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 JULY 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)
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)
(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 August 7, 2000, there
were outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1 of 22
<PAGE>
BURKE MILLS, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
-----------------------------
Condensed Balance Sheets:
July 1, 2000, and January 1,2000 3
Condensed Statements of Operations and Retained Earnings:
Thirteen Weeks Ended July 1, 2000 and July 3, 1999
Twenty-six Weeks Ended July 1, 2000 and July 3, 1999 4
Statements of Cash Flows:
Twenty-six Weeks Ended July 1, 2000 and July 3, 1999 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 by Security Holders 18
------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K 18
Item 6(a)- Exhibit 27 - Financial Data Schedule 19
-----------------------------------------------
SIGNATURES 20
Page 2
<PAGE>
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
July 1, January 1,
2000 2000
(Unaudited) (Note A)
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 1,385,766 $ 592,513
Accounts receivable 4,442,520 3,795,519
Inventories 4,675,476 5,062,294
Prepaid expenses, taxes and other
current assets 483,267 537,980
Deferred income taxes 616,522 356,722
--------- ----------
Total Current Assets 11,603,551 10,345,028
----------- -----------
Equity Investment in Affiliate 628,228 455,728
------- -------
Property, Plant and Equipment - at cost 31,350,160 31,154,954
Less: Accumulated depreciation 16,927,897 16,078,440
----------- ----------
Property, Plant and Equipment - Net 14,422,263 15,076,514
----------- ----------
Other Assets
Deferred Charges & Other Non Current Assets 70,419 118,102
------- -------
Total Assets $26,724,461 $25,995,372
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,011,905
Accounts payable 2,638,954 2,929,217
Accrued salaries, wages and vacation pay 523,427 200,911
Other liabilities and accrued expenses 734,991 239,437
Income taxes payable 0 ---
---------- ----------
Total Current Liabilities 5,075,943 4,381,470
Long-term Debt 5,830,357 5,550,595
Deferred Income Taxes 2,130,425 2,121,800
---------- ----------
Total Liabilities $13,036,725 $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 8,767,216 9,020,987
--------- ---------
Total Shareholders' Equity 13,687,736 13,941,507
---------- ----------
Total Liabilities & Shareholders' Equity $26,724,461 $25,995,372
=========== ===========
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 3
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BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
------ ------ ------ ------
Net Sales $10,457,253 $10,795,724 $21,514,951 $20,791,693
--------- ----------- ----------- ----------- -----------
Cost and Expenses
Cost of Sales 9,680,539 9,782,323 20,041,849 18,501,492
Selling, General and
Administrative Expenses 826,972 1,233,259 1,776,290 2,108,960
Factor's Charges 42,346 35,125 79,879 72,702
------ ------ ------ ------
Total Costs and Expenses 10,549,857 11,050,707 21,898,018 20,683,154
---------- ---------- ---------- ----------
Operating Earnings/(Loss) (92,604) (254,983) (383,067) 108,539
-------- ------- ------- -------
Other Income
Interest Income 19,302 19,346 32,799 48,988
Gain on Disposal of Property 4,500 214,269 31,874 224,740
Other, net 4,506 1,919 5,509 2,629
------- ------- ------- -------
Total 28,308 235,534 70,182 276,357
------- ------- ------- -------
Other Expenses
Interest Expense 151,500 98,560 297,231 205,668
Other, net 35,394 31,478 67,335 62,954
------- ------- ------- -------
Total 186,894 130,038 364,566 268,622
------- ------- ------- -------
Income/(Loss) before Provision
for Income Taxes and Equity
in Net Earnings of Affiliate (251,190) (149,487) (677,451) 116,274
Provision/(Credit) for
Income Taxes (86,180) (50,462) (251,180) 50,538
------- ------- ------- -------
Net Income/(Loss) before Equity
in Net Earnings of Affiliate (165,010) (99,025) (426,271) 65,736
Equity in Net Earnings of
Affiliate 97,500 158,900 172,500 99,900
------- ------- ------ -------
Net Income (Loss) (67,510) 59,875 (253,771) 165,636
Retained Earnings at Beginning
of Period 8,834,726 9,414,063 9,020,987 9,308,302
---------- ---------- ---------- ----------
Retained Earnings at End
of Period $8,767,216 $9,473,938 $8,767,216 $9,473,938
========== ========== ========== ==========
Earnings (Loss) Per Share $ (.02) $ .02 $ (.09) $ .06
========== ========== ========== ==========
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
========== ========== ========== ==========
See notes to condensed financial statements.
