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 28, 1996
Commission File No. 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
State or other jurisdiction 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 closing
price on February 21, 1997) was $2,605,660.
<PAGE>
The number of shares outstanding of the registrant's only
class of common stock as of March 1, 1997 is 2,741,168 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's proxy statement, which is to be filed
pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year covered by this report, 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 28, 1996 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 28, 1995.
(c) Narrative Description of Business. 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 principal market served by the Company are upholstery 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 28, 1996 was $4,833,694 and as of December 30, 1995 was
$3,377,000. 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
canceled in the future.
The most important raw materials used by the Company are
unprocessed raw yarn, dyes and chemicals. The Company believes
that its sources of supply for these materials are adequate for its
needs and that it is not substantially dependent upon any one
supplier.
<PAGE>
With respect to the practices of the Company relating to
working capital items, the Company generally carries enough
inventory for approximately 47 days. On the average, the Company
turns its inventory approximately 6 to 8 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.
For the fiscal year ended December 28, 1996, approximately 5.9% 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 customers 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.
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 has made various changes in its plant that regulate
the discharge of materials into the environment. The Company believes
its manufacturing operations are 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
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 28, 1996 with
federal, state and local environmental protection laws had no
material effect on capital expenditures, earnings or the competitive
position of the Company.
During 1996 in connection with a bank loan to the Company secured
by real estate, the Company had a Phase I Environmental Site Assessment
conducted on its property. The assessment indicated the presence of
a contaminant in the groundwater under the Company's property. The
contaminant was a solvent used by the Company in the past, but no
longer used. The contamination was reported to the North Carolina
Department of Health, Environment and Natural Resources (DEHNR).
DEHNR required a Comprehensive Site Assessment, which has been
completed. The Company has retained an environmental engineering
firm to conduct testing and to prepare a Corrective Action Plan
for submission to DEHNR. The Company is informed that because
the levels of groundwater contamination are low and no sources
of drinking water are affected, remediation may not be required.
If contamination has moved off-site, the groundwater may have to
be pumped out of the ground and into the municipal sewer system
for treatment.
<PAGE>
The Company's environmental engineering firm has estimated at this
time a maximum remediation expense of $250,000.00 if extensive
remediation is necessary.
On March 1, 1997, the Company had 295 employees.
The Company's yarn division is its only division.
During the fiscal year ended December 28, 1996, sales to
CMI Industries, Inc. and sales to Milliken and 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.
The Company owns 49% of the stock and 50% of the voting control
of FYTEK, S.A. de C.V. ("FYTEK"), a Mexican corporation with its
principal place of business in Monterey, Mexico. The other
shareholder in FYTEK is Fibras Quimicas, S.A., a Mexican
Corporation. The purpose of FYTEK is the manufacture and
marketing of yarns. FYTEK is not yet in production. When
FYTEK is in production, it is contemplated that the Company
will acquire yarn from FYTEK. It is also contemplated that
the Company will use FYTEK to market and distribute its dyed
yarn in Mexico, Central America and South America.
(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 and Canada during
1994 and 1995 which amounted to less than three percent of total
sales in each year for each country. During the last fiscal year,
sales to customers in Mexico and Canada were less than five percent
of total sales in each year for each country.
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 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 and as
a distribution center.
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 28, 1996 are as follows:
Pounds/Year 1996
Department Capacity Utilization
Twisting Machines 2,500,000 56%
Winding Machines 20,000,000 62%
Texturing Machines 4,835,000 54%
Dyeing Equipment 20,000,000 53%
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.
<PAGE>
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 for the Company's common stock for each quarterly
period during the past two fiscal years ended December 28, 1996
(as obtained from the office of Merrill Lynch Pierce Fenner & Smith
in Charlotte, North Carolina) is as follows:
<PAGE>
Quarter Ending High Bid Low Bid
-------------- -------- -------
1995
March 31 $6.875 $3.75
June 30 $6.00 $3.50
September 30 $4.125 $3.125
December 31 $4.125 $2.375
1996
March 31 $3.50 $2.625
June 30 $3.00 $2.00
September 30 $4.00 $2.25
December 31 $4.00 $2.875
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 March 3, 1997 there were 481 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 28, 1996 have been
derived from the audited financial statements of the Company.
