
pursuant to the requirements of FASB Statement No. 109.
Certified Public Accountants
Cole, Samsel & Bernstein LLC
New York, New York
February 10, 1995
<PAGE>
<TABLE>
BURKE MILLS, INC.
BALANCE SHEETS
<CAPTION>
December 31, January 1,
1994 1994
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,833,989 $ 1,903,731
Accounts receivable 3,292,156 2,369,877
Inventories 2,924,194 2,567,582
Prepaid expenses and other current assets 187,952 27,522
Deferred income taxes 575,700 513,100
---------- ----------
Total Current Assets 8,813,991 7,381,812
---------- ----------
Property, Plant and Equipment 19,052,402 17,754,298
Less: Accumulated depreciation 11,244,950 10,481,350
---------- ----------
7,807,452 7,272,948
---------- ----------
$16,621,443 $14,654,760
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 816,121 $ 891,847
Accounts payable 913,276 1,072,112
Income taxes payable 581,267 261,233
Accrued salaries and wages 370,673 202,720
Other liabilities and accrued expenses 262,498 494,799
---------- ----------
Total Current Liabilities 2,943,835 2,922,711
Long-Term Debt 994,776 1,645,125
Deferred Income Taxes 1,399,000 1,312,100
---------- ----------
Total Liabilities 5,337,611 5,879,936
---------- ----------
Shareholders' Equity
Common stock, no par value (stated value $.66)
Authorized - 5,000,000 shares;
Issued and outstanding - 2,741,168 shares 1,809,171 1,809,171
Paid-in capital 3,111,349 3,111,349
Retained earnings 6,363,312 3,854,304
---------- ----------
Total Shareholders' Equity 11,283,832 8,774,824
$16,621,443 $14,654,760
=========== ===========
<FN>
See independent auditors' report and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
BURKE MILLS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended
-----------------------------------
December 31, January 1, January 2,
1994 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $36,193,757 $26,834,647 $22,072,102
----------- ----------- -----------
Costs and Expenses
Cost of sales 30,928,103 24,291,301 19,861,261
Selling, general and administrative expenses 1,597,829 1,378,717 1,314,132
Factor's charges 235,253 174,797 143,033
----------- ----------- -----------
Total Costs and Expenses 32,761,185 25,844,815 21,318,426
----------- ----------- -----------
Operating Earnings 3,432,572 989,832 753,676
----------- ----------- -----------
Other Income
Interest income 84,306 51,464 74,294
Gain on sale of property assets 11,680
Other, net 5,919 23,380 4,563
----------- ----------- -----------
Total 101,905 74,844 78,857
----------- ----------- -----------
Other Expenses
Interest expense 158,669 179,588 174,132
Loss on sale and disposal of property assets 194,863 38,702
----------- ----------- -----------
Total 158,669 374,451 212,834
----------- ----------- -----------
Income Before Provision for
Income Taxes 3,375,808 690,225 619,699
Provision for Income Taxes 866,800 316,000 211,100
----------- ----------- -----------
Net Income $ 2,509,008 $374,225 $408,599
=========== =========== ===========
Net Earnings Per Share $ .92 $ .14 $ .15
=========== =========== ===========
Weighted average common shares outstanding 2,741,168 2,741,168 2,741,168
=========== =========== ===========
<FN>
See independent auditors' report and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
BURKE MILLS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<CAPTION>
Common Stock
No Par Value
Stated Value $.66 Per Share
5,000,000 Shares
Authorized
----------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 28, 1991 2,741,168 $1,809,171 $3,111,349 $3,071,480 $7,992,000
Net income for the
year ended
January 2, 1993 408,599 408,599
---------- ---------- ---------- ---------- ----------
Balance at January 2, 1993 2,741,168 1,809,171 3,111,349 3,480,079 8,400,599
Net income for the
year ended
January 1, 1994 374,225 374,225
---------- ---------- ---------- ---------- ----------
Balance at January 1, 1994 2,741,168 1,809,171 3,111,349 3,854,304 8,774,824
Net income for the
year ended
December 31, 1994 2,509,008 2,509,008
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 2,741,168 $ 1,809,171 $ 3,111,349 $ 6,363,312 $11,283,832
========== ========== ========== ========== ==========
<FN>
See independent auditors' report and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended
--------------------------------------
December 31, January 1, January 2,
1994 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $2,509,008 $ 374,225 $ 408,599
------------ ---------- ----------
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 1,006,448 903,341 849,022
(Gain) loss on sales of plant and equipment,
including losses on disposals ( 11,680) 194,863 38,702
Deferred income taxes 24,300 51,300 200,000
