UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 April 1, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
IRS EMPLOYER IDENTIFICATION (56-0506342)
NORTH CAROLINA
(State or other jurisdiction of incorporation or organization]
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
(828) 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 May 4, 2000, there were
outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1 of 21
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BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
-----------
Item 1 - Financial Statements
Condensed Balance Sheets
April 1, 2000 and January 1, 2000 3
Condensed Statements of Operations and
Retained Earnings
Thirteen Weeks Ended April 1, 2000
and April 3, 1999 5
Statements of Cash Flows
Thirteen Weeks Ended April 1, 2000
and April 3, 1999 6
Notes to Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 19
Item 6(a)- Exhibit 27 - Financial Data Schedule 20
SIGNATURES 21
Page 2
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BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
April 1, January 1,
2000 2000
(Unaudited) (Note A)
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 1,161,726 $ 592,513
Accounts receivable 4,180,255 3,795,519
Inventories 4,433,602 5,062,294
Prepaid expenses, taxes and other
current assets 651,967 537,980
Deferred income taxes 521,722 356,722
----------- -----------
Total Current Assets $10,949,272 $10,345,028
----------- -----------
Equity Investment in Affiliate 530,728 455,728
------- -------
Property, Plant and Equipment - at cost 31,134,649 31,154,954
Less: Accumulated depreciation 16,371,082 16,078,440
----------- ----------
Property, Plant and Equipment - Net 14,763,567 15,076,514
----------- ----------
Other Assets
Deferred charges 16,575 118,102
------- -------
Total Assets $26,260,142 $25,995,372
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,011,905
Accounts payable 2,423,639 2,929,217
Accrued salaries, wages and vacation pay 232,623 200,911
Other liabilities and accrued expenses 419,513 239,437
---------- ----------
Total Current Liabilities $ 4,254,346 $ 4,381,470
Long-term Debt 6,125,000 5,550,595
Deferred Income Taxes 2,125,550 2,121,800
---------- ----------
Total Liabilities $12,504,896 $12,053,865
----------- -----------
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 8,834,726 9,020,987
--------- ---------
Total Shareholders' Equity 13,755,246 13,941,507
---------- ----------
Total Liabilities & Shareholders' Equity $26,260,142 $25,995,372
=========== ===========
Page 3
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Note A: The January 1, 2000, Condensed Balance Sheet has been derived from
the audited financial statements at that date but does not include all
of the information and footnotes required for generally accepted accounting
principles for complete financial statements.
See notes to condensed financial statements.
Page 4
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BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended
--------------------
April 1, April 3,
2000 1999
---- ----
Net Sales $11,057,698 $9,995,969
----------- ----------
Costs and Expenses
Cost of Sales 10,361,310 8,719,169
Selling, General and
Administrative Expenses 949,318 875,701
Factor's Charges 37,533 37,577
------- -------
Total Costs and Expenses 11,348,161 9,632,447
---------- ---------
Operating Earnings (Loss) (290,463) 363,522
---------- ----------
Other Income
Interest Income 13,497 29,642
Gain on Disposal 27,374 10,471
Other, net 1,003 710
---------- -----------
Total 41,874 40,823
---------- -----------
Other Expenses
Interest Expense 145,731 107,108
Other, net 31,941 31,476
---------- ----------
Total 177,672 138,584
------- -------
Income (Loss) before Income Taxes and Equity
in Net Earnings of Affiliate (426,261) 265,761
Provision (Credit) for Income Taxes (165,000) 101,000
---------- ----------
Income (Loss) before Equity in Net Earnings
of Affiliates (261,261) 164,761
Equity in Net Earnings (Loss) of Affiliate 75,000 (59,000)
---------- ----------
Net Income (Loss) (186,261) 105,761
Retained Earnings at Beginning of Period $ 9,020,987 $9,308,302
---------- ----------
Retained Earnings at End of Period $ 8,834,726 $9,414,063
=========== ===========
Earnings (Loss) Per Share $ (.07) $ .04
=========== ===========
Dividends Per Share of Common Stock None None
============ ===========
Weighted Average Common Shares Outstanding 2,741,168 2,741,168
============ ===========
See notes to condensed financial statements.