The data should be read in conjunction 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 28, December 30, December 31, January 1, January 2,
1996 1995 1994 1994 1993
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA
Net sales $40,649 $34,148 $36,194 $26,835 $22,072
Cost of sales 36,887 30,666 30,928 24,292 19,861
------- ------- ------- ------- -------
Gross profit $ 3,762 $ 3,482 $ 5,266 $ 2,543 $ 2,211
======= ======= ======= ======= =======
Income before income taxes $ 869 $ 1,156 $ 3,376 $ 690 $ 620
Income taxes 284 212 867 316 211
------- ------- ------- ------- -------
Net income $ 585 $ 944 $ 2,509 $ 374 $ 409
======= ======= ======= ======= =======
Per Share (Note A)
Net Income $ .21 $ .34 $ .92 $ .14 $ .15
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 $ 1,025 $ 6,372 $ 1,541 $ 1,374 $ 1,257
Depreciation $ 1,508 $ 1,052 $ 1,006 $ 903 $ 849
Cash provided by
operating activities $ 1,527 $ 2,004 $ 2,186 $ 985 $ 3,219
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 28, December 30, December 31, January 1, January 2,
1996 1995 1994 1994 1993
------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Current assets $ 9,905 $ 7,641 $ 8,814 $ 7,382 $ 6,082
Current liabilities 1,738 2,171 2,944 2,923 2,173
------- ------- ------- ------- -------
Working capital $ 8,167 $ 5,470 $ 5,870 $ 4,459 $ 3,909
======= ======= ======= ======= =======
Current ratio 5.70 3.52 2.99 2.53 2.80
Total assets $22,554 $20,769 $16,621 $14,655 $13,086
Long-term debt $ 6,000 $ 4,964 $ 995 $ 1,645 $ 1,765
Deferred income taxes $ 2,003 $ 1,406 $ 1,399 $ 1,312 $ 748
Shareholders' equity $12,813 $12,228 $11,284 $ 8,775 $ 8,401
</TABLE>
(A) Income per share has been computed based on the weighted average
number of common shares 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 28, December 30, December 31, Increase (Decrease)
1996 1995 1994 1995-1996 1994-1995
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 19.0% ( 5.7%)
Cost of sales 90.7 89.8 85.5 20.3 ( 0.8)
------ ------ ------ --------- ---------
Gross profit margin 9.3 10.2 14.5 8.0 (33.9)
Selling, general,
administrative and
factoring expenses 6.3 6.2 5.0 19.2 15.9
------ ------ ------ --------- ---------
Operating earnings 3.0 4.0 9.5 ( 9.4) (60.4)
Other income 0.3 0.2 0.3 67.5 (21.3)
Other expenses ( 1.2) ( 0.8) ( 0.5) 75.6 77.6
------ ------ ------ --------- ---------
Income before income taxes 2.1 3.4 9.3 (24.8) (65.7)
Income taxes 0.7 0.6 2.4 33.8 (75.5)
------ ------ ------ --------- ---------
Net income 1.4% 2.8% 6.9% ( 38.0%) ( 62.4%)
====== ====== ====== ========= =========
</TABLE>
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
- ---------------------
1996 Compared to 1995
- ---------------------
Net Sales
- ---------
Net sales for the 1996 year aggregated $40.6 million, representing
an increase of $6.5 million, as compared to net sales volume of $34.1
million recorded by the Company for 1995. Net sales dollars increased
by 19.0% and total pounds shipped increased by 33.9% over those of 1995.
Full yarn sales dollars increased 38.5% and full yarn pounds shipped
increased by 52.4%. Sales from commission yarn sales (the dyeing and
processing of customer owned yarns) decreased in both dollars and pounds
by 36.3% and 34.1%, respectively in 1996 compared with 1995.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales which aggregated $36.9 million for 1996 increased by
$6.2 million, or 20.3%, as compared to 1995.
Material cost increased by $5.4 million, or 29.1%, as a result
of the increase in full yarn sales of 38.5%.
Labor costs increased by 0.3% and manufacturing overhead increased
by 13.4%, primarily as a result of continuing costs incurred for the
time and overhead spent in the new technology undertaken by the Company
in 1995.
Inasmuch as net sales for 1996 as compared to 1995, increased by
19.0%, while costs of sales increased by 20.3%, the 1996 gross margin
decreased to 9.3% as compared to 10.2% recorded in 1995.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for 1996 aggregated
$2.3 million, as compared to $1.9 million in 1995, representing for
each year 5.7% of net sales.
Factor's Charges
- ----------------
Factor's charges for 1996 aggregated $194,000, or 0.5% of net
sales, as compared to $178,000 in 1995, representing a like 0.5% of
net sales in 1995. The ratio of sales made to factored accounts
versus nonfactored accounts for 1996 remained approximately the same
as 1995.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
- ---------------------------------
1996 Compared to 1995 (Continued)
- ---------------------------------
Operating Margins
- -----------------
As a result of the discussion above with respect to the 1996
increase in net sales with the reduction in gross profit percentage,
coupled with the almost identical percentage to net sales of selling,
general and administrative expenses, the Company reported operating
earnings of $1.2 million in 1996, compared to operating earnings of
$1.4 million in 1995.
Interest Income
- ---------------
Interest income for 1996 was $36,000 as compared to $68,000 in 1995.
The 1996 interest income was primarily interest earned on short-term cash
equivalents held in the Company's bank.
