UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
Commission File Number 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0506342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
(704) 874-2261
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if
changed since last report)
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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of
November 10, 1995, there were outstanding 2,741,168 shares of the
issuer's only class of common stock.
<PAGE>
BURKE MILLS, INC.
INDEX
Page Number
Part I - FINANCIAL INFORMATION
Item I - Financial Statements
Condensed Balance Sheets
September 30, 1995 and December 31, 1994 3
Condensed Statements of Operations and Retained Earnings
Thirteen Weeks Ended September 30, 1995 and October 1, 1994
and Thirty-Nine Weeks Ended September 30, 1995 and October 1, 1994 4
Statements of Cash Flows
Thirty-Nine Weeks Ended September 30, 1995 and October 1, 1994 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 20
Item 6(a) - Financial Data Schedule 21
SIGNATURES 22
<PAGE>
PART I - FINANCIAL INFORMATION
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(Unaudited) (Note A)
ASSETS
Current Assets
Cash and cash equivalents $ 7,322 $ 1,833,989
Accounts receivable 4,224,719 3,292,156
Inventories 3,092,273 2,924,194
Prepaid expenses and other current assets 203,121 187,952
Deferred income taxes 741,800 575,700
------------- ------------
Total Current Assets 8,269,235 8,813,991
------------- ------------
Property, Plant and Equipment - at cost 24,860,030 19,052,402
Less: Accumulated depreciation 11,802,542 11,244,950
------------- ------------
Property, Plant and Equipment - Net 13,057,488 7,807,452
------------- ------------
$21,326,723 $16,621,443
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 784,884 $ 816,121
Accounts payable 2,127,694 913,276
Income taxes payable 19,956 581,267
Accrued salaries, wages and vacation pay 184,160 370,673
Other liabilities and accrued expenses 420,191 262,498
------------- ------------
Total Current Liabilities 3,536,885 2,943,835
Long-Term Debt 4,488,112 994,776
Deferred Income Taxes 1,426,000 1,399,000
------------- ------------
Total Liabilities 9,450,997 5,337,611
------------- ------------
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 6,955,206 6,363,312
------------- ------------
Total Shareholders' Equity 11,875,726 11,283,832
------------- ------------
$21,326,723 $16,621,443
============= ============
Note A: The December 31, 1994 Condensed Balance Sheet has been derived from
the audited financial statements at that date but does not include
all of the information and footnotes required for generally accepted
accounting principles for complete financial statements.
See notes to condensed financial statements.
<PAGE>
<TABLE>
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<CAPTION>
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 30, October 1 September 30, October 1,
1995 1994 1995 1994
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $7,385,141 $9,520,758 $25,515,857 $27,383,290
------------- ----------- ------------ ------------
Costs and Expenses
Cost of sales 7,126,670 8,197,877 22,978,701 23,549,330
Selling, general and administrative
expenses 464,702 417,787 1,352,926 1,129,534
Factor's charges 38,347 64,154 131,796 177,588
------------- ----------- ------------ ------------
Total Costs and Expenses 7,629,719 8,679,818 24,463,423 24,856,452
------------- ----------- ------------ ------------
Operating Earnings (Loss) (244,578) 840,940 1,052,434 2,526,838
------------- ----------- ------------ ------------
Other Income
Interest income 15,134 16,016 66,263 51,800
Gain on sale of property assets - 1,000 - 8,680
Other, net 6,501 1,835 11,389 4,909
------------- ----------- ------------ ------------
Total 21,635 18,851 77,652 65,389
------------- ----------- ------------ ------------
Other Expenses
Interest expense 61,205 40,058 157,823 120,433
Loss on disposal of property assets - - 112 -
------------- ----------- ------------ ------------
Total 61,205 40,058 157,935 120,433
------------- ----------- ------------ ------------
Income (Loss) Before Provision for
Income Taxes (284,148) 819,733 972,151 2,471,794
Provision for Income Taxes (Credit) (111,175) 296,200 380,257 593,800
------------- ----------- ------------ ------------
Net Income (Loss) (172,973) 523,533 591,894 1,877,994