Page 5
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BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
--------------------
April 1, April 3,
2000 1999
--------- ---------
Cash flows from operating activities
Net Income (Loss) $ (186,261) $ 105,761
--------- ---------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 593,875 454,581
(Gain) on Sale of plant and
equipment, including loss on disposal (27,374) (10,471)
Equity in earnings of affiliate (75,000) 59,000
Deferred income taxes (161,250) 57,700
Changes in assets and liabilities:
Accounts receivable (384,736) (940,863)
Inventories 628,692 (252,788)
Prepaid expenses, taxes & other
current assets (113,987) (91,583)
Other non-current assets 101,527 16,110
Accounts payable (505,578) (110,243)
Accrued salaries, wages & vacation pay 31,712 164,146
Other liabilities and accrued expenses 180,076 158,226
------- -------
Total Adjustments 267,957 (496,185)
------- -------
Net cash provided (used) by operating activities 81,696 (390,424)
------- -------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (313,554) (486,327)
Proceeds from sale of plant & equipment 60,000 29,045
--------- ---------
Net cash used by investing activities (253,554) (457,282)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (258,929) (187,500)
Proceeds from long-term bank note 1,000,000 ---
--------- ---------
Net cash provided (used) by financing activities 741,071 (187,500)
--------- ---------
Increase (Decrease) in cash and cash equivalents 569,213 (1,035,206)
Cash and cash equivalents at beginning of year 592,513 3,384,439
--------- ---------
CASH AND EQUIVALENTS AT END OF FIRST QUARTER $1,161,726 $2,349,233
========== ==========
See notes to condensed financial statements
Page 6
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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
April 1, 2000 are not necessarily indicative of the results that may
be expected for the year ended December 30, 2000. 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 January 1, 2000.
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 thirteen weeks
ended April 1, 2000 and April 3, 1999 was $146,000 and $104,000,
respectively. The Company had no cash payments for the thirteen weeks
ending April 1, 2000, for income taxes, compared to $40,698 for the
thirteen weeks ending April 3, 1999.
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.
Revenues from sales are recognized at the time shipments are made to the
customer.
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.
Page 7
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BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
April 1, January 1,
2000 2000
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $3,080,000 $2,271,000
Non-factored accounts
receivable............... 1,100,000 1,525,000
--------- ----------
$4,180,000 $3,796,000
========== ==========
NOTE 6 - INVENTORIES
Inventories are summarized as follows:
April 1, January 1
2000 2000
---- ----
Finished and in process.... $2,825,000 $3,235,000
Raw materials.............. 1,162,000 1,345,000
Dyes and chemicals......... 327,000 343,000
Other...................... 120,000 139,000
--------- ---------
$4,434,000 $5,062,000
========== ==========
NOTE 7 - LINE OF CREDIT
Pursuant to a loan agreement dated March 29, 1996, and a second
amendment dated January 20, 2000, the Company secured an Equipment
Loan facility of $3,000,000 and a $1,750,000 Letter of Credit
facility. The Equipment Loan shall be evidenced by the Equipment Note,
and shall bear interest at a rate that varies with the LIBOR rate. The
Equipment Note would be payable in 84 installments. At April 1, 2000,
the Company has borrowed $3,000,000 under this line of credit. Also
under the Company's factoring arrangement, the Company may borrow from
the factor up to 90% of the face amount of each account sold to the
factor. As of April 1, 2000 the Company had no borrowings from its
factor.
NOTE 8 - LONG-TERM DEBT
On March 29, 1996, the Company entered into a loan agreement with its
bank providing for a term loan of $6,000,000. The 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:
Page 8
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BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 8 - LONG-TERM DEBT (continued)
(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 term loan agreement, interest only was payable monthly until February
1998. Thereafter, principal maturities are payable in the amount of $62,500
per month for ninety-six (96) consecutive months plus interest at the floating
LIBOR rate plus 1.90%.
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 long-term debt at April 1, 2000 are
as follows:
Current portion $ 750,000
2001/2002 750,000
2002/2003 750,000
2003/2004 750,000
2004/2005 750,000
Thereafter 625,000 3,625,000
--------- ---------
$4,375,000
Under the loan agreement, the Equipment Line of Credit was converted to a
long-term note payable in 84 installments. The Company converted the Line of
Credit and began installments on February 29, 2000.
