[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-28-1996
[PERIOD-END] SEP-27-1997
[CASH] 3,394,230
[SECURITIES] 0
[RECEIVABLES] 3,797,584
[ALLOWANCES] 0
[INVENTORY] 3,256,982
[CURRENT-ASSETS] 11,381,123
[PP&E] 26,958,134
[DEPRECIATION] 14,708,266
[TOTAL-ASSETS] 23,934,256
[CURRENT-LIABILITIES] 2,873,274
[BONDS] 5,500,000
[COMMON] 1,809,171
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 11,558,508
[TOTAL-LIABILITY-AND-EQUITY] 23,934,256
[SALES] 30,375,453
[TOTAL-REVENUES] 30,375,453
[CGS] 27,251,215
[TOTAL-COSTS] 27,251,215
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 370,000
[INCOME-PRETAX] 910,248
[INCOME-TAX] 356,043
[INCOME-CONTINUING] 554,205
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 554,205
[EPS-PRIMARY] .20
[EPS-DILUTED] .20
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1997
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) 874-6341
(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 3, 1997, there were outstanding 2,741,168 shares of the
issuer's only class of common stock.
<PAGE>
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
Condensed Balance Sheets
September 27, 1997 and December 28, 1996 3
Condensed Statements of Operations and
Retained Earnings
Thirteen Weeks Ended September 27, 1997
and September 28, 1996
Thirty-nine Weeks Ended September 27, 1997
and September 28, 1996 4
Statements of Cash Flows
Thirty-nine Weeks Ended September 27, 1997
and September 28, 1996 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 17
Item 6(a)- Exhibit 27 - Financial Data Schedule 18
SIGNATURES 19
<PAGE>
PART I - FINANCIAL INFORMATION
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
September 27, December 28,
1997 1996
(Unaudited) ( Note A)
------------ -----------
ASSETS
Current Assets
Cash and cash equivalents $ 3,394,230 $ 2,157,428
Accounts receivable 3,797,584 3,198,211
Inventories 3,256,982 3,450,805
Prepaid expenses and other current
assets 103,558 94,028
Prepaid and refundable income taxes 120,000 129,340
Deferred income taxes 708,769 874,810
------------ -----------
Total Current Assets 11,381,123 9,904,622
------------ -----------
Property, Plant and Equipment - at cost 26,958,134 26,194,241
Less: Accumulated depreciation 14,708,266 13,550,436
------------ -----------
Property, Plant and Equipment - Net 12,249,868 12,643,805
------------ -----------
Other Assets
Investment & Advances to Affiliate 157,493 5,993
Deferred Expenses 145,772 --
------------ -----------
Total Other Assets 303,265 5,993
------------ -----------
$23,934,256 $22,554,420
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 500,000 $ --
Accounts payable 1,930,624 1,436,054
Accrued salaries, wages and vacation pay 213,919 129,952
Other liabilities and accrued expenses 228,731 171,640
------------ -----------
Total Current Liabilities 2,873,274 1,737,646
Long-term Debt 5,500,000 6,000,000
Deferred Income Taxes 2,193,303 2,003,300
------------ -----------
Total Liabilities 10,566,577 9,740,946
------------ -----------
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 8,447,159 7,892,954
------------ -----------
Total Shareholders' Equity 13,367,679 12,813,474
------------ -----------
$23,934,256 $22,554,420
============ ===========
Note A: The December 28, 1996 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
<FN>
<PAGE>
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
Sept. 27 Sept. 28 Sept. 27 Sept. 28
1997 1996 1997 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
Net Sales $ 9,873,517 $10,225,651 $30,375,453 $30,434,518
----------- ----------- ----------- -----------
Cost and Expenses
Cost of Sales 8,797,137 9,122,206 27,251,215 27,856,269
Selling, General and
Administrative Expenses 571,465 568,706 1,808,122 1,732,611
Factor's Charges 44,907 48,663 135,214 142,093
----------- ----------- ----------- -----------
Total Costs and Expenses 9,413,509 9,739,575 29,194,551 29,730,973
----------- ----------- ----------- -----------
Operating Earnings 460,008 486,076 1,180,902 703,545
----------- ----------- ----------- -----------
Other Income
Interest Income 37,573 9,557 100,293 17,206
Gain on Disposal of
Property Assets -- 93,940 -- 93,940
Other, net 2,186 1,963 3,296 4,083
----------- ----------- ----------- -----------
Total 39,759 105,460 103,589 115,229
----------- ----------- ----------- -----------
Other Expenses
Interest Expense 122,572 122,711 370,000 373,798
Loss on Disposal of Property -- -- 4,243 --
----------- ----------- ----------- -----------
Total 122,572 122,711 374,243 373,798
----------- ----------- ----------- -----------
Income Before Provision
for Income Taxes 377,195 468,825 910,248 444,976
Provision for Income Taxes
(Credit) 147,539 183,381 356,043 174,052
----------- ----------- ----------- -----------
Net Income (Loss) 229,656 285,444 554,205 270,924
Retained Earnings at Beginning
of Period 8,217,503 7,293,033 7,892,954 7,307,553
----------- ----------- ----------- -----------
Retained Earnings at End
of Period $ 8,447,159 $ 7,578,477 $ 8,447,159 $ 7,578,477
=========== =========== =========== ===========
Earnings (Loss) Per Share $ .08 $ .11 $ .20 $ .10
=========== =========== =========== ===========
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.