Changes in assets and liabilities
(Increase) decrease in accounts receivable ( 922,279) ( 814,532) 1,443,304
(Increase) in inventories ( 356,612) ( 252,135) ( 402,799)
(Increase) in prepaid expenses and
other current assets ( 160,430) ( 2,860) ( 12,631)
(Increase) decrease in other noncurrent
assets 5,623 ( 3,623)
Increase (decrease) in account payable ( 158,836) 25,706 591,511
Increase in income taxes payable 320,034 261,233
Increase in accrued salaries, wages
and vacation pay 167,953 45,100 40,392
Increase (decrease) in other liabilities
and accrued expenses ( 232,301) 192,896 66,898
------------ ---------- ----------
Total Adjustments ( 323,403) 610,535 2,810,776
------------ ---------- ----------
Net cash provided by operating activities 2,185,605 984,760 3,219,375
------------ ---------- ----------
Cash flow from investing activities:
Acquisition of property, plant and equipment ( 1,540,952) (1,374,411) (1,257,178)
Proceeds from sales of plant and equipment 11,680 1,800
------------ ---------- ----------
Net cash (used) by investing activities ( 1,529,272) (1,372,611) (1,257,178)
------------ ---------- ----------
Cash flows from financing activities:
Proceeds from long-term bank note 148,380 900,000
Principal payments of long-term debt ( 874,455) ( 795,038) ( 530,853)
------------ ---------- ----------
Net cash provided (used) by financing activities ( 726,075) 104,962 ( 530,853)
------------ ---------- ----------
Net increase (decrease) in cash and
cash equivalents ( 69,742) ( 282,889) 1,431,344
Cash and cash equivalents at beginning of year 1,903,731 2,186,620 755,276
------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,833,989 $1,903,731 $2,186,620
============ ========== ==========
<FN>
See independent auditors' report and notes to financial statements.
</TABLE>
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Accounting period - The Company's fiscal year is the 52 or 53 week
period ending the Saturday nearest to December 31. Fiscal years 1994, 1993
and 1992, ended on December 31, 1994, January 1, 1994 and January 2, 1993,
respectively. The fiscal year ended December 31, 1994 and January 1, 1994
consisted of 52 weeks, and the prior fiscal year included 53 weeks.
Statements of cash flows - For the purposes of the statements of
cash flows, the Company considers cash and cash equivalents to include cash
on hand, deposits in banks, interest bearing demand matured funds on deposit
with factor, and all highly liquid debt instruments with a maturity of three
months or less when purchased.
FASB 95 requires that the following supplemental disclosures to the
statements of cash flows be provided in related disclosures. Cash paid for
interest was $159,750 in 1994, $182,458 in 1993 and $166,261 in 1992.
Income taxes paid in 1994 aggregated $522,466 There were no income taxes
paid in 1993 and income taxes paid for 1992 totaled $12,500.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market. Cost elements included in work in process and finished
goods inventories are raw materials, direct labor and manufacturing overhead.
Market is considered to be net realizable value.
Property, plant and equipment - Property, plant and equipment are
stated at cost.
Depreciation and amortization of the property accounts are provided
over the estimated useful lives of the assets. For financial reporting
purposes, depreciation on plant and equipment is provided primarily at
straight-line rates. For income tax purposes, depreciation has been provided
at straight-line rate for all property, plant and equipment acquired prior
to 1981 and the accelerated and modified accelerated cost recovery system
for property assets acquired subsequent to December 31, 1980. The estimated
useful lives used for computing depreciation for financial reporting purposes
are generally:
Building and improvements............. 5 - 45 years
Plant machinery and equipment......... 5 - 17 years
Office equipment...................... 5 - 10 years
Automotive equipment.................. 3 - 5 years
Earnings per share are based on the net income divided by the
weighted average number of common shares outstanding during the respective
periods. Although the Company had outstanding options during the years prior
to 1993, the inclusion of such options based on the market prices and option
price would have been anti-dilutive. All outstanding options expired on
January 30, 1993, the date of termination of the Company's Incentive Stock
Option Plan.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
The Company is engaged in the twisting, texturing, winding, dyeing,
processing and selling of filament, novelty and spun yarns and in the dyeing
and processing of these yarns for others on a commission basis.