Interest Expense
- ----------------
Interest expense for the year ended December 28, 1996
increased to $495,000 as compared to $282,000 in 1995. Interest
expense for 1996 and 1995 resulted primarily from interest on the
Company's long-term debt. The increase resulted from additional
long-term debt incurred to fund the acquisition of property.
<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
- ---------------------
Income Before Provision for Income Taxes
- ----------------------------------------
Income before provision for income taxes for 1996 was $869,000,
as compared to $1,156,000 for 1995. The 1996 decrease of $287,000
resulted from the reduction in gross profit margin, increased selling,
general and administrative expenses and interest costs.
Provision for Income Taxes
- --------------------------
The increase in 1996 income taxes on pre-tax income of $869,000,
compared with income taxes on pre-tax income of $1,156,000 in 1995,
arose from the overaccrual of 1994 income taxes resulting in a
reduction of 1995 income taxes and by a 1995 upward adjustment of
alternative minimum taxes available.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
- ---------------------
1995 Compared to 1994
- ---------------------
Net Sales
- ---------
Net sales for the 1995 year aggregated $34.1 million, representing
a decrease of $2.0 million, or 5.7%, as compared to net sales volume
of $36.2 million recorded by the Company for 1994. Although net
sales dollars decreased by 5.7%, total pounds shipped decreased by
12.8%. Full yarn sales made by the Company were almost equivalent
in both dollar and pounds shipped for both 1995 and 1994. Sales
from commission yarn sales (the dyeing and processing of customer
owned yarns) decreased both in dollars and pounds by 33.9% and 41.6%,
respectively, in 1995 compared with 1994.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales which aggregated $30.7 million for 1995 only
decreased by $262,000 or 0.8%, as compared to 1994.
In spite of the decline in net sales dollars, material costs
only decreased by 1.4% compared to 1994, inasmuch as full yarn sales
for 1995 were almost equivalent in dollars and pounds with the 1994 year.
Labor costs decreased by 0.3% and manufacturing overhead actually
increased by 3.0%, as a result of costs incurred for the time and
overhead spent in absorbing the new technology undertaken by the Company
in 1995.
Inasmuch as net sales for 1995, as compared to 1994, decreased
by 5.7%, while costs of sales decreased by only 0.8%, the 1995 gross
margin decreased to 10.2%, as compared to 14.5% recorded in 1994.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for 1995 aggregated
$1.9 million, or 5.7%, of net sales, as compared to $1.6 million, or
4.4%, of net sales in 1994. The increase resulted primarily from
management salaries and fringe costs, travel costs, professional
services, stockholders' informational data, commissions, and employee
benefits.
Factor's Charges
- ----------------
Factor's charges for 1995 aggregated $178,000, or 0.5% of net
sales, as compared to $235,000, representing 0.6% of net sales in
1994. The ratio of sales made to factored accounts versus nonfactored
accounts for 1995 remained approximately the same as 1994. However,
the factoring rate paid to the factor was reduced during 1995.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
- ---------------------
1995 Compared to 1994 (Continued)
- ---------------------------------
Operating Margins
- -----------------
As a result of the discussion above with respect to the 1995
decrease in net sales with the concurrent reduction in gross profit
percentage, together with the increase in the percentage to net
sales of selling, general and administrative expenses, the Company
reported operating earnings of $1.4 million in 1995, compared to
operating earnings of $3.4 million in 1994.
Interest Income
- ---------------
Interest income for 1995 was $68,000 as compared to $84,000 in 1994.
The 1996 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 increased to $12,000 in 1995, as compared to
$6,000 in 1994.
The increase of $6,000 was primarily due to additional revenue
from scrap parts sales.
Interest Expense
- ----------------
Interest expense for the year ended December 30, 1995 increased
to $282,000, as compared to $159,000 in 1994. Interest expense for
1995 and 1994 resulted primarily from interest on the Company's
long-term debt. The increase resulted from additional long-term
debt incurred to fund the acquisition of property, plant and
equipment which aggregated $6,372,000 in 1995.
Income Before Provision for Income Taxes
- ----------------------------------------
Income before provision for income taxes for 1995 was $1,156,000,
as compared to $3,376,000 for 1994. The 1995 decrease of $2,220,000
resulted from the reduction in sales for 1995, coupled with the
reduction in gross profit margin, increased selling, general and
administrative expenses and interest costs.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
- ---------------------
1995 Compared to 1994 (Continued)
- ---------------------------------
Provision for Income Taxes
- --------------------------
Provision for income taxes in 1995 was impacted by an upward
adjustment of the alternative minimum taxes available and by the
overaccrual of 1994 income taxes, resulting in a reduction in 1995
income taxes. In 1994, the income tax provision was reduced as a result
of the overaccrual in 1993 of a valuation allowance on deferred tax
assets. The following table represents an analysis of the tax provisions
for 1995 and 1994:
1995 1994
---- ----
Provision for income taxes $446,429 $1,322,200
Less: Overaccrual of 1994
income taxes and adjustment of
alternative minimum taxes
available as a credit 234,219 -
Overaccrual of 1993 valuation
allowance on deferred tax assets - 455,400
-------- ----------
$212,210 $ 866,800
For 1995, the provision for income taxes of $446,429 would represent a
tax provision of 38.6% rather than 18.4%. Earnings per share would be
reduced by $.09 per share to $.26 rather than the $.34 shown in the
statement of income.