The annual principal maturities of this long-term debt at April 1, 2000 based
on the current amount owned are as follows:
Current Portion $ 428,571
2001/2002 $ 428,571
2002/2003 428,571
2003/2004 428,571
2004/2005 428,571
Thereafter 785,716 2,500,000
------- ---------
$2,928,571
Page 9
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BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
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:
April 1, January 1,
2000 2000
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carry forward 165,000 ---
Other 7,700 7,700
--------- ---------
$ 521,700 $ 356,700
========== ==========
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $2,100,700 $2,100,700
Undistributed earnings of foreign
affiliate, net of tax credit 24,850 21,100
--------- ---------
$2,125,550 $2,121,800
========== ==========
Thirteen Weeks Ended
--------------------
April 1, April 3
Provision (credit) for income taxes 2000 1999
---- ----
consists of:
Deferred $(165,000) $ 57,700
Federal --- 22,700
State --- 20,600
--------- ----------
$(165,000) $ 101,000
========= ==========
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Company is a participating employer in the Burke Mills, Inc., Savings and
Retirement Plan and Trust that 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 but not to exceed dollar limits set by law. The employer may
make a discretionary contribution for each employee out of current net profits
or accumulated net profits in an amount the employer may from time to time deem
advisable. No provision was made for a discretionary contribution for the
period ended April 1, 2000 and April 3, 1999.
Page 10
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BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that 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 21st to the 30th of the following month. At April 1,
2000, the Company had $3,080,000 due from its factor of which $2,599,000
matured on April 24, 2000. Upon maturity, the funds are automatically
transferred by the factor to the Company's bank.
NOTE 12 - COMMITMENTS
a) 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 November 1997.
b) The Company entered into a supply agreement, dated November 19, 1996, with
Fibras Quimicas, S.A. to purchase yarn. The Company agrees to purchase yarn
based on the schedule below, beginning February 1, 1997, for a five year period.
Year 1 Approximately $2,600,000
Year 2 Approximately $6,400,000
Year 3 Approximately $7,100,000
Year 4 Approximately $7,700,000
Year 5 Approximately $7,700,000
c) The Company was committed to one outstanding irrevocable import Letter
of Credit for yarn purchases. The Letter of Credit has a latest ship date of
April 15, 2000, expiring April 28, 2000, in the amount of $115,000 payable at
120 days of Bill of Lading date.
d) The Company and Titan Textile Company, Inc., signed an agreement which
became effective April 1, 1999, whereby the Company sold its friction
texturing equipment to Titan and in turn will purchase textured yarns from
Titan. The agreement states that the Company will purchase 70,000 pounds per
week as long as the Company has a requirement for textured yarns. When the
Company's requirements exceeds 140,000 pounds per week, the Company will
purchase at least 50% of its requirements from Titan. The textured yarn
pricing structure will be reviewed every six months and when POY prices
increase or decrease by 5% or more.
e) 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 Environment and Natural Resources (DENR).
DENR required a Comprehensive Site Assessment that has been completed. The
Company's outside engineering firm conducted testing and prepared a Corrective
Page 11
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BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 12 - COMMITMENTS (continued)
Action Plan that was submitted to DENR. The Company has identified
remediation issues and is moving toward a solution of natural attenuation.
The Company believes it has made an adequate provision to earnings in 1997
to cover any future cost. No provision was made in 1998. This situation will
have no material impact on the capital expenditures, earnings or competitive
position of the Company.
f) On November 18, 1999, the Company entered into a three year agreement with
Trio Marketing & Sales Company, LLC (Trio) to market and sell imported yarns.
Under the agreement the Company will import yarns which would be marketed and
sold by Trio. Trio will receive a commission based on the net sales price.
The commission would be 4% during the first six months of the contract and 3%
thereafter. Trio would also receive 15% of the profits before taxes realized
on the sales of the yarns.
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
The company owns 49.8% of Fytek, S.A. de C.V. (Fytek), a Mexican corporation.
Fytek began operation in the fourth quarter of 1997. The company accounts for
the ownership using the equity method. During the first quarter, the Company
had purchases from Fytek of $506,000 compared to $342,000 in 1999. At April 1,
2000, Fytek owed the Company $82,000 for leased equipment which was paid for
in April 2000.