<PAGE>
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Weeks Ended
Sept. 27, Sept. 28,
1997 1996
---------- -----------
Cash flows from operating activities
Net income (loss) $ 554,205 $ 270,924
---------- -----------
Adjustments to reconcile net income(loss)
to net cash provided (used) by operating
activities:
Depreciation 1,167,322 1,109,780
Loss on disposal of property assets 4,243 (93,940)
Change in deferred income taxes 356,044 18,375
Changes in assets and liabilities:
Accounts receivable (599,373) (1,533,197)
Inventories 193,823 (326,579)
Prepaid expenses and other current assets (9,530) 44,838
Prepaid and refundable income taxes 9,340 --
Other assets (145,772) (1,542)
Accounts payable 494,570 595,477
Accrued salaries, wages and vacation pay 83,967 85,669
Other liabilities and accrued expenses 57,091 20,798
---------- -----------
Total Adjustments 1,611,725 (80,321)
---------- -----------
Net cash provided (used) by operating
activities 2,165,930 190,603
---------- -----------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (777,628) (988,910)
---------- -----------
Investment & advances -
affiliated company (151,500) --
---------- -----------
Net cash used by investing activities (929,128) (988,910)
---------- -----------
Cash flows from financing activities:
Proceeds from long-term bank note -- 1,670,663
Principal payments of long-term debt -- (850,341)
---------- -----------
Net cash provided by financing activities -- 820,322
---------- -----------
Net increase (decrease) in cash and
cash equivalents 1,236,802 22,015
Cash and cash equivalents at
beginning of year 2,157,428 834,833
---------- -----------
CASH AND EQUIVALENTS AT END OF
THIRD QUARTER $3,394,230 $ 856,848
========== ===========
<FN>
See notes to condensed financial statements
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all necessary adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the thirty-nine week period ended September 27, 1997 are
not necessarily indicative of the results that may be expected
for the year ended January 3, 1998. For further information,
refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the
year ended December 28, 1996.
NOTE 2 - 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.
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 27, 1997 and September 28, 1996 was
$370,035 and $391,292, respectively. No income taxes were paid
during the thirty-nine weeks ended September 27, 1997 and
September 28, 1996.
NOTE 3 - OPERATIONS OF THE COMPANY
The Company is engaged in 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 4 - USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
September 27, December 28,
1997 1996
---------- ------------
Account current - Factor:
Due from Factor on regular
factoring account........ $3,251,311 $3,032,655
Non-factored accounts
receivable............... 546,273 165,556
---------- ------------
$3,797,584 $3,198,211
========== ============
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
September 27, December 28,
1997 1996
---------- ------------
Finished and in process.... $1,935,687 $2,191,957
Raw Materials.............. 730,674 709,099
Dyes and Chemicals......... 411,741 394,335
Other...................... 178,880 155,414
---------- ------------
$3,256,982 $3,450,805
========== ============
NOTE 7 - LINE OF CREDIT
Pursuant to a loan agreement dated March 29, 1996, the
Company secured a line of credit facility from its bank
wherein it may borrow, repay and reborrow amounts from the
line of credit facility for short-term working capital
needs. The aggregate principal amount outstanding at any
time under this loan my not exceed the lesser of $2,000,000
and the borrowing base (as defined). Interest on this loan
facility is at a rate that varies with the Libor Rate and
is payable on the last day of each month. There were no
outstanding loans under this agreement as of September 28,
1997 or December 28, 1996.