For 1994, the provision for income taxes of $1,322,200 would represent
a tax provision of 39.2% rather than the 25.7%.
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
- ---------------------
1996 - 1993 Sales Analysis
- --------------------------
The table below sets forth an analysis of sales volume for the
period 1993 to 1996, inclusive. The table below discloses that full
yarn sales prices decreased from the high of $3.64 per pound in 1993
to $3.58 in 1994, $3.60 in 1995 and $3.29 in 1996. Unit prices for
commission sales increased from $1.43 in 1993 to $1.60 in 1994, $1.82
in 1995 and $1.74 in 1996.
% of Sales $
% of Pounds of Per
Net Sales Yarn Sold Pound
--------- --------- -----
1996:
Yarn sales 94% 89% $3.29
Commission sales 6 11 1.74
--------- --------- -----
Total 100% 100%
--------- ---------
1995:
Yarn sales 88% 79% $3.60
Commission Sales 12 21 1.82
--------- --------- -----
Total 100% 100%
--------- ---------
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%
--------- ---------
<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. As of December 28, 1996, the Company had $3,033,000
due from its factor, all of which matured on January 17, 1997.
The Company has a line of credit loan from its bank under
which the Company may borrow the lesser of $2,000,000 and the
borrowing base (as defined). Credit balances due the Company under
its factoring contract have been assigned to the bank as collateral
for loans under this line of credit.
The Company had inventories of $3,451,000 as of December 28, 1996.
The Company's average inventories aggregated approximately $3,177,000
for 1996, representing approximately 47 days inventory on hand.
The Company's inventories turn approximately 6 to 8 times each year.
The Company's working capital increased by approximately $2,697,000
at December 28, 1996 from that of December 30, 1995, primarily as a
result of 1996 earnings, and an increase in long-term debt. The
working capital of the Company and its line of credit with its bank
are 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:
1996 1995 1994
---- ---- ----
Working capital $8,166,976 $5,469,831 $5,870,156
Working capital ratio 5.7 to 1 3.5 to 1 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 December 28, 1996 and December 30, 1995:
December 28, December 30,
1996 1995
Cash, cash equivalents
and receivables $5,355,639 $3,808,934
Current liabilities 1,737,646 2,171,155
---------- ----------
Excess of quick assets
over current liabilities $3,617,993 $1,637,779
========== ==========
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources: (Continued)
- --------------------------------------------
The aggregate long-term debt, at December 28, 1996 was $6,000,000,
compared to $5,179,678 at December 30 1995. In order to finance the
acquisition of new property, plant and equipment of $6,371,819 in 1995,
and $1,024,598 in 1996, the Company incurred a new long-term debt of
$6,000,000, as more fully described in Note 7 of Notes to Financial
Statements. Pursuant to an agreement with its bank, the new obligation
will have no principal maturities until February 1998. Thereafter,
principal payments of $62,500 will be payable monthly for 96 consecutive
months.
The Company's long-term debt to equity ratios aggregated 46.8%
at December 28, 1996, 40.6% at December 30, 1995 and 8.8% at
December 31, 1994.
Capital budget expenditures approved for 1997 aggregate $531,000;
however, capital expenditures for 1997 may aggregate approximately
$1,000,000.
Environmental Matters
- ---------------------
During 1996 in connection with a bank loan to the Company
secured by real estate, the Company had a Phase I Environmental
Site Assessment conducted on its property. The assessment indicated
the presence of a contaminant in the groundwater under the Company's
property. The contaminant was a solvent used by the Company in the
past, but no longer used. The contamination was reported to the
North Carolina Department of Health, Environment and Natural Resources
(DEHNR). DEHNR required a Comprehensive Site Assessment, which has
been completed. The Company has retained an environmental engineering
firm to conduct testing and to prepare a Corrective Action Plan for
submission to DEHNR. The Company is informed that because the levels
of groundwater contamination are low and no sources of drinking water
are affected, remediation may not be required. If contamination has
moved off site, the groundwater may have to be pumped out of the ground
and into the municipal sewer system for treatment. The Company's
environmental engineering firm has estimated at this time a maximum
remediation expense of $250,000 if extensive remediation is necessary.