Retained Earnings at Beginning of Period 7,128,179 5,208,765 6,363,312 3,854,304
------------- ----------- ------------ ------------
Retained Earnings at End of Period $6,955,206 $5,732,298 $6,955,206 $5,732,298
============= =========== ============ ============
Earnings (Loss) Per Share ($ .06) $ .19 $ .22 $ .68
============= =========== ============ ============
Dividends Per Share of Common Stock None None None None
============= =========== ============ ============
Weighted Average Common Shares
Outstanding 2,741,168 2,741,168 2,741,168 2,741,168
============= =========== ============ ============
<FN>
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
September 30, October 1,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 591,894 $1,877,994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 774,223 732,552
(Gain) loss on disposal of property assets 112 (8,680)
(Increase) in deferred income taxes (139,100) (53,900)
Changes in assets and liabilities:
(Increase) in accounts receivable (932,563) (2,068,239)
(Increase) decrease in inventories (168,079) 95,523
(Increase) in prepaid expenses and other currrent assets (15,169) (82,533)
Increase in accounts payable 1,214,418 825,119
Increase (decrease) in income taxes payable (561,311) 190,575
Increase (decrease) in accrued salaries, wages
and vacation pay (186,513) 111,228 Increase (decrease) in other liabilities and
accrued expenses 157,693 (5,863)
------------ ------------
Total Adjustments 143,711 (264,218)
------------ ------------
Net cash provided by operating activities 735,605 1,613,776
------------ ------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (6,024,371) (782,517)
Proceeds from sale of property assets - 8,680
------------ ------------
Net cash (used) by investing activities (6,024,371) (773,837)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term bank note 4,063,849 -
Principal payments of long-term debt (601,750) (654,390)
------------ ------------
Net cash provided (used) by financing activities 3,462,099 (654,390)
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,826,667) 185,549
Cash and cash equivalents at beginning of year 1,833,989 1,903,731
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
THIRD QUARTER $ 7,322 $2,089,280
============ ============
<FN>
See notes to condensed financial statements.
</TABLE>
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL INFORMATION
a. The accompanying unaudited condensed balance sheet as of September 30,
1995, and the related condensed statements of operations and retained
earnings for the thirteen and thirty-nine week periods ended September 30,
1995 and October 1, 1994, and cash flows for the thirty-nine week periods
ended September 30, 1995 and October 1, 1994, are unaudited; in the opinion
of management, all adjustments necessary for a fair presentation of these
financial statements have been included. Such adjustments consisted only
of normal recurring items. Operating results for the thirty-nine weeks
ended September 30, 1995 are not necessarily indicative of results that
may be expected for the year ended December 30, 1995.
The unaudited condensed financial statements and notes are
presented as permitted by the instructions to Form 10-Q and Article 10 of
Regulation SX and do not contain certain information included in the
Company's annual financial statements and notes thereto. The accounting
policies followed by the Company are set forth in Note 1 to the Company's
financial statements in the 1994 Burke Mills, Inc. Annual Report which is
incorporated by reference on Form 10-K.
b. Statements of cash flows - For the purposes of the statements of cash
flows, the Company considers 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,
as cash and cash equivalents. Matured funds on deposit with the factor
earn interest at the prime rate less 1.5%.
FASB No. 95 requires that the following supplemental disclosures
to the statements of cash flows be provided in related disclosures. Cash
paid for interest for the thirty-nine weeks ended September 30, 1995 and
October 1, 1994 was $147,039 and $121,257, respectively. Income taxes
paid for the thirty-nine weeks ended September 30, 1995 and October 1,
1994 aggregated $1,080,668 and $457,158, respectively.
NOTE 2 - OPERATIONS OF THE COMPANY
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.
