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 JUNE 28, 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 July 29, 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
June 28, 1997 and December 28, 1996 3
Condensed Statements of Operations and
Retained Earnings Thirteen Weeks Ended
June 28, 1997 and June 29, 1996
Twenty-six Weeks Ended June 28, 1997 and
June 29, 1996 4
Statements of Cash Flows
Twenty-six Weeks Ended June 28, 1997 and
June 29, 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 4 - Submission of Matters to a Vote of
Security-Holders 17
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
June 28, December 28,
1997 1996
(Unaudited) ( Note A)
------------ -----------
ASSETS
Current Assets
Cash and cash equivalents $ 3,119,040 $ 2,157,428
Accounts receivable 4,179,313 3,198,211
Inventories 3,270,247 3,450,805
Prepaid expenses and other current
assets 122,450 94,028
Prepaid and refundable income taxes 120,000 129,340
Deferred income taxes 799,906 874,810
------------ -----------
Total Current Assets 11,610,956 9,904,622
------------ -----------
Property, Plant and Equipment - at cost 26,656,391 26,194,241
Less: Accumulated depreciation 14,319,720 13,550,436
------------ -----------
Property, Plant and Equipment - Net 12,336,671 12,643,805
------------ -----------
Other Assets
Investment & Advances to Affiliate 155,993 5,993
Deferred Expenses 87,792 --
------------ -----------
Total Other Assets 243,785 --
------------ -----------
$24,191,412 $22,554,420
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 312,500 $ --
Accounts payable 2,238,597 1,436,054
Accrued salaries, wages and vacation pay 256,804 129,952
Other liabilities and accrued expenses 421,088 171,640
------------ -----------
Total Current Liabilities 3,228,989 1,737,646
Long-term Debt 5,687,500 6,000,000
Deferred Income Taxes 2,136,900 2,003,300
------------ -----------
Total Liabilities 11,053,389 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 8,217,503 7,892,954
------------ -----------
Total Shareholders' Equity 13,138,023 12,813,474
------------ -----------
$24,191,412 $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>
<TABLE>
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
June 28 June 29 June 28 June 29
1997 1996 1997 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
Net Sales $10,441,772 $10,304,285 $20,501,936 $20,208,867
----------- ----------- ----------- -----------
Cost and Expenses
Cost of Sales 9,393,333 9,519,356 18,454,078 18,734,063
Selling, General and
Administrative Expenses 611,882 572,933 1,236,658 1,163,905
Factor's Charges 45,460 47,758 90,306 93,430
----------- ----------- ----------- -----------
Total Costs and Expenses 10,050,675 10,140,047 19,781,042 19,991,398
----------- ----------- ----------- -----------
Operating Earnings 391,097 164,238 720,894 217,469
----------- ----------- ----------- -----------
Other Income
Interest Income 35,071 4,738 62,720 7,649
Other, net 442 1,065 1,110 2,120
----------- ----------- ----------- -----------
Total 35,513 5,803 63,830 9,769
----------- ----------- ----------- -----------
Other Expenses
Interest Expense 124,737 127,422 247,428 251,087
Loss on Disposal of Property 4,243 -- 4,243 --
----------- ----------- ----------- -----------
Total 128,980 127,422 251,671 251,087
----------- ----------- ----------- -----------
Income (Loss) Before Provision
for Income Taxes (Credit) 297,630 42,619 533,053 (23,849)
Provision for Income Taxes
(Credit) 116,419 16,660 208,504 (9,329)
----------- ----------- ----------- -----------
Net Income (Loss) 181,211 25,959 324,549 (14,520)
Retained Earnings at Beginning
of Period 8,036,292 7,267,074 7,892,954 7,307,553
----------- ----------- ----------- -----------
Retained Earnings at End
of Period $ 8,217,503 $ 7,293,033 $ 8,217,503 $ 7,293,033
=========== =========== =========== ===========
Earnings (Loss) Per Share $ .07 $ .01 $ .12 $ (.01)
=========== =========== =========== ===========
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
=========== =========== =========== ===========
</TABLE>
[FN]
See notes to condensed financial statements.