With respect to its operations, the Company's products and its
services for others on a commission basis, are sold and/or performed for
customers primarily located in the territorial limits of the United States.
The Company did have sales to customers in Mexico during the three fiscal
years ended December 31, 1994, which amounted to 2.6% in 1994,and less than
1% for 1993 and 1992, respectively. Additionally, sales to customers in
Canada in 1994 aggregated approximately 1% of sales. For the three year
period ended December 31, 1994, the Company has operated within a single
industry segment with classes of similar products. The principal markets
served by the Company are upholstery and industrial uses through the knitting
and weaving industry.
In connection with sales to major customers, two customers' net sales
for 1994 accounted for 12.9% and 10.9% of net sales, respectively. Neither of
these two customers nor any other customer accounted for 10% or more than 10%
of net sales in each of the two prior years. For the purpose of this
determination, sales to groups of companies under common control have been
combined and accounted for as sales to individual companies. The amounts and
percentages of sales to the two customers in 1994 are as follows:
Percentage of
Amount Net Sales
---------- -------------
1994
----
Customer 1............. $4,653,000 12.9%
Customer 2............. 3,929,000 10.9%
NOTE 3 - CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
December 31, January 1,
1994 1994
----------- ----------
Cash.................................... $ 5,162 $ 88,456
Commercial money market investment
in bank.............................. 1,818,064 1,812,945
Matured funds on deposit with factor.... 10,763 2,330
---------- ----------
$1,833,989 $1,903,731
========== ==========
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable comprise the following:
December 31, January 1,
Account current - factor: 1994 1994
Due from factor on regular ----------- ----------
factoring account............... $3,063,406 $2,345,809
Non-factored accounts receivable.... 228,750 24,068
---------- ----------
Total..................... $3,292,156 $2,369,877
========== ==========
Pursuant to a factoring agreement, the Company sells substantial
portions of its accounts receivable to a commercial factor without recourse,
up to maximum credit limits established by the factor for individual accounts.
Amounts invoiced to customers on accounts receivable factored in excess of
the established maximum credit limits set are sold to the factor with recourse
in the event of nonpayment by customers.
The Company pays a service charge to its factor to cover credit
checking, assumption of credit risk, record keeping and similar services.
In addition, if the Company takes advances from its factor prior to the
average maturity of the receivables sold (as defined), it is required to
pay interest to the factor on such advances. The Company incurred no
interest costs during the three years ended December 31, 1994, resulting
from its factoring arrangements inasmuch as it borrowed no funds from its
factor during those years.
The Company's factor is collateralized by the accounts receivable sold
to the factor. No interest in inventory, other than returned goods, has been
granted to the factor under the factoring contract.
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and are summarized as follows:
December 31, January 1,
1994 1994
----------- ----------
Finished and in process................ $1,940,711 $1,687,025
Raw materials.......................... 490,096 408,311
Dyes and chemicals..................... 318,289 291,148
Other.................................. 175,098 181,098
---------- ----------
$2,924,194 $2,567,582
========== ==========
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
<TABLE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment are as follows:
<CAPTION>
December 31, 1994 January 1, 1994
-------------------------- --------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Land......................... $ 78,032 $ $ 78,032 $
Land improvements............ 69,944 69,944 69,944 69,579
Buildings and improvements... 5,064,146 3,601,527 4,986,333 3,439,096
Plant machinery and
equipment.................. 12,423,538 7,170,771 11,801,978 6,678,267
Office equipment............. 595,557 296,538 490,727 213,513
Automotive equipment......... 117,355 106,170 117,355 80,895
Deposits on acquisition of
property assets............ 703,830 209,929
----------- ------------ ----------- -----------
Totals.................. $19,052,402 $11,244,950 $17,754,298 $10,481,350
=========== =========== =========== ===========
</TABLE>
NOTE 7 - LONG-TERM DEBT
Long-Term debt is comprised of:
December 31, January 1,
1994 1994
------------ ----------
Note payable to bank (a).................. $1,063,868 $1,667,766
Note payable to bank (b).................. 598,649 772,644
Advance on note payable to bank (c)....... 148,380
Promissory note .......................... 96,562
----------- -----------
Total................................... 1,810,897 2,536,972
Less: Current maturities................ 816,121 891,847
----------- -----------
Long-Term Debt............................ $ 994,776 $1,645,125
=========== ===========
(a) Pursuant to a promissory note, loan agreement and security
agreement dated June 27, 1990, the loan payable to the bank is
secured by a first lien deed of trust on all real property and a
first lien deed of trust and security interest on all machinery,
equipment, and personal property of the Company, excluding
inventory and accounts receivable. Interest on the note accrues
at the bank's prime rate plus one-half percent. Principal and
interest payments aggregate $58,950, per month.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 7 - LONG-TERM DEBT (Continued)
The loan agreement, as amended, contains various restrictive
covenants, as defined, which include among other things, maintenance of a
minimum tangible net worth, a minimum quick ratio, a maximum debt to
tangible net worth ratio, a restriction on fixed asset additions above a
stated amount annually, and a restriction on the retirement or acquisition
of the Company's outstanding capital stock.