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 8 - LONG-TERM DEBT
On March 29, 1996, the Company entered into a new
loan agreement with its bank providing for a term loan of
$6,000,000 and, as discussed in Note 7 above, a line of
credit facility of $2,000,000 for ongoing, short-term
working capital needs. The new term loan refinanced two
formerly existing term loans, and accordingly, all term
obligations were consolidated into the one $6,000,000
obligation. This new loan is secured by (1) a first Deed
of Trust on property and buildings located at the Company's
manufacturing sites in North Carolina, (2) a first lien
position on the new equipment and machinery installed at
these manufacturing sites and (3) a first lien position on
the existing machinery and equipment located at the
Company's manufacturing sites.
Under the new term loan agreement, interest only
will be payable monthly until February, 1998. Thereafter,
principal maturities will be payable in the amount of
$62,500 per month for ninety-six consecutive months plus
interest at the fixed rate of 8.06%. In order to effect
this fixed interest rate hedge, the bank converted its
interest rate cap into a fixed rate loan by entering into a
fixed rate hedge contract with the Company. Under this
fixed rate hedge contract, the Company will pay the bank
8.06% for the term of the contract. The floating rate
(LIBOR plus 1.9%) that the Company will pay the bank will
be equal to the floating rate that the bank's capital
markets will pay to the Company. Whether LIBOR rates rise
or fall over the life of the loan agreement, the Company
will continue to pay the bank a fixed rate of 8.06% for the
life of the contract, thereby creating a fixed loan.
Among other things, covenants include a debt service
coverage ratio, a limit on annual property asset
acquisitions exclusive of property 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, a
minimum quick ratio, and a maximum debt to tangible net
worth ratio.
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 8 - LONG-TERM DEBT (Continued)
The annual principal maturities of long-term debt at
September 27, 1997 are as follows:
Current portion $ 500,000
1998/1999 $ 750,000
1999/2000 750,000
2000/2001 750,000
2001/2002 750,000
Thereafter 2,500,000 5,500,000
--------- ----------
$6,000,000
==========
NOTE 9 - INCOME TAXES
The Company uses the liability method as required by
FASB statement 109 "Accounting for Income Taxes". Under this
method, deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax
bases of assets and liabilities and are measured using the
enacted tax rates and laws.
The items which comprise deferred tax assets and
liabilities are as follows:
September 27, December 28,
1997 1996
---------- ------------
Deferred Tax Assets:
Alternative minimum taxes paid $ 608,825 $ 608,825
Net Operating loss carryforward 53,940 246,100
Inventory capitalization 21,785 8,300
Business credits 11,585 11,585
Contributions carryforward 12,634 --
---------- ------------
$ 708,769 $ 874,810
========== ============
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,193,303 $2,003,300
========== ============
Provision (credit) for income Thirty-nine Weeks Ended
taxes consists of: September 27, September 28,
Deferred: 1997 1996
-----------------------
Federal $ 285,499 $ 139,567
State 70,544 34,485
---------- -----------
$ 356,043 $ 174,052
========== ===========
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company is 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. Based on the Company's
profit sharing formula, no provision was required for matching
contributions for the period ended September 27, 1997 and
September 29, 1996.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company
to concentration of credit risk consist principally of 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 20th to the 25th of the
following month, at which time the amount due the Company by the
factor is transferred to matured funds on deposit with First
Union National Bank. Matured funds of $2,934,000 will be
transferred to First Union National Bank on October 21, 1997.
The Company utilizes its matured funds and loans due to its bank
arising from its Line of Credit facility on a continuous basis
to replenish its cash in the bank for the payment of materials,
labor, and overhead.
NOTE 12 - COMMITMENTS
(a) The Company entered into a supply agreement, dated November
23, 1996, with its joint venture company, Fytek, S.A.D.E.
C.V. to purchase twisted yarns. The company agrees to
purchase approximately $1,800,000 of twisted yarn annually
for the five years beginning on the startup date of the
operation.