The Company's fiscal year is the 52 or 53 week period ending on the
Saturday nearest to December 31. Its fiscal quarters also end on the
Saturday nearest to the end of the calendar quarter.
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 3 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
September 30, December 31,
1995 1994
------------- ------------
Cash......................................... $ 481 $ 5,162
Commercial money market investment in bank... 6,841 1,818,064
Matured funds on deposit with factor......... - 10,763
------------- ------------
$ 7,322 $1,833,989
============= ============
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
September 30, December 31,
1995 1994
------------- ------------
Account current - factor:
Due from factor on regular factoring account..$4,115,211 $3,063,406
Non-factored accounts receivable............... 109,508 228,750
------------- ------------
$4,224,719 $3,292,156
============= ============
NOTE 5 - INVENTORIES
Inventories are summarized as follows:
September 30, December 31,
1995 1994
------------- ------------
Finished and in process........................$1,691,341 $1,940,711
Raw materials.................................. 862,686 490,096
Dyes and chemicals............................. 402,501 318,289
Other.......................................... 135,745 175,098
------------- ------------
$3,092,273 $2,924,194
============= ============
NOTE 6 - LONG-TERM DEBT
Long-term debt is comprised of:
September 30, December 31,
1995 1994
------------- ------------
Note payable to bank (a).......................$ 593,874 $1,063,868
Note payable to bank (b)....................... 466,893 598,649
Advance on note payable to bank (c)............ 4,212,229 148,380
Total........................................ 5,272,996 1,810,897
Less: Current maturities.................... 784,884 816,121
Long-Term Debt.................................$4,488,112 $ 994,776
(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 CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 6 - 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
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
which was drawn by the Company in March 1993. The loan is secured by a
first lien position on twisting and texturing equipment purchased 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 $5,000,000 to finance the
acquisition by the Company of new machinery and equipment and to fund
Letters of Credit issued in connection with such acquisition. The new
loan is to be collateralized by a first lien position on the new machinery
and equipment to be purchased with the loan and a third lien position on
all of the Company's existing machinery and equipment, plus all additions,
accessions and all proceeds thereof owned or hereafter acquired, and a
second Deed of Trust on the Company's property. Interest on the loan
accrues and is payable at the prime rate of the bank. Pursuant to the
loan agreement, promissory note and security agreement, all covenants
contained in loan agreements under Note 6(a) and 6(b) above remain in
effect except as modified in this new loan agreement. Covenants include
a debt service coverage ratio, a limit on annual property asset acquisitions
exclusive of property to be acquired with the loan proceeds under this new
loan agreement, the retirement or acquisition of the Company's capital
stock in excess of a stated amount, the maintenance of a minimum tangible
net worth which shall increase by a stated amount annually. Interest only
on this obligation is payable until September 5, 1995. The Company and the
bank have agreed that all three loan obligations are to be consolidated
into one new note obligation which will be payable in level monthly
installments based on a seven year repayment schedule, including interest,
over a five year period beginning in the fourth quarter of 1995, and a
final balloon payment at the end of the five year period.
The annual principal maturities of the long-term debt at September 30,
1995 are as follows:
Current portion..............................................$ 784,884
1996/1997................................. $ 666,118
1997/1998................................. 563,918
1998/1999................................. 543,213
1999/2000................................. 592,697
Balloon payment at end of the five year period 2,122,166 4,488,112
---------- ----------
$5,272,996
==========
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 7 - INCOME TAXES
Effective January 3, 1993, the Company changed its method of accounting
for income taxes from the deferred method to an asset and liability
approach for financial accounting and reporting for income taxes as
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 rates and laws. Prior to
the adoption of FASB 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.
