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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year
Ended December 30, 2000
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
_________________ to _________________
Commission File No. 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
(I.R.S. Employer Identification No.) 56-0506342
State or other jurisdiction of incorporation or organization:
North Carolina
191 Sterling Street, NW
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
828 874-6341
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value (Stated Value of $0.66 Per Share)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if a disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (computed by reference to the average bid and asked price on February
14, 2001) was $814,469.
Page 1 of 50
The number of shares outstanding of the registrant's only class of common stock
as of March 1, 2001 is 2,741,168 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's proxy statement related to the annual meeting of
shareholders of the Company scheduled for May 29, 2001, which is to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report, are incorporated by reference in Part III of this
report.
Page 2 of 50
BURKE MILLS, INC.
PART I
ITEM 1 - BUSINESS
- ------------------
(a) General Development of Business - General business development during
fiscal year ended December 30, 2000, consisted of changes in company management,
start-up and efficient utilization of equipment purchased in 1999, and reacting
to competitive pricing pressures in a weakening textile economy.
Between May 2000 and January 2001, the Company made changes in its
management. The Company replaced its President, Vice President of Manufacturing,
Sewing Thread Business Manager, Plant Engineering Manager and Lab Manager.
During 1999 there were major capital expenditures for the acquisition of
dyeing equipment and dry processing machines. The majority of this equipment was
placed into production during the year, with some start-up inefficiencies
experienced early in the year.
Raw yarn prices and energy costs increased during the year with very little
of these cost increases passed on in increased sales prices.
In the second half of the year the Company experienced a weakening textile
economy which caused lower orders and an increase in competitive pricing
pressure.
(b) Financial Information about Industry Segments - The Company had only
one industry segment during the fiscal year ended December 30, 2000.
(c) Narrative Description of Business - The Company is engaged in
texturing, winding, dyeing, processing and selling of filament, novelty and spun
yarns, and in the dyeing and processing of these yarns for others on a
commission basis.
The principal markets served by the Company are apparel, upholstery and
industrial uses through the knitting and weaving industry.
The Company's products are sold in highly competitive markets primarily
throughout the United States. Competitiveness of the Company's products is based
on price, service and product quality. Many of the Company's competitors are
divisions or segments of larger, diversified firms with greater financial
resources than those of the Company.
The methods of distribution of the Company's products consist of the
efforts of the Company's sales force which makes contact with existing and
prospective customers. The Company markets its products throughout the United
States, Caribbean Basin, Mexico and Canada, with the bulk of the business being
primarily in the eastern United States, through five salesmen employed directly
by the Company on salary and a number of commissioned sales agents working on
various accounts. The Company also markets its products in Mexico, Central
America and South America through its fifty-percent (50%) owned affiliate,
Fytek, S.A. de C.V.
The dollar amount of backlog of unshipped orders as of December 31, 2000
was $2,641,000 and as of January 1, 2000 was $3,184,000. Generally, all orders
in backlog at the end of a year are shipped the following year. The backlog has
been calculated by the Company's normal practice of including orders which are
deliverable over various periods and which may be changed or canceled in the
future.
The most important raw materials used by the Company are unprocessed raw
yarn, dyes and chemicals. The Company believes that its sources of supply for
these materials are adequate for its needs and that it is not substantially
dependent upon any one supplier.
Page 3 of 50
BURKE MILLS, INC.PART I
ITEM 1 - BUSINESS (continued)
- ------------------------------
With respect to the practices of the Company relating to working capital
items, the Company generally carries enough inventory for approximately 72 days.
On average, the Company turns its inventory approximately 4 to 6 times each
year. The Company has been able to meet its delivery schedules and has been able
to enjoy a ready supply of raw materials from suppliers. For the fiscal year
ended December 30, 2000, approximately 4.0% of the Company's sales were from
dyeing and processing of yarn for customers who supplied the yarn. The Company
does not allow customers the right to return merchandise except where the
merchandise is defective. The Company rarely allows payment terms to its
customers beyond sixty (60) days, and the Company has experienced no significant
problems in collecting its accounts receivable, except for one customer who went
out of business during the year causing a $204,000 bad debt. The Company
believes that industry practices are very similar to that of the Company in
regard to these matters.
Substantially all of the Company's manufacturing operations run by
electrical energy purchased from local utility companies and its premises are
heated with oil and gas. The Company has not experienced any shortages in
electricity, oil or gas during the fiscal year. The Company has made no
arrangements for alternate sources of energy. While energy related difficulties
are not expected to prevent the Company from achieving desired production
levels, energy shortages of extended duration could have an adverse impact on
the Company's operations.