Inflation
- ---------
In spite of raw material price increases in 1994, 1995 and 1996,
the Company does not believe that operations for the periods discussed
have been significantly affected by inflation. Further, the Company's
performance in maintaining control over elements of overhead, in
conjunction with the infusion of state of the art dyeing technology,
have enabled it to remain competitive with its competition.
<PAGE>
COLE, SAMSEL & BERNSTEIN LLC
Certified Public Accountants
305 Madison Avenue 2 Essex Street
New York, NY 10165 Lodi, NJ 07644
(212) 972-9600 (201) 368-9300
FAX: (212) 972-9605 FAX: (201) 368-9069
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
To the Stockholders and Board of Directors of Burke Mills, Inc.
We have audited the accompanying balance sheets of Burke Mills, Inc.
as of December 28, 1996 and December 30, 1995, and the related statements
of operations, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 28, 1996. Our audits
also included the financial statement schedule listed in the index at
Item 14(a). 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 28, 1996 and December 30, 1995, and
the results of its operations and its cash flows for each of the three
years in the period ended December 28, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s Cole, Samsel & Bernstein LLC
Certified Public Accountants
Lodi, New Jersey
January 24, 1997
<PAGE>
BURKE MILLS, INC.
BALANCE SHEETS
December 28, December 30,
1996 1995
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,157,428 $ 834,833
Accounts receivable 3,198,211 2,974,101
Inventories 3,450,805 2,869,939
Prepaid expenses and other current assets 94,028 92,667
Prepaid income taxes 129,340 289,846
Deferred income taxes 874,810 579,600
------------ ------------
Total Current Assets 9,904,622 7,640,986
------------ ------------
Property, Plant and Equipment 26,194,241 25,186,871
Less: Accumulated depreciation 13,550,436 12,059,241
------------ ------------
Property, Plant and Equipment - Net 12,643,805 13,127,630
------------ ------------
Other Assets
Investment 5,993 -
------------ ------------
$22,554,420 $20,768,616
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ - $ 215,990
Accounts payable 1,436,054 1,508,476
Accrued salaries and wages 129,952 123,637
Other liabilities and accrued expenses 171,640 323,052
------------ ------------
Total Current Liabilities 1,737,646 2,171,155
Long-Term Debt 6,000,000 4,963,688
Deferred Income Taxes 2,003,300 1,405,700
------------ ------------
Total Liabilities 9,740,946 8,540,543
------------ ------------
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 3,892,954 7,307,553
------------ ------------
Total Shareholders' Equity 12,813,474 12,228,073
$22,554,420 $20,768,616
------------ ------------
[FN]
See notes to financial statements.
<PAGE>
BURKE MILLS, INC.
STATEMENTS OF OPERATIONS
Year Ended
----------
December 28, December 30, December 31,
1996 1995 1994
----------- ----------- -----------
Net Sales $40,648,920 $34,148,493 $36,193,757
----------- ----------- -----------
Costs and Expenses
Cost of sales 36,887,077 30,666,567 30,928,103
Selling, general and administrative
expenses 2,337,450 1,945,951 1,597,829
Factor's charges 194,427 177,901 235,253
----------- ----------- -----------
Total Costs and Expenses 39,418,954 32,790,419 32,761,185
----------- ----------- -----------
Operating Earnings 1,229,966 1,358,074 3,432,572
----------- ----------- -----------
Other Income
Interest income 35,567 67,966 84,306
Gain on sale of property assets 93,940 - 11,680
Other, net 4,891 12,275 5,919
----------- ----------- -----------
Total Other Income 134,398 80,241 101,905
----------- ----------- -----------
Other Expenses
Interest expense 495,009 281,752 158,669
Loss on disposal of property assets - 112 -
----------- ----------- -----------
Total Other Expenses 495,009 281,864 158,669
----------- ----------- -----------
Income Before Provision for
Income Taxes 869,355 1,156,451 3,375,808
Provision for Income Taxes 283,954 212,210 866,800
----------- ----------- -----------
Net Income $ 585,401 $ 944,241 $2,509,008
=========== =========== ===========
Net Earnings Per Share $ .21 $ .34 $ .92
=========== =========== ===========
Weighted Average Common Shares
Outstanding 2,741,168 2,741,168 2,741,168
=========== =========== ===========
[FN]
See notes to financial statements.