The items which comprise deferred tax assets and liabilities are as
follows:
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Accelerated depreciation $1,426,000
Alternative minimum taxes paid $590,300
Inventory capitalization for tax purposes 6,300
Investment tax and research and
development credits 145,200
------------ ------------
$741,800 $1,426,000
============ ============
Provision for income taxes for the thirteen and thirty-nine week periods
ended September 30, 1995 and October 1, 1994, has been provided based on
the following:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ---------- ------------- ----------
Federal income taxes ($ 96,610) $257,200 $330,532 $813,100
State income taxes, net
of Federal income
taxes (14,565) 39,000 49,725 123,500
------------- ---------- ------------- ----------
Total (111,175) 296,200 380,257 936,600
Overaccrual of prior
period valuation
allowance on deferred
tax assets - - - 342,800
------------- ---------- ------------- ----------
Provision for income
taxes (credit) ($111,175) $296,200 $380,257 $593,800
============= ========== ============= ==========
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 7 - INCOME TAXES (Continued)
At December 31, 1994 and September 30, 1995, the Company had tax credit
carryforwards available for tax purposes as follows:
Investment Research and
Tax Development
Expiring In Credits Credits
- ----------- ---------- ------------
1995..................................$ 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 8 - EMPLOYEE BENEFIT PLAN
The Company is a participating employer in the Burke Mills, Inc. Savings
and Retirement Plan and Trust which is 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 $94,176 and $222,693 for the thirty-nine weeks
ended September 30, 1995 and October 1, 1994, respectively.
NOTE 9 - 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. From time to time,
the Company places its temporary cash investments with its bank in
short-term certificates. The Company had no matured funds on deposit with
its factor at September 30, 1995. As of September 30, 1995, the Company
had a net amount of $4,115,211 due from its factor on its regular factoring
account which matured October 23, 1995 and was transferred to matured funds
status. The Company utilizes its matured funds on a continuous basis to
replenish its cash in bank for the payment of materials, labor and overhead.
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 10 - COMMITMENTS
At September 30, 1995, the Company was committed to its bank for
approximately $317,000 on import letters of credit to vendors covering
machinery and equipment purchased. Inasmuch as title to the machinery
and equipment had passed to the Company, the machinery and equipment has
been included in property, plant and equipment as at September 30, 1995
and the obligation to the bank has been included in notes payable. The
$317,000 obligation is part of the $5,000,000 commitment from the bank
incurred to finance the acquisition of new machinery and equipment
purchased in 1995, as more fully set forth in Note 6 to these Notes to
Condensed Financial Statements. Payment to the vendor on the letters of
credit will be completed by March of 1996.
NOTE 11 - EARNINGS PER SHARE
Earnings per share are based on the net income divided by the weighted
average number of common shares outstanding during the thirteen and
thirty-nine week periods ended September 30, 1995 and October 1, 1994.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
1995 Compared to 1994
- ---------------------
The following discussion should be read in conjunction with the
information set forth under the Financial Statements and Notes thereto
included elsewhere in the 10-Q.
RESULTS OF OPERATIONS
The following table sets forth operating data of the Company as a
percentage of net sales for the periods indicated below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 96.5 86.1 90.1 86.0
------------- ---------- ------------- ----------
Gross profit 3.5 13.9 9.9 14.0
Selling, general, administrative
and factoring charges 6.8 5.1 5.8 4.8
------------- ---------- ------------- ----------
Operating earnings (loss) (3.3) 8.8 4.1 9.2
Interest expense 0.8 0.4 0.6 0.4
Other (income) - net (0.3) (0.2) (0.3) (0.2)
------------- ---------- ------------- ----------
Income (loss) before income taxes (3.8) 8.6 3.8 9.0
Income taxes (credit) (1.5) 3.1 1.5 2.2
Net income (loss) ( 2.3%) 5.5% 2.3% 6.8%
THIRTEEN WEEKS ENDED SEPTEMBER 30, 1995
COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 1, 1994
</TABLE>
Net Sales
- ---------
Net sales for the thirteen weeks ended September 30, 1995, (the third
fiscal quarter), were $7,385,141, representing a 22.4% decrease compared
to the third quarter 1994 sales of $9,520,758. Pounds shipped for the
third fiscal quarter of 1995 decreased by 29.1%. Full yarn pounds shipped
decreased by 15.1%, while commission yarn (the dyeing and processing of
customer owned yarns) pounds shipped decreased by 57.8%. The decrease in
sales resulted from continued softness in demand in the home and automotive
upholstery segments of the Company's business.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
- ---------------------
1995 Compared to 1994
- ---------------------
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the third quarter of 1995 decreased by $1,071,207, or
13.1%, as compared to the third quarter of 1994.