Financial information for Fytek is as follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
1st Quarter
-----------
2000 1999
---- ----
Net Sales $2,348 $1,496
Gross Profit 267 130
Income from continuing
operations 239 86
Income before taxes 239 86
Provision for income tax 88 109
------- -------
Net Income (Loss) $ 151 $ (23)
======= =======
Page 12
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BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
Fytek's financial information (continued):
BALANCE SHEETS
(In thousands of U.S. dollars)
March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
ASSETS
Current assets $4,715 $3,561
Non-current assets 176 288
------- -------
Total Assets $4,891 $3,849
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $3,807 $2,939
Non-current liabilities 0 0
------- -------
Total Liabilities $3,807 $2,939
Shareholders equity $1,084 $ 910
------- -------
Total Liabilities & Shareholders' Equity $4,891 $3,849
======= =======
During the first quarter of 2000, the Company purchased $375,000 of yarn from
Nafees Cotton Mills, Ltd. The Company pays for the purchase by Letter of Credit
at 120 days from Bill of Lading date. Future purchases can reasonably be
anticipated if the Company receives orders for the Nafees yarns.
Humayun N. Shaikh, Chairman and CEO of the Company is also Director of Nafees
Cotton Mills, Ltd. Aehsun Shaikh, Director of the Company is also Director of
Nafees Cotton Mills, Ltd., since 1993 and of Legler-Nafees Denim Mills, Ltd.,
since 1999.
NOTE 14 - ACCOUNTING FOR POSSIBLE IMPAIRMENT OF LONG-LIVED ASSETS
In 1995 the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets carrying amount. Statement No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company adopted
Statement No. 121 in the first quarter of 1996 and such adoption did not have
any effect on the financial statements for 1999 or for the thirteen weeks ended
April 1, 2000.
NOTE 15 - 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 week periods ended
April 1, 2000, and April 3, 1999.
Page 13
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BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
2000 Compared to 1999
- ---------------------
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 Ended
April 1, April 3,
2000 1999
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 93.7 87.2
----- -----
Gross Profit 6.3 12.8
Selling, General, Administrative
and Factoring Costs 8.9 9.2
----- -----
Operating Earnings (Loss) (2.6) 3.6
Interest Expense 1.3 1.1
Other (Income) - net (0.2) (0.1)
----- -----
Income (Loss) before Income Taxes (3.7) 2.6
Equity in Net Earnings (Loss) of Affiliate 0.7 (0.6)
Income Taxes (Credit) (1.3) 1.0
----- -----
Net Income (Loss) (1.7) 1.0%
===== =====
THIRTEEN WEEKS ENDED April 1,2000
COMPARED TO THIRTEEN WEEKS ENDED April 3, 1999
Net Sales
- ---------
Net sales for the thirteen weeks ended April 1, 2000 increased by 10.6% to
$11,058,000 compared to $9,996,000 for the first quarter 1999. Pounds shipped
increased by 18.6% compared to 1999. The increase in net sales is primarily
due to stronger market conditions during the quarter.
Page 14
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BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirteen week period of 2000 increased by 18.8% on a
sales increase of 10.6%.
Raw yarn prices continued to increase during the quarter resulting in a
decrease in margins on materials. Although the company will increase prices to
customers, all of the raw yarn price increase cannot be shifted to customers,
and there is a lag from the time the raw yarn price increase is realized to the
time the prices are increased to customers.
Although sales increased in the first quarter of 2000, the Company produced
less as compared to the first quarter of 1999, as it reduced inventory levels
in 2000 and increased inventory levels in 1999. The lower production caused
the Company overhead cost per pound produced to increase.
As a result of a 10.6% increase in net sales and an 18.8% increase in cost of
sales, the Company's gross margin decreased to 6.3% from 12.8% in the first
quarter of 1999.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the first quarter of 2000
increased by $74,000 or 8.4%. The increase is the result of $204,000 recorded
to bad debt expense for one customer that is believed will file for bankruptcy
in the near future.
Factor's Charges
- ----------------
Factor's charges were .3% of net sales compared to .4% in 1999. The percentage
of sales factored decreased during the quarter. There was no change in the
Company's factoring agreement.