(b) On June 26, 1992, the Company received a loan commitment and
agreement from First Union National Bank for a term loan of $900,000,
and pursuant thereto drew the $900,000 on March 23, 1993. The loan is
secured by a first lien position on the purchase of twisting and
texturing equipment and a second lien position on existing machinery
and equipment, plus all additions and accessions now owned by
borrower or hereafter acquired and all proceeds of the foregoing.
Interest on this loan accrues and is payable at the bank's prime
rate plus one-half percent, with the rate of interest to be subject
to an absolute interest cap of 10.88% per annum until final maturity
of the note. Principal and interest payments aggregate $18,900, per
month.
(c) Effective September 1, 1994, the Company received a loan
commitment from its bank for an additional loan of $5,000,000 to
finance the acquisition by the Company of new machinery and
equipment and to fund Letters of Credit issued in connection with
such acquisition. The new loan is to be collateralized by a first
lien position on the new machinery and equipment to be purchased with
the loan and a third lien position on all of the Company's existing
machinery and equipment, plus all additions, accessions and all
proceeds thereof owned or hereafter acquired, and a second Deed of
Trust on the Company's property. Interest on the loan accrues and is
payable at the prime rate of the bank. Pursuant to the loan agreement,
promissory note and security agreement, all covenants contained in
loan agreements under Note 7(a) and 7(b) above remain in effect except
as modified in this new loan agreement. Covenants include a debt
service coverage ratio, a limit on annual property asset acquisitions
exclusive of property to be acquired with the loan proceeds under this
new loan agreement, the retirement or acquisition of the Company's
capital stock in excess of a stated amount, the maintenance of a
minimum tangible net worth which shall increase by a stated amount
annually. Under this loan commitment (Line of Credit), the bank issued
a draft payable to the vendor of machinery of $148,380 on December 14,
1994 which amount is included in long-term debt set forth above.
Interest only on this obligation is payable until September 5, 1995.
The Company and the bank have agreed that all three loan obligations
are to be consolidated into one new note obligation which will be
payable monthly over a five year period beginning in the fourth
quarter of 1995, and a final balloon payment at the end of the five
year period.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 7 - LONG-TERM DEBT (Continued)
The annual principal maturities of the long-term debt at
December 31, 1994 are as follows:
Current portion......... $ 816,121
1996.................... $ 772,262
1997.................... 215,371
1998.................... 7,143 994,776
---------- ----------
$1,810,897
==========
NOTE 8 - Other Liabilities and Accrued Expenses
--------------------------------------
Other liabilities and accrued expenses consist of the following:
December 31, January 1,
1994 1994
----------- ----------
Employee health insurance claims accrued..... $ 49,157 $195,481
Payroll taxes payable........................ 48,461 43,511
Utilities payable............................ 76,042 85,253
Property taxes payable....................... 99,705
Accrued interest............................. 7,699 8,779
Other........................................ 81,139 62,070
---------- ----------
$262,498 $494,799
========== ==========
NOTE 9 - INCOME TAXES
Effective January 3, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by FASB Statement No. 109, "Accounting for Income Taxes".
Under this method, deferred tax assets and liabilities are recognized
based on differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws.