Material cost decreased by $886,526, or 17.5%, as compared to the third
quarter of 1994. The primary reason for the decrease in material cost was
a decrease in both full yarn and commission yarn pounds shipped as
discussed above.
Manufacturing labor decreased by $241,984, or 14.3%, as compared to the
third quarter of 1994. Although the Company granted an average wage
increase of 2 1/2 to 3% on January 2, 1995, the Company was reasonably
able to control its labor costs by increased labor efficiency, reduced
reworks and a better balance of production flow.
Manufacturing overhead increased by $57,303, or 4.0%, primarily as a
result of increases resulting from the introduction of significant amounts
of new machinery and equipment in the dyeing and finishing department.
Gross margin for the third fiscal quarter of 1995 aggregated $258,471
as compared to $1,322,881, for the comparable quarter of 1994, representing
a decrease of $1,064,410. This decrease resulted from the reduction in
sales volume of $2,135,617 for the 1995 third quarter period compared to
the like period of 1994, but with a reduction in cost of sales of only
$1,071,207. As a result, the gross profit percentage for the thirteen
weeks ended September 30, 1995 was 3.5% compared to 13.9% for the similar
period of 1994.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the third quarter of
1995 increased by $46,915, as compared to the 1994 third quarter.
Selling, general and administrative expenses represented 6.3% of net
sales compared to 4.4% in 1994. The increase in these category of
expenses were primarily increases in salaries, fringe benefit costs,
shareholders' informational reports and professional fees.
Factor's Charges
- ----------------
Factor's charges for the third quarter of 1995 decreased by $25,807,
or 40.2%, as compared to the third quarter of 1994. The decrease resulted
from a change in the rate paid to the Company's factor effective with the
second fiscal quarter of 1995 and to the reduction in sales volume. The
ratio of factored accounts versus nonfactored accounts for the third
quarter of 1995, as compared to the similar quarter of 1994, remained
approximately the same.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
- ---------------------
1995 Compared to 1994
- ---------------------
Interest Expense
- ----------------
Interest expense for the third quarter of 1995 increased by $21,147, as
compared to 1994 primarily as a result of the Company's increase in
long-term debt. Interest expense for 1995 and 1994 resulted only from
interest on the Company's long-term debt.
Interest Income
- ---------------
Interest income for the third quarter of 1995 decreased by $882 or 5.5%,
as compared to the third quarter of 1994. The decrease was due to a
reduction in matured funds maintained with the Company's factor.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen week period ended September 30, 1995, the Company
recorded a loss of $284,148 before a credit for income taxes, compared
with income before provision for income taxes for the like period of 1994
of $819,733.
The decrease was primarily due to a 22.4% decrease in sales volume,
together with a decreased gross profit percentage to 3.5% in the 1995
period compared to 13.9% in the like period of 1994, and to increases in
net operating expenses.
Provision (Credit) for Income Taxes
- -----------------------------------
As a result of the loss for the 1995 third fiscal quarter, the Company
has recorded a credit for income tax provision of $111,175 for the fiscal
quarter, thus reducing the net loss to $172,973. The credit for income
taxes includes a credit for Federal and state income taxes and is
equivalent to a 39.1% effective tax rate.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995
COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 1, 1994
Net Sales
- ---------
Net sales for the thirty-nine weeks ended September 30, 1995, decreased
by $1,867,433, or 6.8%, to an aggregate of $25,515,857 compared to
$27,383,290 for the like 1994 period. Total pounds shipped for the 1995
period decreased by 14.8%. Full yarn pounds shipped decreased by 3.8%,
while commission yarn (the dyeing and processing of customer owned yarns)
pounds shipped decreased by 38.1%.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirty-nine weeks of 1995 decreased by $570,629,
or 2.4%, as compared to the similar period of 1994.