<PAGE>
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-six Weeks Ended
June 28, June 29,
1997 1996
---------- -----------
Cash flows from operating activities
Net income (loss) $ 324,549 $ (14,520)
---------- -----------
Adjustments to reconcile net income(loss)
to net cash provided (used) by operating
activities:
Depreciation 778,776 740,531
Loss on disposal of property assets 4,243 --
Change in deferred income taxes 208,504 87,300
Changes in assets and liabilities:
Accounts receivable (981,102) (1,281,764)
Inventories 180,558 (253,758)
Prepaid expenses and other current assets (28,422) (222,210)
Prepaid and refundable income taxes 9,340 (96,628)
Other assets (87,792) --
Accounts payable 802,543 183,793
Accrued salaries, wages and vacation pay 126,852 53,778
Other liabilities and accrued expenses 249,448 137
---------- -----------
Total Adjustments 1,262,948 (788,821)
---------- -----------
Net cash provided (used) by operating
activities 1,587,497 (803,341)
---------- -----------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (475,885) (851,456)
---------- -----------
Investment & advances -
unconsolidated company (150,000) --
---------- -----------
Net cash used by investing activities (625,885) (851,456)
---------- -----------
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 961,612 (834,475)
Cash and cash equivalents at
beginning of year 2,157,428 834,833
---------- -----------
CASH AND EQUIVALENTS AT END OF
SECOND QUARTER $3,119,040 $ 358
========== ===========
[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 thirteen week period ended June 28, 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 twenty-six
weeks ended June 28, 1997 and June 29, 1996 was $246,000 and
$283,000, respectively. No income taxes were paid during the
twenty-six weeks ended June 28, 1997 and June 29, 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:
June 28, December 28,
1997 1996
---------- ------------
Account current - Factor:
Due from Factor on regular
factoring account........ $3,499,786 $3,032,655
Non-factored accounts
receivable............... 679,527 165,556
---------- ------------
$4,179,313 $3,198,211
========== ============
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
June 28, December 28,
1997 1996
---------- ------------
Finished and in process.... $1,814,170 $2,191,957
Raw Materials.............. 918,177 709,099
Dyes and Chemicals......... 387,357 394,335
Other...................... 150,543 155,414
---------- ------------
$3,270,247 $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 June 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
June 28, 1997 are as follows:
Current portion $ 312,500
1998/1999 $ 750,000
1999/2000 750,000
2000/2001 750,000
2001/2002 750,000
Thereafter 2,687,500 5,687,500
----------
$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:
June 28, December 28,
1997 1996
---------- ------------
Deferred Tax Assets:
Alternative minimum taxes paid $ 608,825 $ 608,825
Net Operating loss carryforward 171,196 246,100
Inventory capitalization 8,300 8,300
Business credits 11,585 11,585
---------- ------------
$ 799,906 $ 874,810
========== ============
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,136,900 $2,003,300
========== ============
Provision (credit) for income Twenty-six Weeks Ended
taxes consists of: June 28, June 29,
Deferred: 1997 1996
-----------------------
Federal $ 167,192 $ (7,480)
State 41,312 (1,849)
---------- -----------
$ 208,504 $ (9,329)
========== ===========
<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 June 28, 1997 and June 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 $3,097,000 will be
transferred to First Union National Bank on July 22, 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 - OTHER COMMITMENTS
(a) The Company was committed to an outstanding irrevocable
import Letter of Credit of $170,300 covering machinery
purchases of approximately $174,000. The machinery is to
have a latest shipment date of July 7, 1997, and the Letter
of Credit expires July 27, 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) The Company entered into a supply agreement, dated
November 23, 1996, with its joint venture company, Fytek,
S.A.DE 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 - Other Commitments (Continued)
(c) 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 - 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 twenty-six week periods ended June 28, 1997
and June 29, 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 Twenty-six Weeks
Ended Ended
June 28 June 29 June 28 June 29
------- ------- ------- -------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 90.0 92.4 90.0 92.7
------- ------- ------- -------
Gross Profit 10.0 7.6 10.0 7.3
Selling, General, Administrative
and Factoring Costs 6.3 6.0 6.5 6.2
------- ------- ------- -------
Operating Earnings 3.7 1.6 3.5 1.1
Interest Expense 1.2 1.2 1.2 1.3
Other (Income) - net 0.3 -- 0.3 (0.1)
------- ------- ------- -------
Income (Loss) before Income Taxes 2.8 0.4 2.6 (0.1)
Income Taxes 1.1 0.2 1.0 --
Net Income (Loss) 1.7% 0.2% 1.6% (0.1)%
======= ======= ======= =======
THIRTEEN WEEKS ENDED JUNE 28, 1997
COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 1996
Net Sales
- ---------
Net sales for the thirteen weeks ended June 28, 1997 (the second
fiscal quarter), were $10,442,000, representing a 1.3% increase compared
to the second quarter 1996 sales of $10,304,000. Pounds shipped
increased by 2.3% compared to the second quarter of 1996. Although
pounds shipped increased by 2.3%, sales increased by only 1.3% as a
result of sales of lower priced yarns.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirteen weeks ended June 28,1997 decreased
1.3% on a sales increase of 1.3%. 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
usage of 2.6% for the second quarter.