Prior to the adoption of Statement No. 109, income tax expense was determined
using the deferred method. Deferred tax expense was based on items of
income and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in
the year the differences originated.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 9 - INCOME TAXES (Continued)
The company did not restated prior period financial statements
because the effects of adopting Statement No. 109 on operations and cash
flows are not material. The items which comprise deferred tax assets and
liabilities at December 31, 1994, are as follows:
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Accelerated depreciation $1,399,000
Alternative minimum taxes paid $ 417,800
Inventory capitalization for
tax purposes 10,400
Investment tax and research and
development credits 147,500
------------ ------------
$ 575,700 $1,399,000
============ ============
Income taxes consist of:
Year Ended
--------------------------------------------
December 31, January 1, January 2,
1994 1994 1993
----------- ---------- ----------
Current
Federal............ $674,100 $264,700 $ 11,100
State.............. 168,400
Deferred............. 24,300 51,300 200,000
----------- ---------- ----------
$866,800 $316,000 $211,100
=========== ========== ===========
Provision for income taxes for the year ended December 31, 1994, was
impacted by the 1994 reduction in the valuation allowance on deferred tax
assets provided in the 1993 fiscal year. The following represents an analysis
of the tax provision for the 1994 year.
Federal income taxes $1,057,900
State income taxes 264,300
----------
1,322,200
Less: Overaccrual of 1993
valuation allowance on
deferred tax assets 455,400
----------
Provision for income taxes $ 866,800
==========
The provision of $1,322,200 would represent a provision of 39.2%. As
a result of the overaccrual of the allowance on deferred tax assets in 1993,
the provision for 1994 has been decreased to 25.7%, an amount and percentage
which will not recur in succeeding years.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 9 - INCOME TAXES (Continued)
The provision for income taxes on historical income differs from the
amounts computed by applying the applicable Federal statutory rates, due to
the following:
Year Ended
--------------------------------------
December 31, January 1, January 2,
1994 1994 1993
------------ ---------- ----------
Income before income taxes........... $3,375,808 $690,225 $619,699
Federal income tax rate.............. 34% 34% 34%
----------- ---------- ----------
Computed taxes at maximum statutory
income tax rate.................... 1,147,775 234,677 210,698
Increase (reduction) in taxes
resulting from:
Tax effect of non-deductible loss on
disposal of property assets (fully
depreciated for tax purposes)..... 66,253
State income taxes, net of Federal
income tax benefit................ 174,425 33,858 26,400
Adjustment for deferred income
taxes............................. ( 31,000)
Tax effect of non-allowable items
and timing differences............ 12,965 11,547
Alternative minimum tax............. 11,100
Limitation on tax provision credited
to deferred income taxes payable
for tax benefit of operating loss
carryforward...................... ( 49,177)
Overaccrual of prior year valuation
allowance on deferred tax assets ( 455,400)
Other............................... ( 753) 532
----------- ---------- ----------
Provision for Income Taxes........ $ 866,800 $316,000 $211,100
=========== ========== ==========
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 9 - INCOME TAXES (Continued)
At December 31, 1994, the Company had tax credit carryforwards
available for tax purposes as follows:
Research and
Investment Tax Development
Expiring In Credits Credits
----------- -------------- ------------
1995....... 6,943
1996....... 18,934
1997....... 19,979
1998....... 22,663 4,020
1999....... 51,682 6,722
2000....... 61,682 7,045
2001....... 2,585
2002....... 1,930
2004....... 1,090
2005....... 3,619
-------------- ------------
Total.... $181,883 $27,011
============== ============
Pursuant to the Tax Reform Act of 1986, the amount of the investment
tax credit carryforward available as a credit against income tax is reduced
by 35% of such carryforward tax credits used.
NOTE 10 - STOCK OPTIONS
Pursuant to its terms, the Company's stock option plan terminated on
January 30, 1993, and all outstanding options consisting of 285,800 options
expired. During the two fiscal years ended January 2, 1993 and the interim
period ended January 30, 1993 (date of termination of the plan) there were no
grants or exercises of options.