The Company has established a recycling program for its major waste items:
yarn, cardboard, plastic tubes and cleaning fluid.
The Company has made various changes in its plant that regulates discharge
of materials into the environment. The Company believes its manufacturing
operations are in compliance with all presently applicable federal, state and
local legislative and administrative regulations concerning environmental
protection; and, although it cannot predict the effect that future changes in
such regulations may have, particularly as such changes may require capital
expenditures or affect earnings, it does not believe that any competitor subject
to the same or similar regulations will gain any significant and competitive
advantages as a result of any such changes. Compliance by the Company during the
fiscal year ended December 30, 2000 with federal, state and local environmental
protection laws had no material effect on capital expenditures, earnings, or the
competitive position of the Company.
During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used by
the Company in the past but no longer used. The contamination was reported to
the North Carolina Department of 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 made an
adequate provision to earnings in 1997 to cover any future cost. No additional
provision was made in 1999 or 2000. The Company believes this situation will
have no material impact on the capital expenditures, earnings, or competitive
position of the Company.
On, February 20, 2001, the Company had 241 employees. The Company's yarn
division is its only division. During the fiscal year ended December 30, 2000,
sales to Milliken Company and Quaker Fabrics Corporation each exceeded ten
percent of the Company's revenue for that year. The loss of these customers
Page 4 of 50
BURKE MILLS, INC.PART I
ITEM 1 - BUSINESS (continued)
- ------------------------------
would have a material diverse effect on the Company in the short run, but the
Company believes that it would be able to replace the business within a
reasonable time.
The Company owns 49.8% of the stock and 50% of the voting control of Fytek,
S.A. de C.V. (Fytek), a Mexican corporation with its principal place of business
in Monterrey, Mexico. The other shareholder in Fytek is Fibras Quimicas, S.A., a
Mexican Corporation. The purpose of Fytek is the manufacture and marketing of
yarns. The Company acquires yarn from Fytek and uses Fytek to market and
distribute its dyed yarn in Mexico, Central America and South America. Fytek
began production in the fourth quarter of 1997.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales - Company sales to Brazil, Caribbean Basin, Canada and Mexico during 2000
accounted for approximately 7% of total net sales. During 1999 sales to these
countries were less than 4%, and such sales aggregated less than 8% in 1998.
ITEM 2. PROPERTIES
- -------------------
The executive offices and manufacturing plant of the Company are located at
Valdese, North Carolina, which is 75 miles northwest of Charlotte, North
Carolina, and 60 miles east of Asheville, North Carolina. The main plant and
executive offices are located on an approximate nineteen-acre tract of land
owned by the Company. Seventeen acres of this tract are encumbered by a first
priority lien deed of trust held by First Union National Bank of North Carolina.
The Company also owns approximately 18 acres adjacent to the plant which is
undeveloped. The main plant building used by the Company contains approximately
309,000 square feet. The Company also owns an auxiliary building containing
36,600 square feet located adjacent to its main plant. This latter building is
currently used for warehousing yarn and as a distribution center.
The plant buildings are steel and brick structures protected by automatic
sprinkler systems. The various departments, with the exception of the production
dyehouse, are heated, cooled and humidified. The Company considers all its
properties and manufacturing equipment to be in a good state of repair, well
maintained and adequate for its present needs.
The Company utilizes substantially all of the space in its main plant for
its offices, machinery and equipment, storage and receiving areas. The Company
utilizes substantially all of the space in the auxiliary building for warehouse
and distribution purposes.
The approximate maximum capacity in pounds per year of the Company's
machinery and equipment, based upon operating the machinery and equipment seven
(7) days per week fifty (50) weeks per year, and the approximate percentage of
utilization thereof during the fiscal year ended December 30, 2000 are as
follows:
Pounds/Year 2000
Department Capacity Utilization
---------- -------- -----------
Winding Machines 21,218,000 39%
Texturing Machines 2,517,000 20%
Dyeing Equipment 23,111,000 53%
During the year the Company phased out its friction texturing machinery.
Texturing capacity is the average capacity available during 2000. Capacity for
2001 will begin at approximately 1,883,000 pounds.