Material cost decreased by $544,273, or 3.8%, as compared to the like
1994 period. The primary reasons for the decrease in material cost were
a decrease in full yarn pounds shipped and to a continuation of increasing
prices for material and packaging supplies.
Manufacturing labor cost decreased by $369,035, representing a decrease
of 7.2% as compared to the like period of 1994. This decrease occurred in
spite of a wage increase of approximately 2 1/2% to 3% granted January 2,
1995, as a result of management's control of labor costs by increased labor
efficiency, reduced reworks and a better balance of production flow.
Manufacturing overhead increased by $342,679, or 8.2%, primarily as a
result of increases in payroll taxes, workmen's compensation, employee
insurance costs, repairs and maintenance and depreciation, and from the
additional costs associated with new technologies resulting from the new
machinery and equipment put into operation during the period.
Gross margin for the thirty-nine weeks period ended September 30, 1995
was $2,537,156, as compared to $3,833,960 for the similar period of 1994,
a decrease of $1,296,804, or 33.8%. The decrease was the result of a
decreased sales volume of 6.8%, with a decrease in cost of sales of only
2.4%.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the thirty-nine weeks
ended September 30, 1995 increased by $223,392 compared to the similar
period of 1994. These categories of expenses represented 5.3% of net
sales compared to 4.1% in the like period of 1994. The increases in
this category of expenses were primarily in salaries and fringe benefit
costs, shareholders' informational reports and professional fees.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995
COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 1, 1994
(Continued)
Results of Operations (Continued)
- ---------------------------------
Factor's charges
- ----------------
Factor's charges for the thirty-nine weeks ended September 30, 1995
decreased by $45,792, or 25.8%, as compared to the similar period of 1994.
The decrease resulted from a change in the rate paid to Company's factor
effective with the beginning of the second fiscal quarter of 1995 and to
the reduction in sales volume.
Interest Expense
- ----------------
Interest expense for the thirty-nine weeks ended September 30, 1995
aggregated $157,823 compared to $120,433 for the like period of 1994.
The increase in interest costs in 1995 has resulted from the increase in
long-term debt incurred for the purpose of the acquisition of new machinery
and equipment.
Interest Income
- ---------------
Interest income for the thirty-nine week period of 1995 increased by
$14,463, or 27.9%, as compared to 1994. The increase was due to a higher
average balance invested with the Company's factor for the first six months
of 1995, and to the increased prime rate as compared to the 1994 period.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirty-nine week period ended September 30, 1995, income before
provision for income taxes decreased by $1,499,643, as compared to the
similar period of 1994. The decrease was primarily due to the 6.8%
decrease in sales volume, the decrease in gross profit percentage to 9.9%
in the 1995 period compared to 14.0% in the like period of 1994 and to
increases in selling, general and administrative expenses.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995
COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 1, 1994
(Continued)
Results of Operations (Continued)
- ---------------------------------
Provision for Income Taxes
- --------------------------
Provision for income taxes for the nine month period ended October 1,
1994, was impacted by the 1994 reduction in the valuation allowance on
deferred tax assets provided in the prior fiscal year. The following
represents an analysis of the tax provisions for the thirty-nine weeks
ended September 30, 1995 and October 1, 1994:
Thirty-Nine Weeks Ended
-----------------------
September 30, October 1,
1995 1994
------------- ----------
Federal income taxes $330,532 $813,100
State income taxes, net of Federal
income taxes 49,725 123,500
------------- ----------
Total 380,257 936,600
Overaccrual of prior year valuation
allowance on deferred tax assets - (342,800)
------------- ----------
Provision for income taxes $380,257 $593,800
============= ==========
Additional Data
- ---------------
The revenues for the thirty-nine weeks ended September 30, 1995, and,
specifically, the third quarter revenues were impacted by unanticipated
delays encountered during the period relative to the installation and
start-up of the Company's new dyeing equipment. The resulting impact was
a loss of production of approximately 25 - 30 percent for the third
quarter. The impact of the reduced production with resulting lost
revenues, combined with non-recurring expenses associated with the
start-up of the new equipment resulted in a net loss for the 1995 third
quarter of $173 thousand, or a per share loss of $.06. Additionally, net
income for the nine months was reduced to $592 thousand, or per share
earnings of $.22, compared to $1.9 million for 1994, or per share earnings
of $.68.