NOTE 11 - RENTAL EXPENSES AND LEASE COMMITMENTS
Rental expenses under all lease commitments for the fiscal years ended
December 31, 1994, January 1, 1994 and January 2, 1993 aggregated $34,159,
$28,626 and $42,573, respectively. Minimum lease commitments under terms of
all noncancellable leases, which consist only of leased equipment, are as
follows as of December 31, 1994:
1995............ $ 40,407
1996............ 35,738
1997............ 31,776
1998............ 17,772
1999............ 3,556
-------
$129,249
=======
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands of dollars except for per share amounts)
Quarter
---------------------------------
First Second Third Fourth
------ ------ ------ ------
1994
----
Net sales....................... $8,787 $9,075 $9,521 $8,811
Cost of sales................... 7,572 7,779 8,198 7,379
Gross profit.................... 1,215 1,296 1,323 1,432
Net income...................... 465 889 524 631
Net income per common share..... $ .17 $ .32 $ .19 $ .24
1993
----
Net sales....................... $6,386 $6,609 $6,581 $7,259
Cost of sales................... 5,729 6,051 6,086 6,425
Gross profit.................... 657 558 495 834
Net income...................... 117 65 64 128
Net income per common share..... $ .04 $ .03 $ .02 $ .05
1992
----
Net sales....................... $5,504 $5,801 $5,130 $5,637
Cost of sales................... 4,969 5,199 4,605 5,088
Gross profit.................... 535 602 525 549
Net income...................... 78 119 75 136
Net income per common share..... $ .03 $ .04 $ .03 $ .05
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JANUARY 1, 1994
NOTE 13 - EMPLOYEE BENEFIT PLAN
Effective January 1, 1985, the Company elected to become a
participating employer in the Burke Mills, Inc. Savings and Retirement Plan
and Trust which has been qualified under Section 401(k) of the Internal
Revenue Code. This plan allows eligible employees to contribute a salary
reduction amount of not less than 1% nor greater than 25% of the employee's
salary. The salary reduction percentage must equal an increment of 1%. The
employer may make a matching contribution for each employee out of current
net profits or accumulated net profits (as defined), in an amount the
employer may from time to time deem advisable. The Company has made provision
in the accompanying financial statements for matching contributions of
$303,504,$50,000 and $25,000 for 1994, 1993 and 1992, respectively.
NOTE 14 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of occasional temporary
cash investments, matured funds on deposit with the Company's factor and
amounts due from the factor on receivables sold to the factor on a
non-recourse basis. The receivables sold to the factor during a month
generally have a maturity date on the 25th to the 30th of the following month,
at which time the amount due to the Company by the factor is transferred to
matured funds on deposit with factor. At December 31, 1994, the Company had
$3,074,169 due from its factor, of which $10,763 was in matured funds and
$3,063,406 had a maturity date in January 1995. The Company utilizes its
matured funds on a continuous basis to replenish its cash in bank for the
payments of materials, labor and overhead, since the Company has not borrowed
funds for working capital purposes. The Company places its temporary cash
investments with its bank in short-term certificates. At December 31, 1994,
the Company had a $1,818,064 short term commercial money market investment in
its bank.
NOTE 15 - OTHER COMMITMENTS
The Company was obligated at December 31, 1994 under a commitment for
the acquisition during 1995 of machinery in the amount of approximately
$4,434,000. Included in this total is dyeing machinery for $3,017,857 to be
settled by the payment of 4,225,000 Deutch Marks. In the event of a
continuing weakening in the U.S. dollar, the acquisition price would be
increased in dollars above the $3,017,857 which was calculated by the
conversion of 140 DM to the dollar. In connection with this acquisition, the
Company's bank has issued an import letter of credit in favor of the vendor
for 4,225,000 Deutch Marks, and has also issued import letters of credit to
other vendors aggregating $1,099,120. These import letters of credit
aggregating approximately $4,117,000 are included in the aggregate $5,000,000
line of credit granted to the Company by its bank.
The Company will finance the purchase of these machines by the
borrowing of $5,000,000 from its bank in 1995, as more fully discussed in
Note 7 of these Notes to Financial Statements.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in nor disagreements with
accountants on accounting and financial disclosure during the
Company's two most recent fiscal years or during any subsequent
interim period. The current accounting firm for the Company, Cole,
Samsel & Bernstein LLC of New York, New York, is the successor to
Cole, Roberts & Herbert of New York, New York, which accounting
firm has served as accountant for the Company during the last two
most recent fiscal years.
<PAGE>
PART III
The information required by Items 10, 11, 12 and 13 of Part III is
incorporated by reference from the Company's definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A with respect to the next
annual meeting of the shareholders of the Company scheduled for May 16, 1995,
which will involve the election of directors; said definitive proxy statement
is expected to be filed with the Commission before April 30, 1995
(which is 120 days after the end of the fiscal year covered by this
report on Form 10-K).
The information required by Item 10 will appear on pages 3, 4, 5, 6,
7, and 8 of the proxy statement, Item 11 on pages 7 and 8, and Item 12 on
pages 4 and 6. No response is necessary to Item 13.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report.