Page 5 of 50
BURKE MILLS, INC.PART I
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is one of eight defendants in a case brought in the United
States District Court for the Southern District of Texas, Houston Division, by a
plaintiff individually and as next friend or a minor. The complaint alleges that
the minor plaintiff was injured as a result of burns suffered when stripping on
the side of a pair of jeans purchased by the minor caught fire. The complaint
alleges that the Company was one of two manufacturers providing yarn to the
defendant who allegedly manufactured the stripping sewn on to the jeans. The
Company is defending the suit through legal counsel provided by the Company's
products liability insurance carrier. Based upon the facts known to the Company
at this time, the Company does not believe that it will be determined to have
any monetary liability to the plaintiffs in this case. The Company further
believes that if the Company is determined to have any monetary liability to the
plaintiffs, such liability will be covered by its products liability insurance
policy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- --------------------------------------------------------------
(a) The principal United States (or other) market on which the Company's
common stock is being traded is the United States over-the-counter market. The
range of high and low bid quotations for the Company's common stock for each
quarterly period during the past two fiscal years ended December 30, 2000, and
on the latest practicable date (as obtained from the NASDAQ Stock Market, Inc.,
in Washington, DC) is as follows:
Quarter Ending
2000 High Bid Low Bid
------------ -------- --------
March 31 $2.25 $1.625
June 30 $1.813 $1.313
September 30 $1.656 $1.125
December 31 $1.188 $.375
Quarter Ending
1999 High Bid Low Bid
------------ -------- --------
March 31 $3.00 $1.625
June 30 $2.297 $1.375
September 30 $2.125 $1.563
December 31 $2.438 $1.50
February 14, 2001 $0.719 $0.688
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
(b) As of February 20, 2001 there were 385 holders of the common stock of
the Company.
(c) The Company has declared no dividends on its common stock during the
past two fiscal years.
Page 6 of 50
BURKE MILLS, INC.PART II
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The selected financial data set forth on the following page, for the
five years ended December 30, 2000 have been derived from the audited financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements and related notes thereto and
other financial information included therein.
(in thousands except per share data)
Years Ended
----------------------------------------
Dec. 30 Jan. 1 Jan. 2 Jan. 3 Dec. 28
2000 2000 1999 1998 1996
---- ---- ---- ---- ----
SELECTED INCOME STATEMENT DATA
Net Sales $39,456 $42,840 $42,169 $41,156 $40,649
Cost of Sales 37,123 38,779 37,825 36,765 36,887
------- ------- ------- ------- -------
Gross Profit $ 2,333 $ 4,061 $ 4,344 $ 4,391 $ 3,762
------- ------- ------- ------ ------
Income (loss) before income
taxes $(1,390) $ (300) $ 1,087 $ 1,059 $ 869
Income Taxes (credit) (540) (98) 383 433 284
------- ------- ------- ------- -------
Net Income (loss) $ (850) $ (202) $ 704 $ 626 $ 585
======= ======= ======= ======= =======
Per Share (Note A)
Net income (loss) $ (.31) $ (.07) $ .26 $ .23 $ .21
======== ======= ======= ======= =======
Cash dividends declared
Per common share None None None None None
======= ======= ======= ======= =======
Weighted average number
of common shares outstanding 2,741 2,741 2,741 2,741 2,741
======= ======= ======= ======= =======
SELECTED CASH FLOW DATA
Capital expenditures $ 631 $ 4,640 $ 2,162 $ 1,343 $ 1,025
======= ======= ======= ======= =======
Depreciation $ 2,332 $ 1,839 $ 1,744 $ 1,600 $ 1,508
======= ======= ======= ======= =======
Cash provided by
operating activities $ 1,386 $ 74 $ 1,926 $ 3,646 $ 1,527
======= ======= ======= ======= =======
Dec. 30 Jan. 1 Jan. 2 Jan. 3 Dec.28
2000 2000 1999 1998 1996
---- ---- ---- ---- ----
SELECTED BALANCE SHEET DATA
Current assets $ 9,161 $ 9,988 $11,213 $11,785 $ 9,905
Current liabilities 3,503 4,381 3,383 3,378 1,738
----- ----- ----- ----- -----
Working capital $ 5,658 $ 5,607 $ 7,830 $ 8,407 $ 8,167
======= ======= ======= ======= =======
Current ratio 2.62 2.28 3.31 3.49 5.70
==== ==== ==== ==== ====
Total assets $23,994 $25,995 $24,311 $24,348 $22,554
======= ======= ======= ======= =======
Long-term debt $ 5,241 $ 5,551 $ 4,563 $ 5,313 $ 6,000
======= ======= ======= ======= =======
Deferred income taxes $ 2,159 $ 2,122 $ 2,221 $ 2,218 $ 2,003
======= ======= ======= ======= =======
Shareholders' equity $13,091 $13,941 $14,144 $13,440 $12,813
======= ======= ======= ======= =======
(A) Income per share has been computed based on the weighted average number of
common shares outstanding during each period.