Page 4
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BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-six Weeks Ended
----------------------
July 1, July 3,
2000 1999
---- ----
Cash flows from operating activities:
Net Income (Loss) $ (253,771) $ 165,636
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 1,165,037 957,080
Equity in earnings of affiliate (172,500) (99,900)
Gain on disposal of property assets (31,874) (224,740)
Provision for deferred income taxes (251,175) (57,536)
Changes in assets and liabilities:
Accounts receivable (647,001) (1,741,079)
Inventories 386,818 (914,881)
Prepaid expenses, taxes and other
current assets 54,713 (368,301)
Other non-current assets 47,683 (181,275)
Accounts payable (290,262) 2,792,371
Accrued salaries, wages and vacation pay 322,516 301,110
Other liabilities and accrued expenses 495,554 237,851
------- --------
Total Adjustments 1,079,509 700,700
-------- --------
Net cash provided by operating activities 825,738 866,336
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (543,413) (3,642,764)
Proceeds from sale of equipment 64,500 524,693
------ -------
Net cash (used) by investing activities (478,913) (3,118,071)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (553,572) (375,000)
Proceeds from long-term bank note 1,000,000 0
--------- ---------
Net cash provided (used) by
financing activities 446,428 (375,000)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 793,253 (2,626,735)
Cash and cash equivalents at
beginning of year 592,513 3,384,439
--------- ---------
CASH AND EQUIVALENTS AT END OF
SECOND QUARTER $1,385,766 $ 757,704
========== ==========
See notes to condensed financial statements
Page 5
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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 twenty-six week period ended July 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 twenty-six weeks ended July 1, 2000 and July 3, 1999 was
$296,000 and $212,000, respectively. The company had no cash payments for the
twenty-six weeks ending July 1, 2000 for income taxes compared to $41,00 for the
twenty-six weeks ending July 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.
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 6
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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:
July 1, January 1,
2000 2000
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $3,691,000 $2,271,000
Non-factored accounts
receivable............... 752,000 1,525,000
--------- ----------
$4,443,000 $3,796,000
========== ==========
NOTE 6 - INVENTORIES
--------------------
Inventories are summarized as follows:
July 1, January 1,
2000 2000
---- ----
Finished and in process.... $3,078,000 $3,235,000
Raw materials.............. 1,141,000 1,345,000
Dyes and chemicals......... 317,000 343,000
Other...................... 139,000 139,000
--------- ---------
$4,675,000 $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
July 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
July 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 7
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BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 8 - LONG-TERM DEBT (cont.)
-------------------------------
(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 July 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 437,500 3,437,500
--------- ---------
$4,187,500
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 July 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 678,573 2,392,857
------- ---------
$2,821,428
Page 8
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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:
July 1, January 1,
2000 2000
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carry forward 259,800 ---
Other 7,700 7,700
--------- ---------
$ 616,500 $ 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 29,725 21,100
--------- ---------
$2,130,425 $2,121,800
========== ==========
Twenty-Six Weeks Ended
--------------------
July 1, July 3,
Provision (credit) for income taxes 2000 1999
---- ----
consists of:
Deferred $(251,180) $ (57,536)
Federal --- 99,063
State --- 9,011
--------- ----------
$(251,180) $ 50,538
========= ==========
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 July 1, 2000 and July 3, 1999.