Interest Expense
- ----------------
Interest expense for the first quarter increased by $39,000 as the Company
increased its long-term debt. The Company borrowed $2,000,000 and $1,000,000
against its line of credit in the fourth quarter of 1999 and the first quarter
of 2000, respectively.
Interest Income
- ---------------
Interest income for the first quarter of 2000 decreased as a result of a
decrease in average funds invested.
Equity in Net Earnings (Loss) of Affiliate
- ------------------------------------------
The Company recorded $75,000 as income from Fytek, S.A. de C.V, its joint
venture in Mexico. The Company's share of net earnings and losses is 50%.
Also see Note 13.
Page 15
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BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Income Before Provision for Income Taxes
- ----------------------------------------
For the thirteen weeks ended April 1, 2000, the Company recorded a loss of
$426,000 before credit for taxes compared to income before taxes of $266,000
in 1999, primarily as a result of lower gross margin and a $204,000 bad debt
expense recorded in 2000.
Provision for Income Taxes
- --------------------------
The Company recorded a credit for income taxes of $165,000 for the first
quarter of 2000 compared to a provision of $101,000 for 1999.
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 April 1,
2000, the Company had $3,080,000 due from its factor of which $2,599,000
matured on April 24, 2000. The Company has the right to borrow up to 90%
of the face amount of each account sold to the factor.
The Company has an equipment line of credit from its bank under which
the Company may borrow up to $3,000,000 for the acquisition of production
machinery, and a $1,750,000 Letter of Credit facility. The Company
borrowed $3,000,000 from the line of credit and converted the line of credit
to long-term debt on February 29, 2000 (see Note 8).
The Company's working capital at April 1, 2000, aggregated $6,695,000
representing a working capital ratio of 2.6 to 1 compared with a working
capital of $5,964,000 at January 1, 2000, and a working capital ratio of
2.4 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 April 1, 2000:
Cash, cash equivalents and receivables........... $5,342,000
Current liabilities.............................. 4,254,000
---------
Excess of quick assets over current liabilities.. $1,088,000
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.
Page 16
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
During the thirteen weeks of 2000, the Company acquired and made deposits on
new machinery and equipment of approximately $314,000 as set forth in the
accompanying statement of cash flows. For the balance of 2000, the Company
anticipates the acquisition of machinery and equipment of approximately
$1,186,000 which, together with the acquisitions and deposits on acquisitions
incurred to April 1, 2000, will aggregate an anticipated acquisition of new
machinery of approximately $1,500,000 in 2000. The Company plans to finance
its capital from cash provided from operations and bank financing.
The Company's cash and equivalents increased for the thirteen weeks ended
April 1, 2000, to $1,162,000 from $593,000 at January 1, 2000 primarily as
a result of a long-term loan of $1,000,000, decreases in inventory of
$629,000, proceeds from sale of property assets of $60,000, reduction in
other assets of $101,000, offset in part by an increase in accounts receivable
of $385,000, acquisition of property assets of $314,000, principal payments
of long-term debt of $259,000 and decreases in accounts payable and accrued
items of $293,000.
Year 2000 Compliance
- ---------------------
After the first quarter of the year 2000, the Company has had no information
systems, non-information systems, or supplier problems related to the year 2000.
On May 29, 1999, the Company began using a new fully integrated system that
replaced its manufacturing and accounting software. The new software was
installed to improve the Company's information efficiencies and bring the
Company into compliance for all critical applications affected by the year 2000.
During 1999, the Company experienced an effect on earnings of $1,186,000 for
data conversion and training.
The cost to bring the existing software into compliance for year 2000 is not
known as the company planned to replace the software.
Forward Looking Statements
- --------------------------
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, and other sections of this report,
contain forward-looking statements within the meaning of federal securities
laws about the Company's financial condition and results of operations that are
based on management's current expectations, beliefs, assumptions, estimates and
projections about the markets in which the Company operates. Words such as
"expects", "anticipates", "believes", "estimates", variations of such words and
other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgement only as of the date hereof.
The Company undertakes no obligations to update publicly any of these forward-
looking statements to reflect new information, future events or otherwise.