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 12 - Commitments (Continued)
(b) The Company entered into a supply agreement, dated
November 19, 1996, with Fibras Quimicas, S.A. to purchase
yarn. The Company agrees to purchase yarn based on the
schedule below, beginning February 1, 1997, for a five
year period.
Year 1 Approximately $2,600,000
Year 2 Approximately $6,400,000
Year 3 Approximately $7,100,000
Year 4 Approximately $7,700,000
Year 5 Approximately $7,700,000
NOTE 13 -
In 1995, the Financial Accounting Standards Board issued
Statement No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying
amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The
Company adopted Statement No.121 in the first quarter of 1996
and such adoption did not have any effect on the financial
statements for 1996 or for the thirty-nine weeks ended
September 27, 1997.
NOTE 14 - 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 27,
1997 and September 28, 1996.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
1997 Compared to 1996
- ---------------------
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:
Thirteen Weeks Thirty-nine Weeks
Ended Ended
Sept. 27 Sept. 28 Sept. 27 Sept. 28
------- ------- ------- -------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 89.1 89.2 89.7 91.5
------- ------- ------- -------
Gross Profit 10.9 10.8 10.3 8.5
Selling, General, Administrative
and Factoring Costs 6.2 6.0 6.4 6.2
------- ------- ------- -------
Operating Earnings 4.7 4.8 3.9 2.3
Interest Expense 1.3 1.2 1.2 1.2
Other (Income) - net (0.4) (1.0) (0.3) (0.4)
------- ------- ------- -------
Income (Loss) before Income Taxes 3.8 4.6 3.0 1.5
Income Taxes 1.5 1.8 1.2 0.6
Net Income (Loss) 2.3% 2.8% 1.8% 0.9%
======= ======= ======= =======
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997
COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996
Net Sales
- ---------
Net sales for the thirteen weeks ended September 27, 1997 (the third
fiscal quarter), were $9,874,000, representing a 3.4% decrease compared
to the third quarter 1996 sales of $10,226,000. Pounds shipped
decreased by 4.4% compared to the third quarter of 1996. Although
pounds shipped decreased by 4.4%, sales decreased by only 3.4% as a
result of sales of higher priced yarns.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirteen weeks ended September 27, 1997
decreased 3.6% on a sales decrease of 3.4%. The decrease in cost of
sales was primarily due to a decline in sales and continuing improvements
in the efficiency of the new dyeing equipment.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
Cost of Sales and Gross Margin (Continued)
- ------------------------------
As a result of an decrease in sales of 3.4% and a decrease in cost
of sales of 3.6%, gross profits declined by 2.4% as compared to the
third quarter of 1996.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the third
quarter increased by $3,000 or 0.005%.
Factor's Charges
- ----------------
Factor's charges for the third quarter decreased by $4,000 or 7.7%
as a result of lower sales and a larger percentage of non-factored sales.
Interest Expense
- ----------------
Interest expense for the third quarter of 1997 was relatively
constant, as compared to 1996. Interest expense for 1997 and 1996
resulted mainly from interest on the Company's long-term debt incurred
to finance the 1995 dyeing expansion.
Interest Income
- ---------------
Interest income for the third quarter of 1997 increased by
$28,000, as compared to 1996. The increase was due to an increase in
funds invested.
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen weeks ended September 27, 1997, income before
provision for income taxes decreased by $92,000, as compared to the
similar period of 1996, primarily as a result of the 1997 decrease in
sales revenue offset by a gain on sales of assets of $94,000 in 1996
which did not reoccur in 1997.
Provision for Income Taxes
- --------------------------
For the thirteen weeks ended September 27, 1997, and September 28,
1996, the Company made provision for income taxes of $148,000 and $183,000,
respectively, based on pre-tax income for 1997 of $377,000 and 1996 of
$469,000. Income taxes as a percentage of pre-tax aggregated 39.1% for
both the 1997 and 1996 periods.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 COMPARED TO
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996
1997 Compared to 1996
- ---------------------
Net Sales
- ---------
For the thirty-nine weeks ended September 27, 1997, net sales of
$30,375,000 were relatively consistent with net sales of $30,435,000
in 1996.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirty-nine weeks ended September 27,
1997 decreased by 2.2% on similar sales. The decrease in cost of
sales was primarily due to continuing improvements in the efficiency of
the new dyeing equipment. The improvements resulted in a decrease in
material cost for the thirty-nine week period.