<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 increase in sales of 1.3% and a decrease in cost
of sales of 1.3%, gross profits improved by 33.6% as compared to the
second quarter of 1996.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the second
quarter increased by $39,000 or 6.8%. The increase is primarily due to
increases in professional services, travel expenses and insurance cost.
Factor's Charges
- ----------------
Factor's charges for the second quarter decreased by $2,000 or 4.8%
as a result of a larger percentage of non-factored sales.
Interest Expense
- ----------------
Interest expense for the second 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 second quarter of 1997 increased by
$30,000, 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 June 28, 1997, income before provision
for income taxes increased by $255,000, as compared to the similar
period of 1996, primarily as a result of the 1997 increase in sales
revenue with a reduced cost of sales.
Provision for Income Taxes
- --------------------------
For the thirteen weeks ended June 28, 1997, and June 29, 1996, the
Company made provision for income taxes of $116,000 and $17,000,
respectively, based on pre-tax income for 1997 of $298,000 and 1996 of
$43,000. 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)
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 COMPARED TO
TWENTY-SIX WEEKS ENDED JUNE 29, 1996
1997 Compared to 1996
- ---------------------
Net Sales
- ---------
Net sales for the twenty-six weeks ended June 28, 1997 increased by
$293,000, or 1.5% to an aggregate of $20,502,000, compared to
$20,209,000 in 1996. Total pounds shipped for the 1997 period increased
by 1.4%.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the twenty-six weeks ended June 28, 1997
decreased by 1.5% on a sales increase of 1.5%. 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 usage of 4.0% for the twenty-six week period.
As a result of an increase in sales of 1.5% and a decrease in cost
of sales by 1.5%, gross profit improved by 38.9%, as compared to the
like period of 1996.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the twenty-six
weeks increased $73,000, or 6.3%. The increase is primarily due to
increases in professional services, travel expenses and insurance cost.
Factor's Charges
- ----------------
Factor's charges for the twenty-six weeks decreased by $3,000 as a
result of a larger percentage of non-factored sales.
Interest Expense
- ----------------
Interest expense for the twenty-six 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 twenty-six weeks increased by $55,000 as
compared to 1996. The increase was due to an increase in funds
invested.
Income before Provision for Income Taxes
- ----------------------------------------
For the twenty-six weeks ended June 28, 1997, income before
provision for income taxes increased to $533,000, compared to a loss of
$24,000 in 1996, primarily as a result of the 1997 increase in sales
revenues with a reduced cost of sales.
Provision for Income Taxes
- --------------------------
For the twenty-six weeks ended June 28, 1997 and June 29, 1996, the
Company made provision (credit) for income taxes of $209,000 and
($9,000), respectively, based on pre-tax income (loss) for 1997 of
$533,000 and 1996 of ($24,000). Income taxes as percentage of pre-tax
income (loss) aggregated 39.1% for both the 1997 and 1996 periods.
Subsequent Matters
- ------------------
The Company's joint venture company, Fytek, S.A. de C.V., has not
begun operations. The Company is sending equipment to Fytek on a lease
basis and believes all equipment will be in place by the end of the
third quarter.
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 June
28, 1997, the Company had $3,500,000 due from the factor with a net of
$3,097,000 to mature on July 22, 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 June 28, 1997 aggregated
$8,381,967, representing a working capital ratio of 3.6 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 June 28, 1997:
Cash, cash equivalents and receivables........... $7,298,000
Current liabilities.............................. 3,229,000
----------
Excess of quick assets over current liabilities.. $4,069,000
==========
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 twenty-six weeks of 1997, the Company acquired and made
deposits on new machinery and equipment of approximately $476,000 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 $524,000 which, together with the acquisitions and
deposits on acquisitions incurred to June 28, 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 4 - Submission of Matters to a Vote of Security-Holders
The Company's annual meeting of stockholders was held on
May 20, 1997. At the meeting, all five director nominees were elected.
(a) The following directors were elected for a one-year term by the
votes indicated:
Humayun N. Shaikh 2,409,897
Richard F. Whisenant 2,409,897
Ahmed H. Shaikh 2,409,897
Robert P. Huntley 2,409,897
William T. Dunn 2,409,897
(b) There were no other matters presented for vote of stockholders.
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 June 28, 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: August 7, 1997 /s Richard F. Whisenant
Richard F. Whisenant
(President)
Date: August 7, 1997 /s David E. Truscott
David E. Truscott
(Accounting Manager and
Principal Financial Officer)
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