Page 9
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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 July 1, 2000,
the Company had $3,691,000 due from its factor of which $3,177,000 matured on
July 21, 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 three outstanding irrevocable import Letter of
Credit for yarn purchases. The Letter of Credits are:
1. Amount of $52,442, payable 120 days of Bill of Lading date,
latest ship day June 15, 2000, expiration date 6/30/2000.
2. Amount of $106,550, payable 120 days of Bill of Lading date,
latest ship date July 15, 2000, expiration date 7/20/2000.
3. Amount of $108,300, payable 180 days of Bill of Lading date,
latest ship date July 20, 2000, expiration date 7/31/2000.
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.
Page 10
<PAGE>
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)(Continued)
NOTE 12 - COMMITMENTS (continued)
---------------------------------
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 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 has been made in 2000. 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 second quarter, the Company
had purchases from Fytek of $1,119,000 compared to $832,000 in 1999.
Financial information for Fytek is as follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
STATEMENT OF INCOME
(In thousands of U.S. dollars)(Unaudited)
2nd Quarter Six Months
----------- ----------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $2,164 $2,076 $4,512 $3,572
Gross Profit 231 286 498 416
Income from continuing
operations 296 253 535 339
Income before taxes 296 253 535 339
Provision for income tax 102 58 190 167
------- ------ ------- -------
Net Income $ 194 $ 195 $ 345 $ 172
======= ======= ======= =======
Page 11
<PAGE>
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)
June 30, Dec. 31,
2000 1999
(Unaudited) (Audited)
----------- -----------
ASSETS
Current assets $3,739 $4,176
Non-current assets 163 144
------- -------
Total Assets $3,902 $4,320
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $2,623 $3,386
Non-current liabilities 0 0
------- -------
Total Liabilities $2,623 $3,386
Shareholders equity $1,279 $ 934
------- -------
Total Liabilities & Shareholders' Equity $3,902 $4,320
======= =======
During the twenty-six weeks ended July 1, the Company purchased $482,000 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 twenty-six weeks
ended July 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 twenty-six week periods ended
July 1, 2000, and July 3, 1999.
Page 12
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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 Twenty-six Weeks
Ended Ended
-------------------- -------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 92.6 90.6 93.1 89.0
---- ---- ---- ----
Gross Profit 7.4 9.4 6.9 11.0
Selling, General, Administrative
and Factoring Costs 8.3 11.7 8.6 10.5
---- ---- ---- ----
Operating Earnings (Loss) (0.9) (2.3) (1.7) 0.5
Interest Expense 1.4 0.9 1.4 1.0
Other (Income) - net 0.1 (1.9) - (1.0)
---- ---- ---- ----
Income (Loss) before
Income Taxes (2.4) (1.3) (3.1) 0.5
Equity in Net Earnings (Loss)
of Affiliate 0.9 1.4 0.8 0.5
Income Taxes (Credit) (0.8) (0.5) (1.2) 0.2
---- ---- ---- ---
Net Income (Loss) (0.7)% 0.6% (1.1)% 0.8%
====== ====== ====== ======
THIRTEEN WEEKS ENDED JULY 1, 2000
COMPARED TO THIRTEEN WEEKS ENDED JULY 3, 1999
Net Sales
---------
Net sales for the thirteen weeks ended July 1, 2000, decreased by 3.1% to
$10,457,000 compared to $10,796,000 for the second quarter of 1999. Pounds
shipped increased by 2.7% compared to 1999. The decrease in net sales was
primarily due to a decline in sewing thread business, as one of the threads
distributors went out of business.
Page 13
<PAGE>
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 weeks of 2000 decreased by 1.0% on a sales
decrease of 3.1%.
During the quarter the company recorded a $176,000 markdown for slow moving and
obsolete inventory.
The company experienced raw yarn price increases in the first quarter of 2000
which could not be totally shifted to customers, as opposed to sales price
decreases in the first and second quarters of 1999.