Page 7 of 50
BURKE MILLS, INC.PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------
The following table sets forth selected operating data of the Company as
percentages of net sales for the periods indicated.
Relationship to Total Revenue
For the Year Ended
-----------------------------
Dec. 30 Jan. 1 Jan. 2
2000 2000 1999
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 94.0 90.5 89.7
Gross profit margin 6.0 9.5 10.3
------- ------- -------
Selling, general, administrative and
factoring expenses 8.2 9.8 7.1
------- ------- -------
Operating earnings/(loss) (2.2) (0.3) 3.2
Other income 0.3 0.6 0.4
Other expenses (1.9) (1.3) (1.3)
------ ------ -------
Income (loss) before income taxes
and net equity in affiliates (3.8) (1.0) 2.3
Income taxes (credit) (1.3) (0.2) 0.9
------- ------- -------
(2.5) (0.8) 1.4
Equity in Net Earnings
Of Affiliate 0.3 0.3 0.3
------- ------ -------
Net income (loss) (2.2)% (0.5)% 1.7%
======== ======= =======
Page 8 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Results of Operations 2000 Compared to 1999
- --------------------------------------------
Net Sales
- ----------
Net sales for 2000 decreased to $39.5 million from $42.8 million in 1999 or
7.9%. The decline in sales was primarily due to the loss of a program in the
third quarter in the automotive portion of the business, a decline in sewing
thread sales due to the loss of a distributor that went out of business, and a
general decline in the textile economy.
Cost of Sales and Gross Margin
- -------------------------------
Cost of sales for 2000 decreased to $37.1 million or 4.3% as compared to
$38.8 million in 1999.
Material cost decreased $1,320,000 or 5.4% primarily as a result of lower
sales. Material cost decreased only 5.4% while net sales decreased by 7.9% due
to increased cost of polyester yarns.
Direct labor decreased by 28.9%. The Company's direct labor decreased
primarily as a result of increased volume in direct yarns (there is no winding
process), more efficient utilization of labor, and lower sales volume.
Overhead cost decreased by 2.5%. Although the Company's overhead cost
decreased, depreciation cost in overhead increased by $493,000 or 26.8%
primarily due to the purchase of machinery.
Inasmuch as net sales decreased by 7.9% and cost of sales only decreased by
4.3%, the 2000 gross margin decreased to 6.0%, compared to 9.5% in 1999.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses for 2000 aggregated $3.1
million as compared to $4.1 million in 1999. In 1999 the Company had a one time
cost of $1,186,000 related to the training and data conversion for its new ERP
software.
Factor's Charges
- -----------------
Factor's charges as a percentage of sales were .4% for 2000 and 1999. There
was no change in the factor's agreement.
Interest Expense
- -----------------
Interest expense increased by $162,000 as a result of an increase in
long-term debt.
Interest Income
- ----------------
Interest income was approximately the same for 2000 and 1999.
Page 9 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Results of Operations: 2000 Compared to 1999 (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 16 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 that netted a gain on disposal of
equipment in 1999.
Equity in Net Earnings of Affiliate
- -----------------------------------
The Company's Mexican joint venture, Fytek, contributed earnings to the
Company of $131,000 in 2000 compared to $135,000 in 1999. The joint venture only
began operations in November of 1997.
Fytek had sales in 2000 of $8.5 million with income before taxes of
$890,000, and after tax income of $262,000. The balance at the end of 2000 in
Fytek's stockholders equity was $1,317,000. (See Note 10.)
Provision for Income Taxes
- ---------------------------
Provision for income taxes for 2000 was a credit of $540,000 compared to
tax credit of $97,705 in 1999. The credit in the provision for income taxes was
primarily due to a loss in 2000. The provision for income taxes includes an
amount which represents the tax rate difference of approximately 1% between the
United States and Mexico as applied to the Company's share of undistributed net
earnings of affiliate.
Page 10 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Results of Operations 1999 Compared to 1998
- --------------------------------------------
Net Sales
- ----------
Net sales for 1999 increased to $42.8 million from $42.2 million in 1998 or
1.6%. Total pounds shipped increased by 2.1%. Full-yarn sales dollars increased
by 2.0% and full-yarn pounds increased by 5.0%. Sales of commission yarns (the
dyeing and processing of customer owned yarns) decreased in both dollars and
pounds by 7.1% and 1.1% respectively. The increase in sales was mainly
attributable to the introduction of new products in 1998. In the fourth quarter
of 1998, the Company experienced a weakening market and pricing pressures. These
conditions forced reductions in prices to retain customers. After lowering sales
prices in the fourth quarter of 1998, the Company experienced a volatile raw
yarn market. In the first half of 1999, raw yarn prices declined forcing the
Company again to lower sales prices to its customers. Then in the second half of
1999, raw yarn prices increased and the Company began to increase sales prices
to its customers.