The outlook for the fourth quarter remains cautiously optimistic driven
by less than anticipated recovery in several key market segments. The
current level of incoming orders and backlog have remained relatively
stable during the third quarter and the Company does not anticipate any
major changes in this trend during the remainder of 1995. However, as the
new state-of-the-art dyeing facility comes on board during the fourth
quarter, the potential for market penetration and continued growth are
more positive for 1996.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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 receivables. 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 did not borrow any funds from
its factor during the three year period ended December 31, 1994. During
the third quarter of 1995, the Company did receive advances from its factor
against unmatured receivables on which advances the factor charges interest.
As of September 30, 1995, the Company had a net amount of $4,115,211 due
from the factor on the regular factoring account with a maturity date in
October 1995. The Company had no matured funds at its factor as of
September 30, 1995.
The Company's working capital at July 1, 1995 aggregated $4,732,350
representing a working capital ratio of 2.3 to 1 compared with a working
capital of $5,870,156 at December 31, 1994 and a working capital ratio of
3.0 to 1.
As a measure of current liquidity, the Company's quick position
(cash, cash equivalents and receivables over current liabilities) discloses
the following at September 30, 1995.
Cash, cash equivalents and receivables.........................$4,232,041
Current liabilities............................................ 3,536,885
----------
Excess of quick assets over current liabilities................$ 695,156
The Company believes that its cash, cash equivalents and receivables plus
internally generated funds and its credit arrangements will be sufficient
to finance its operations for the next 12 months.
The Company has acquired $6,024,371 of capital property assets during
the nine month period ended September 30, 1995 and has drawn from its bank
$4,212,229 (including $148,380 drawn in 1994) against a $5,000,000 loan
commitment from its bank. The balance between acquisitions of property
assets and the $5,000,000 loan commitment is available to the Company.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (Continued)
- -------------------------------
Inflation
- ---------
The results of operations of the Company for the periods discussed have
not been significantly affected by inflation.
Capital Expenditures
- --------------------
The Company expects capital asset expenditures to be approximately
$150,000 during the fourth quarter of 1995. Inasmuch as the Company
acquired approximately $6,025,000 during the nine months ended September
30, 1995, the fourth quarter acquisition will bring the total property
assets acquired in 1995 to $6,175,000. The Company will have increased
its long-term debt to finance its acquisition of property assets by the
new loan of $5,000,000 as more fully discussed in Note 6 of Notes to
Condensed Financial Statements.
<PAGE>
PART II - OTHER INFORMATION
BURKE MILLS, INC.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - No report on Form 8-K has been filed during
the thirteen weeks ended September 30, 1995.
<PAGE>
BURKE MILLS, INC.
SIGNATURES
Pursuant to the requirements 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.
BURKE MILLS, INC.
(Registrant)
Date: November 13, 1995 S/ Richard F. Whisenant
Richard F. Whisenant
(President)
Date: November 13, 1995 S/ S. Scott Womack
S. Scott Womack
(Vice-President-Finance and
Chief Financial Officer)
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