As a result of a decrease in cost of sales of 2.2% on relatively
the same sales volume, gross profit improved by 21.2%, as compared to
the like period of 1996.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the thirty-nine
weeks increased $76,000, or 4.4%. The increase is primarily due to
increases in professional services, travel expenses and insurance cost.
Factor's Charges
- ----------------
Factor's charges for the thirty-nine weeks decreased by $7,000 as a
result of a larger percentage of non-factored sales.
Interest Expense
- ----------------
Interest expense for the thirty-nine weeks of 1997 was relatively
constant, as compared to 1996. Interest for 1997 and 1996 resulted
mainly from interest on the Company's long-term debt incurred to finance
the 1995 dyeing expansion.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
Interest Income
- ---------------
Interest income for the thirty-nine weeks increased by $83,000 as
compared to 1996. The increase was due to an increase in funds
invested.
Income before Provision for Income Taxes
- ----------------------------------------
For the thirty-nine weeks ended September 27, 1997, income before
provision for income taxes increased to $910,000, compared to $445,000
in 1996, primarily as a result of reduced cost of sales.
Provision for Income Taxes
- --------------------------
For the thirty-nine weeks ended September 27, 1997 and September 28,
1996, the Company made provision for income taxes of $356,000 and
$174,000, respectively, based on pre-tax income for 1997 of $910,000
and 1996 of $445,000. Income taxes as percentage of pre-tax income
aggregated 39.1% for both the 1997 and 1996 periods.
Subsequent Matters
- ------------------
The Company's joint venture company, Fytek, S.A. de C.V., should
begin production in the fourth quarter of 1997. The joint venture will
not be in full production immediately but will scale up production over
the next six months. The Company does not expect a material effect on
its earnings in the fourth quarter resulting from the startup of the
joint venture.
Currently, the outlook for the remainder of 1997 is driven by a
number of uncertainties that could possibly have an impact on future
operating results. The continuing pressures in the market for lower
prices impacts the Company's efforts to increase market share and
generate targeted profit levels. The current economic forecast
indicates moderate growth in durable goods for the remainder of 1997.
This definitely impacts the Company's efforts in both the automotive and
home furnishings industries.
However, the Company is optimistic that the majority of the
technical issues relative to the new dyeing installation have been
solved. This should enable the Company to establish an increased market
presence in the future.
<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 may borrow from First Union National Bank based on a $2,000,000
line of credit from the recent long-term loan agreement which borrowings
are secured by the outstanding credit balance at the factor. As of
September 27, 1997, the Company had $3,251,000 due from the factor with
a net of $2,934,000 to mature on October 21, 1997.
The Company entered into a new loan agreement effective March 29,
1996 providing for a term loan of $6,000,000 and a working capital
facility of $2,000,000. Under the provisions of the loan agreement, the
Company may borrow up to $2,000,000 for seasonal working capital
requirements using the credit balance due from the factor as security.
The Company's working capital at September 27, 1997 aggregated
$8,508,000, representing a working capital ratio of 4.0 to 1 compared
with a working capital of $8,167,000 at December 28, 1996 and a working
capital ratio of 5.7 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 27, 1997:
Cash, cash equivalents and receivables........... $7,192,000
Current liabilities.............................. 2,873,000
----------
Excess of quick assets over current liabilities.. $4,319,000
==========
The Company believes that its cash, cash equivalents and
receivables, and its factoring and credit arrangements will be
sufficient to finance its operations for the next 12 months.
The results of operations of the Company for the periods discussed
have not been significantly affected by inflation.
During the thirty-nine weeks of 1997, the Company acquired and made
deposits on new machinery and equipment of approximately $778,000 as set
forth in the accompanying statement of cash flows. For the balance of
1997, the Company anticipates the acquisition of machinery and equipment
of approximately $222,000 which, together with the acquisitions and
deposits on acquisitions incurred to September 27, 1997, will aggregate
an anticipated acquisition of new machinery of approximately $1,000,000
in 1997.
<PAGE>
BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on 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 September 27, 1997.
<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 11, 1997 /s Charles P. McCamy
Charles P. McCamy
(President)
Date: November 11, 1997 /s Thomas I. Nail
Thomas I. Nail
(Vice President Finance)
(Principal Accounting Officer)
(Principal Financial Officer)
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