As a result of a 3.1% decrease in net sales and a 1.0% decrease in cost of
sales, the company's gross margin decreased to 7.4% compared to 9.4% in the
second quarter of 1999.
Selling, General and Administrative Expenses
--------------------------------------------
Selling general and administrative expenses decreased by $406,000 compared to
the second quarter of 1999. Although the company recorded severance of $150,000
for its former President, this cost was offset by reductions in other salaries
cost and a decrease in professional services. Also, the company had incurred a
one time cost of $362,000 in the second quarter of 1999 for the training and
data conversion of its new software.
Factor's Charges
----------------
Factor's charges increased to .4% as compared to .3% of sales in 1999. The
percent of sales factored increased during the quarter.
Interest Expense
----------------
Interest expense increased by $53,000 as a result of an increase in long-term
debt.
Interest Income
---------------
Interest income for the second quarter of 2000 remained relatively the same as
the second quarter of 1999.
Equity in Net Earnings (Loss) of Affiliate
-----------------------------------
The Company recorded $97,500 as earnings from Fytek, S.A. De C.V., its joint
venture in Mexico. The Company's share of net earnings and losses is 50%. Fytek
began operations in the fourth quarter of 1997.
Page 14
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Income (Loss) before Provision for Income Taxes
-----------------------------------------------
For the thirteen weeks ended July 1, 2000 the Company recorded an operating loss
primarily as a result of a decline in sales, a lower gross margin, and a
reduction in earnings by a foreign affiliated company.
Provision (Credit) for Income Taxes
------------------------------------
The Company recorded credit for income taxes of $86,000 for the second quarter
of 2000, compared to a credit of $50,000 in 1999.
Page 15
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
TWENTY-SIX WEEKS ENDED JULY 1, 2000 COMPARED TO
TWENTY-SIX WEEKS ENDED JULY 3, 1999
2000 Compared to 1999
Net Sales
---------
Net sales for the twenty-six weeks ended July 1, 2000, increased by 3.5% to
$21,515,000 compared to $20,792,000 for the similar period of 1999. Pounds
shipped increased by 9.6% compared to 1999. The increase in net sales is
primarily due to stronger market conditions in the first quarter of 2000.
Cost of Sales and Gross Margin
------------------------------
Cost of goods sold increased by 8.3% on a net sales increase of 3.5% and an
increase of 9.6% on pounds shipped. The company experienced increases in the
cost of raw yarns during the first quarter as compared to decreases in raw yarn
cost in the first six months of 1999. The company increased sale prices where
possible, but could not pass along all of the cost increases. Also, the company
recorded $221,000 for the markdown of slow moving and obsolete inventory.
As a result of an increase in sales of 3.5% and an increase in cost of sales of
8.3%, the company's gross margin declined to 6.9% compared to 11.0% in 1999.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses decreased by $333,000. In 1999 the
company had a one time cost of $540,000 related to the training and data
conversion for its new software. Also, the company recorded severance of
$150,000 for its former President in the second quarter of 2000.
Factor's Charges
----------------
Factor charges for the twenty-six week period increased as a percentage of net
sales to .4%, compared to .3% in 1999. The percentage of sales factored
increased in 2000.
Interest Expense
----------------
Interest expense for the twenty-six week period increased by $92,000 as a result
of an increase in long-term debt.
Interest Income
---------------
Interest income for the twenty-six week period decreased due to a decrease in
average funds invested.
Page 16
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Gain on Disposal of Equipment
-----------------------------
In 1999 the Company sold its friction texturing equipment, which had a gross
value of $1,342,000 and a net book value of $230,000 for $446,000 (also see Note
12 Commitments), resulting in a gain on disposal of $216,000.
Also, the Company replaced dyeing equipment with a gross value of $86,000 and a
net book value of $26,000, resulting in a loss on disposal of $26,000.
These were the major transactions which netted a gain on disposal of equipment
in 1999.
Equity in Net Earnings of Affiliate
-----------------------------------
The Company recorded $172,500 as earnings from Fytek, S.A. De C.V., its joint
venture in Mexico. The Company's share of net earnings and losses is 50%. Fytek
began operations in the fourth quarter of 1997.