<PAGE>
<TABLE>
BURKE MILLS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 28, 1996
<CAPTION>
Common Stock
No Par Value
Stated Value $.66 Per Share
5,000,000 Shares
Authorized
----------------------
Shares Paid-in Retained Shareholders' Total
Issued Amount Capital Earnings Equity
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
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
Net income for the year ended
December 30, 1995 - - - 944,241 944,241
--------- ---------- ---------- ---------- -----------
Balance at December 30, 1995 2,741,168 $1,809,171 $3,111,349 $7,307,553 $12,228,073
Net income for the year ended
December 28, 1996 - - - 585,401 585,401
--------- ---------- ---------- ---------- -----------
Balance at December 28, 1996 2,741,168 $1,809,171 $3,111,349 $7,892,954 $12,813,474
========= ========== ========== ========== ===========
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended
---------------------------------------
December 28, December 30, December 31,
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 585,401 $ 944,241 $2,509,008
------------ ------------ ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,508,423 1,051,529 1,006,448
(Gain) loss on sales of plant and equipment,
including losses on disposals (93,940) 112 (11,680)
Deferred income taxes 302,390 2,800 24,300
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (224,110) 318,055 (922,279)
(Increase) decrease in inventories (580,866) 54,255 (356,612)
(Increase) in prepaid expenses, taxes
and other current assets 159,145 (194,561) (160,430)
Decrease in other noncurrent assets (5,933) - -
Increase (decrease) in accounts payable (72,422) 595,200 (158,836)
Increase (decrease) in income taxes payable - (581,267) 320,034
Increase (decrease) in accrued salaries
and wages 6,315 (247,036) 167,953
Increase (decrease) in other liabilities
and accrued expenses (57,472) 60,554 (232,301)
------------ ------------ ----------
Total Adjustments 941,470 1,059,641 (323,403)
------------ ------------ ----------
Net cash provided by operating activities 1,526,871 2,003,882 2,185,605
------------ ------------ ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (1,024,598) (6,371,819) (1,540,952)
Proceeds from sales of plant and equipment - - 11,680
------------ ------------ ----------
Net cash (used) by investing activities (1,024,598) (6,371,819) (1,529,272)
------------ ------------ ----------
Cash flow from financing activities:
Proceeds from long-term bank note 1,670,663 4,180,957 148,380
Principal payments of long-term debt (850,341) (812,176) (874,455)
------------ ------------ ----------
Net cash provided (used) by financing activities 820,322 3,368,781 (726,075)
------------ ------------ ----------
Net (decrease) in cash and cash equivalents 1,322,595 (999,156) (69,742)
Cash and cash equivalents at beginning of year 834,833 1,833,989 1,903,731
------------ ------------ ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $2,157,428 $ 834,833 $1,833,989
============ ============ ==========
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Accounting period - The Company's fiscal year is the 52 or 53
period ending the Saturday nearest to December 31. Fiscal years
1996, 1995 and 1994 ended on December 28, 1996, December 30, 1995
and December 31, 1994, respectively. The fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994 all
consisted of 52 weeks.
Statement 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.
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 rates 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:
Buildings 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 - Earnings per share are based on the net
income divided by the weighted average number of common shares
outstanding during the respective periods.
Use of Estimates in Preparing Financial Statements -In preparing
financial state-ments in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
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.
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 28, 1996, which amounted
to 4.2% in 1996, 0.5% in 1995 and 2.6% in 1994. Additionally, sales
to customers in Canada in 1996, 1995 and 1994 aggregated 2.8%, 1.2%
and 1%, respectively. Other than sales to Mexico and Canada, as
discussed above, the Company had no other sales in foreign markets
during the three year period ended December 28, 1996. For the three
year period ended December 28, 1996, 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, only one customer
has exceeded 10% of the Company's sales during each of the three years
ended December 28, 1996. One other customer has exceeded 10% in 1996
and 1994, and a third customer has exceeded 10% of aggregate sales in 1995.
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 following table gives information with respect to these
three customers:
Percentage of
Amount Net Sales
1996
- ----
Customer 1 $5,387,000 13.3%
Customer 2 4,074,000 10.0%
Customer 3 *
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE (Continued)
1995
- ----
Customer 1 $3,706,000 10.9%
Customer 2 *
Customer 3 3,534,000 10.3%
1994
- ----
Customer 1 $4,653,000 12.9%
Customer 2 3,929,000 10.9%
Customer 3 *
*Less than 10%.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable comprise the following:
December 28, December 30,
1996 1995
------------ ------------
Account current - factor
Due from factor on regular
factoring account $3,032,655 $2,808,790
Non-factored accounts receivable 165,556 165,311
------------ ------------
Total $3,198,211 $2,974,101
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 are sold to the factor with recourse in the event off
nonpayment by customers.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE (Continued)
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 these advances. In
connection with such advances from its factor, the Company incurred
interest costs of only $5,442 in 1996 and $4,929 in 1995. The Company
incurred no interest costs during the 1994 year, inasmuch as it
borrowed no funds from its factor during that year.
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.