Page 17
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Forward Looking Statements (continued)
- -------------------------------------
Factors that may cause actual outcome and results to differ materially from
those expressed in, or implied by, these forward-looking statements include,
but are not necessarily limited to, availability, sourcing and pricing of raw
materials, pressures on sales prices due to competition and economic
conditions, reliance on and financial viability of significant customers,
technological advancements, employee relations, changes in construction
spending and capital equipment expenditures (including those related to
unforeseen acquisition opportunities), the timely completion of construction
and expansion projects planned or in process, continued availability of
financial resources through financing arrangements and operations, negotiations
of new or modifications of existing contracts for asset management and for
property and equipment construction and acquisition, regulations governing tax
laws, other governmental and authoritative bodies, policies and legislation,
and proceeds received from the sale of assets held for disposal. In addition to
these representative factors, forward-looking statements could be impacted by
general domestic and international economic and industry conditions in the
markets where the Company competes; such as, changes in currency exchange
rates, interest and inflation rates, recession and other economic and political
factors over which the Company has no control.
Page 18
<PAGE>
BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - No report on Form 8-K has been filed during
the thirteen weeks April 1, 2000.
Page 19
<PAGE>
BURKE MILLS, INC.
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS INCLUDED IN THE QUARTERLY REPORT
ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED
April 1, 2000
ITEM NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) Cash and cash items $1,161,726
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable - trade 4,180,255
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 4,433,602
5-02(9) Total current assets 10,949,272
5-02(13) Property, plant and equipment 31,134,649
5-02(14) Accumulated depreciation 16,371,082
5-02(18) Total assets 26,260,142
5-02(21) Total current liabilities 4,254,346
5-02(22) Bonds, mortgages and similar debt 6,125,000
5-02(28) Preferred stock- mandatory redemption 0
5-02(29) Preferred stock-no mandatory redemption 0
5-02(30) Common stock 1,809,171
5-02(31) Other stockholders' equity 11,946,075
5-02(32) Total liabilities and stockholders' equity 26,260,142
5-03(b)1(a) Net sales of tangible products 11,057,698
5-03(b)1 Total revenues 11,057,698
5-03(b)2(a) Cost of tangible goods sold 10,361,310
5-03(b)2 Total costs and expenses applicable
to sales and revenues 10,361,310
5-03(b)3 Other costs and expenses 0
5-03(b)5 Provision for doubtful accounts & notes 204,000
5-03(b)(8) Interest and amortization of debt discount 145,731
5-03(b)(10) Income (loss) before taxes and other items (351,261)
5-03(b)(11) Income tax expense (credit) (165,000)
5-03(b)(14) Income (loss) continuing operations (186,261)
5-03(b)(15) Discontinued operations 0
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect - changes in
accounting principles 0
5-03(b)(19) Net income or loss (186,261)
5-03(b)(20) Earnings per share - primary ($.07)
5-03(b)(20) Earnings per share - fully diluted ($.07)
Page 20
<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: May 12, 2000 BY: Charles P. McCamy /s
-----------------------
Charles P. McCamy
(President)
Date: May 12, 2000 BY: Thomas I. Nail /s
-----------------------
Thomas I. Nail
(Vice President Finance)
(Principal Accounting Officer)
(Principal Financial Officer)
Page 21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 1,161,726
<SECURITIES> 0
<RECEIVABLES> 4,180,255
<ALLOWANCES> 0
<INVENTORY> 4,433,602
<CURRENT-ASSETS> 10,949,272
<PP&E> 31,134,649
<DEPRECIATION> 16,371,082
<TOTAL-ASSETS> 26,260,142
<CURRENT-LIABILITIES> 4,254,346
<BONDS> 6,125,000
0
0
<COMMON> 1,809,171
<OTHER-SE> 11,946,075
<TOTAL-LIABILITY-AND-EQUITY> 26,260,142
<SALES> 11,057,698
<TOTAL-REVENUES> 11,057,698
<CGS> 10,361,310
<TOTAL-COSTS> 10,361,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 204,000
<INTEREST-EXPENSE> 145,731
<INCOME-PRETAX> (351,261)
<INCOME-TAX> (165,000)
<INCOME-CONTINUING> (186,261)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,261)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