Income (Loss) before Provision for Income Taxes
-----------------------------------------------
For the twenty-six weeks ended July 1, 2000, the Company recorded a loss on
operations primarily as a result of an increase in cost of sales resulting in a
gross margin of 6.9% compared to 11% in 1999.
Provision (Credit) for Income Taxes
-----------------------------------
The Company recorded a credit for taxes of $251,000 for the twenty-six weeks of
2000, compared to a provision of $51,000 in 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 July 1, 2000, the Company
had $3,691,000 due from its factor of which $3,177,000 matured on July 21, 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 and 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.
Page 17
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
The Company's working capital at July 1, 2000, aggregated $6,480,000
representing a working capital ratio of 2.3 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
July 1, 2000:
Cash, cash equivalents and receivables........... $5,828,000
Current liabilities.............................. 5,076,000
---------
Excess of quick assets to current liabilities... $ 752,000
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 2000, the Company acquired and made deposits on
new machinery and equipment of approximately $543,000 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 $457,000
which, together with the acquisitions and deposits on acquisitions incurred to
July 1, 2000, will aggregate an anticipated acquisition of new machinery of
approximately $1,000,000 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 twenty-six weeks ended July
1, 2000, to $1,386,000 from $593,000 at January 1, 2000 primarily as a result of
a long-term loan of $1,000,000, decreases in inventory of $386,000, proceeds
from sale of property assets of $64,000, reduction in other assets of $48,000,
offset in part by an increase in accounts receivable of $647,000, acquisition of
property assets of $543,000, principal payments of long-term debt of $554,000
and decreases in accounts payable of $290,000.
Year 2000 Compliance
--------------------
After the first twenty-six weeks 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.
Page 18
<PAGE>
BURKE MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
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.
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 19
<PAGE>
BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Substituted Annual Meeting of shareholders was held on
July 10, 2000. The results of such meeting will be submitted under
Item 4 in the form 10Q covering the quarterly period ending
September 30, 2000.
There were no meetings of shareholders held during the 26 week period
ended July 1, 2000.
Item 6 - Exhibits and Reports on 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - On May 15, 2000, Form 8-K was filed
for the change of officers and a director.
Page 20
<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 TWENTY-SIX WEEKS ENDED JULY 1, 2000
ITEM NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) Cash and cash items $ 1,385,766
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable - trade 4,442,520
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 4,675,476
5-02(9) Total current assets 11,603,551
5-02(13) Property, plant and equipment 31,350,160
5-02(14) Accumulated depreciation 16,927,897
5-02(18) Total assets 26,724,461
5-02(21) Total current liabilities 5,075,943
5-02(22) Bonds, mortgages and similar debt 5,830,357
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 11,878,565
5-02(32) Total liabilities and stockholders
equity 26,724,461
5-03(b)1(a) Net sales of tangible products 21,514,951
5-03(b)1 Total revenues 21,514,951
5-03(b)2(a) Cost of tangible goods sold 20,041,849
5-03(b)2 Total costs and expenses applicable
to sales and revenues 20,041,849
5-03(b)3 Other costs and expenses 0
5-03(b)5 Provision for doubtful accounts
and notes 0
5-03(b)(8) Interest and amortization of debt
discount 297,231
5-03(b)(10) Income before taxes and other items (504,951)
5-03(b)(11) Income tax expense (251,180)
5-03(b)(14) Income/loss continuing operations (253,771)
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 (253,771)
5-03(b)(20) Earnings per share - primary $(.09)
5-03(b)(20) Earnings per share - fully diluted $(.09)
Page 21
<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)
By: Thomas I. Nail /s
Date: August 15, 2000 ________________________
Thomas I. Nail
(President)
By: Michael B. Smith /s
Date: August 15, 2000 _________________________
Michael B. Smith
(Principal Financial Officer)
Page 22
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