The following represents a summary of advances on receivables
received from the Company's factor prior to the average maturity of
the receivables for the year ended December 28, 1996:
Balance at end of year $ 215
Maximum outstanding at any month end 397,952
Average amount outstanding during
the year 56,399
Weighted average interest rate 8.75%
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
December 28, December 30,
1996 1995
------------ ------------
Finished and in process $2,191,957 $1,918,400
Raw materials 709,099 447,691
Dyes and chemicals 394,335 378,528
Other 155,414 125,320
------------ ------------
Total $3,450,805 $2,869,939
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment are as follows:
December 28, 1996 December 30, 1995
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---------- --------- ---------- ---------
Land $ 78,032 $ - $ 78,032 $ -
Land improvements 136,504 73,954 136,504 71,053
Buildings and
improvements 6,204,501 3,910,833 6,141,537 3,735,393
Plant machinery and
equipment 18,447,105 8,973,505 18,042,785 7,761,106
Office equipment 1,205,764 488,245 670,658 379,893
Automotive equipment 122,335 103,899 117,355 111,796
---------- --------- ---------- ---------
Total $26,194,241 $13,550,436 $25,186,871 $12,059,241
=========== =========== =========== ===========
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - LINE OF CREDIT LOAN
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 may 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. The line of credit loan has
an initial maturity of April 30, 1997, unless extended by the bank in
its sole discretion.
The following represents a summary of borrowings on the line of
credit loan during 1996:
Balance at end of year $ NONE
Maximum outstanding during the year 1,195,000
Average outstanding during the year 435,000
Weighted average interest rate 7.7%
NOTE 7 - 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 6 above, a line of credit facility of $2,000,000 for ongoing,
short-term working capital needs. The new term loan refinanced the
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.
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT (Continued)
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, 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 rate 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.
The annual principal maturities of the long-term debt at
December 28, 1996 are as follows:
Current portion $ -
1998 $ 687,500
1999 750,000
2000 750,000
2001 750,000
Thereafter 3,062,500 6,000,000
---------- ----------
$6,000,000
==========
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES
Other liabilities and accrued expenses consist of the following:
December 28, December 30,
1996 1995
----------- ------------
Employee health insurance $ - $ 11,920
Payroll taxes payable 44,716 39,971
Utilities payable 90,669 80,768
Accrued interest 12,125 31,918
Deferred credit - 93,940
Other 24,130 64,535
----------- ------------
Total $171,640 $323,052
=========== ============
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:
December 28, December 30,
1996 1995
------------ ------------
Deferred Tax Assets:
Alternative minimum taxes paid $608,825 $573,400
Net operating loss carryforward 246,100 -
Inventory capitalization 8,300 6,200
Business credits 11,585 -
------------ ------------
$874,810 $579,600
============ ============
Deferred Tax Liabilities:
Accelerated depreciation for
tax purposes $2,003,300 $1,405,700
============ ============
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
Provision for income taxes consists of:
Year Ended
--------------------------------------
December 28, December 30, December 31,
1996 1995 1994
---- ---- ----
Current
Federal $ - $120,978 $674,100
State - 88,432 168,400
Deferred 283,954 2,800 24,300
-------- -------- --------
Total $283,954 $212,210 $866,800
======== ======== ========
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 28, December 30, December 31,
1996 1995 1994
---- ---- ----
Income before income taxes $869,355 $1,156,451 $3,375,808
Federal income tax rate 34% 34% 34%
---------- ---------- --------
Computed taxes at maximum
statutory income tax rate 295,581 393,193 1,147,775
State income taxes, net of
Federal income tax benefit 44,468 60,205 174,425
Adjustment for deferred
income taxes (20,670) - -
Alternative minimum tax adjustment (35,425) (174,883) -
Overaccrual of prior year
income taxes - (59,336) -
Other - (6,969) -
Overaccrual of prior year
valuation allowance on
deferred tax assets - - (455,400)
---------- ---------- --------
Provision for Income Taxes $ 283,954 $ 212,210 $866,800
========== ========== ========
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STATEMENTS OF CASH FLOWS
FASB No. 95 requires that the following supplemental disclosures to the
statements of cash flows be provided in related disclosures. Cash paid
for interest was $514,802 in 1996, $257,533 in 1995 and $159,750 in 1994.
Cash paid for income taxes aggregated $6,159 in 1996, $1,080,668 in 1995
and $522,466 in 1994.
NOTE 11 - RENTAL EXPENSES AND LEASE COMMITMENTS
Rental expenses under all lease commitments for the three fiscal years ended
December 28, 1996, aggregated $39,635, $46,153 and $34,159, respectively.