(a)1. Independent Auditors' Report.
The following financial statements of Burke Mills, Inc. and the
related auditors' report required to be included in Part II Item 8, are
listed below:
Auditors' report
Balance sheets
December 31, 1994
January 1, 1994
Statements of operations
Year ended December 31, 1994
Year ended January 1, 1994
Year ended January 2, 1993
Statements of changes in shareholders' equity
Year ended December 31, 1994
Year ended January 1, 1994
Year ended January 2, 1993
Statements of cash flows
Year ended December 31, 1994
Year ended January 1, 1994
Year ended January 2, 1993
Notes to financial statements
(a)2. The financial statement schedules required to be filed by
Item 8 of this form and by paragraph (d) of Item 14 are included in Part IV
of this report and are as follows:
Schedule II - Valuation and qualifying accounts
Year ended December 31, 1994
Year ended January 1, 1994
Year ended January 2, 1993
All other financial statement schedules have been omitted since the
required information is not present in amounts sufficient to require
submission of the schedule, or because the required
<PAGE>
information is included in the financial statements or the notes thereto.
(a)3. The exhibits required by Item 601 of Regulation S-K and
paragraph (c) of Item 14 are the articles of incorporation and by-laws of the
Company which are incorporated herein by reference from the Amendment on
Form 8 to the annual report on Form 10-K of the Company for the fiscal year
ended January 2, 1982 previously filed with the Commission. The exhibit
required by Item 601(c) of Regulation SK, Financial Data Schedule, is set
forth on page 41 of this report.
(b) No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
(c) See sub-Item (a)3 above.
(d) See sub-Item (a)2 above.
<PAGE>
<TABLE>
SCHEDULE II
BURKE MILLS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<CAPTION>
Column A Column B Column C Column D Column E
-------- ----------- --------- ----------- ----------
Balance at Balance
beginning of at end of
Description period Additions Deductions period
----------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Valuation Allowance on
Deferred Income Tax Assets:
Year Ended December 31, 1994 $ 623,309 $ $ 623,309(a) $
Year Ended January 1, 1994 623,309(b) 623,309
Year Ended January 2, 1993
</TABLE>
(a) For the year ended December 31, 1994, $167,909 of the valuation allowance
was utilized in the realization of the deferred tax assets provided for the
year ended January 1, 1994. Inasmuch as no further valuation allowance is
deemed necessary as of December 31, 1994, $455,400 has been credited to the
provision for income taxes for the year ended December 31, 1994. Accordingly,
the Company believes that its deferred tax assets as of December 31, 1994
will be realized and no valuation allowance is required as of December 31,
1994.
(b) For the year January 1, 1994, the Company recorded deferred tax assets of
$1,136,409 representing possible future realization of these deferred tax
assets. In accordance with the provisions of FASB No. 109, a valuation
allowance of $623,309 was deemed adequate for the portion of the deferred
tax assets which might not be probable of realization.
<PAGE>
SIGNATURES
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.
Date: March 9, 1995 BURKE MILLS, INC.
By: Humayun N. Shaikh
Humayun N. Shaikh, Chairman of
the Board and Treasurer
(Principal Executive Officer)
(Principal Financial Officer)
By: S. Scott Womack
S. Scott Womack
Vice President-Finance
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 9, 1995 Humayun N. Shaikh
Humayun N. Shaikh, Director
Date: March 9, 1995 Richard F. Whisenant
Richard F. Whisenant, Director
Date: March 9, 1995 Ahmed H. Shaikh
Ahmed H. Shaikh, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-2-1994
<PERIOD-END> DEC-31-1994
<CASH> 1833989
<SECURITIES> 0
<RECEIVABLES> 3292156
<ALLOWANCES> 0
<INVENTORY> 2924194
<CURRENT-ASSETS> 8813991
<PP&E> 19052402
<DEPRECIATION> 11244950
<TOTAL-ASSETS> 16621443
<CURRENT-LIABILITIES> 2943835
<BONDS> 994776
<COMMON> 1809171
0
0
<OTHER-SE> 9474661
<TOTAL-LIABILITY-AND-EQUITY> 16621443
<SALES> 36193757
<TOTAL-REVENUES> 36193757
<CGS> 30928103
<TOTAL-COSTS> 30928103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158669
<INCOME-PRETAX> 3375808
<INCOME-TAX> 866800
<INCOME-CONTINUING> 2509008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2509008
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