Minimum lease commitments under terms of all noncancelable leases, which
consist only of leased equipment, are as follows as of December 28, 1996:
1997 $41,668
1998 27,091
1999 11,908
2000 8,352
2001 8,352
---------
$97,371
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands of dollars except for per share amounts)
Quarter
First Second Third Fourth
1996
Net sales $9,905 $10,304 $10,225 $10,215
Cost of sales 9,215 9,519 9,122 9,031
Gross profit 690 785 1,103 1,184
Net income (loss) (40) 26 285 314
Net income (loss) per
common share $ (.02) $ .01 $ .11 $ .11
1995
Net sales $9,545 $8,586 $7,385 $8,632
Cost of sales 8,364 7,488 7,127 7,687
Gross profit 1,181 1,098 258 945
Net income (loss) 396 369 (173) 352
Net income (loss) per
common share $ 0.14 $ 0.14 ($ 0.06) $ 0.12
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 $ 0.17 $ 0.32 $ 0.19 $ 0.24
<PAGE>
BURKE MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - 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
in 1996. Matching contributions of $94,176 and $303,504 were made for
1995 and 1994, 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 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 December 28, 1996, the Company had $3,032,655 due from its factor
with a maturity date of January 17, 1997. Upon maturity, the funds
are automatically transferred by the factor to the Company's bank.
NOTE 15 - OTHER COMMITMENTS
(a) The Company was committed to an outstanding irrevocable
import letter of credit of $170,300 on December 28, 1996 covering
machinery purchases of approximately $174,000. The machinery is to
have a latest shipment date of May 30, 1997, and the letter of credit
expires June 15, 1997. The differential between the letter of credit
and the purchase price is to be covered by a single invoice issued by
the vendor to the Company.
(b) In addition to the foregoing, as at December 28, 1996, the
Company had executed purchase orders for capital projects totaling
$230,000.
(c) During 1996, in connection with a bank loan to the Company
secured by real estate, the Company had a Phase I Environmental Site
Assessment conducted on its property. The assessment indicated the
presence of a contaminant in the groundwater under the Company's
property. The contaminant was a solvent used by the Company in the
past, but no longer used. The contamination was reported to the North
Carolina Department of Health, Environment and Natural Resources
(DEHNR). DEHNR required a Comprehensive Site Assessment, which has
been completed. The Company has retained an environmental engineering
firm to conduct testing and to prepare a Corrective Action Plan for
submission to DEHNR. The Company has been informed that because the
levels of groundwater contamination are low and no sources of drinking
water are affected, remediation may not be required. If contamination
has moved off site, the groundwater may have to be pumped out of
the ground and into the municipal sewer system for treatment.The
Company's environmental engineering firm has estimated at this time a
maximum remediation expense of $250,000 if extensive remediation is
necessary.
<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, and Lodi, New Jersey, has
served as accountants for the Company during the last two most
recent fiscal years.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required for Part III of this report
(Items 10-13) is incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation
14A, involving the election of directors, which is expected to
be filed not later than 120 days after the end of the fiscal year
covered by this report.
<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. Report of Independent Certified Public Accountants.
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 28, 1996
December 30, 1995
Statements of operations
Year ended December 28, 1996
Year ended December 30, 1995
Year ended December 31, 1994
Statements of changes in shareholders' equity
Year ended December 28, 1996
Year ended December 30, 1995
Year ended December 31, 1994
Statements of cash flows
Year ended December 28, 1996
Year ended December 30, 1995
Year ended December 31, 1994
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 28, 1996
Year ended December 30, 1995
Year ended December 31, 1994
<PAGE>
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 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 39 of
this report.
(b) During the last quarter of the period covered by this
report one report on Form 8-K was filed. The only item reported
was Item 5 (Other Events). No financial statements were filed.
The date of the report was December 5, 1996.
(c) See sub-Item (a)3 above.
(d) See sub-Item (a)2 above.
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 28, 1996
Column A Column B Column C Column D Column E
Balance at Balance at
beginning of end of
Description period Additions Deductions period
- ----------- ------------ --------- ---------- ----------
Valuation Allowance on
Deferred Income Tax Assets:
Year Ended December 28, 1996 $ - $ - $ - $ -
Year Ended December 30, 1995 - - - -
Year Ended December 31, 1994 623,309 - 623,309(a) -
a. For the year ended 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 that portion of the deferred tax assets which
might not be probable of realization.
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 was deemed necessary as of December 31, 1994,
$455,400 was 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 was required as of December 31, 1994.
<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 28, 1997 BURKE MILLS, INC.
By: /s Humayun N. Shaikh
Humayun N. Shaikh, Chairman of the Board
(Principal Executive Officer)
By: /s Richard F. Whisenant
Richard F. Whisenant
President
(Principal Financial Officer)
By: /s David E. Truscott
David E. Truscott
Accounting Manager
(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 28, 1997 /s Humayun N. Shaikh
Humayun N. Shaikh, Director
Date: March 28, 1997 /s Richard F. Whisenant
Richard F. Whisenant, Director
Date: March 28, 1997 /s Ahmed H. Shaikh
Ahmed H. Shaikh, Director
<PAGE>
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<PERIOD-END> DEC-28-1996
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