Cost of Sales and Gross Margin
- -------------------------------
Cost of sales for 1999 increased to $38.8 million or 2.5% as compared to
37.8 million in 1998.
Material cost decreased $549,000 or 2.2% primarily as a result of lower
yarn cost in the first half of 1999.
Direct labor increased by 13.3% and overhead cost increased by 11.0%. The
increase in labor and overhead cost was primarily the result of the installation
and start-up of the new ERP software, and installation and start-up of new
dyehouse equipment which replaced a portion of older equipment.
In the first half of 1999 the Company experienced a lag from the time yarn
prices declined to the time the Company lowered sales prices to the customer.
This lag increased the Company's profit margin on materials. Conversely, in the
second half of the year, especially the fourth quarter, when yarn prices
increased, there was a lag in increasing the sales prices to the customers which
decreased the Company's profit margin on materials.
Inasmuch as net sales increased by 1.6% and cost of sales increased by
2.5%, the 1999 gross margin decreased to 9.5%, as compared to 10.3% in 1998.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses for 1999 aggregated $4.1
million as compared to $2.8 million in 1998. The primary reason for the increase
was $1,186,000 of cost related to the implementation of the Company's ERP
software.
Factor's Charges
- -----------------
Factor's charges decreased slightly as the percentage of factored accounts
declined. There was no change in the factor's agreement during 1999.
Page 11 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Results of Operations: 1999 Compared to 1998 (continued)
- --------------------------------------------------------
Interest Income
- ----------------
Interest income decreased to $76,000 from $164,000 in 1998. The decrease
was primarily due to lower average investment of cash during the year. The 1999
and 1998 interest income was primarily interest earned on short-term cash
equivalents invested with the Company's bank.
Interest Expense
- -----------------
Interest expense decreased slightly due to lower average long-term debt
during the year.
Gain on Disposal of Equipment
- -----------------------------
During 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 16 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 that netted a gain on disposal of
equipment.
Equity in Net Earnings of Affiliate
- -----------------------------------
The Company's Mexican joint venture, Fytek, contributed earnings to the
Company of $135,000 in 1999 compared to $143,000 in 1998. The joint venture only
began operations in November of 1997.
Fytek had sales in 1999 of $7.6 million with income before taxes of
$709,000, and after tax income of $270,000. The balance at the end of 1999 in
Fytek's stockholders equity was $934,000. (See Note 10.)
Provision for Income Taxes
- ---------------------------
Provision for income taxes for 1999 was a credit of $97,705 compared to tax
provision of $383,000 in 1998. The credit in the provision for income taxes was
primarily due to a loss in 1999. The provision for income taxes includes an
amount which represents the tax rate difference of approximately 5% between the
United States and Mexico as applied to the Company's share of undistributed net
earnings of affiliate.
Page 12 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Results of Operations 2000 - 1997 Sales Analysis
- -------------------------------------------------
The table below sets forth an analysis of sales volume for the period
1997 to 2000, inclusive. It discloses that full yarn sales prices decreased from
a high of $3.24 per pound in 1997 to $3.01 in 2000. Unit prices for commission
sales have varied based on mix and market conditions.
The decrease in full yarn average sales prices is a result of a shift
from vertical dyeing and winding yarn on cones to horizontal dyeing and direct
shipping which began in 1996, and competitive pressure on pricing. The Company
expects in the future a larger portion of its sales will be from direct shipping
of yarn.
% of Sales $
% of Pounds of Per
Net Sales Yarn Sold Pound
--------- --------- -----
2000:
Yarn sales 96% 93% $3.01
Commission sales 4 7 1.55
---- ----
Total 100% 100%
==== ====
1999:
Yarn sales 95% 92% $3.13
Commission sales 5 8 1.94
---- ----
Total 100% 100%
==== ====
1998:
Yarn sales 95% 91% $3.22
Commission sales 5 9 1.82
---- ----
Total 100% 100%
==== ====
1997:
Yarn sales 96% 93% $3.24
Commission sales 4 7 1.87
---- ----
Total 100% 100%
==== ====
Liquidity and Capital Resources
- -------------------------------
The Company sells a substantial portion of its accounts receivable to a
commercial factor so that the factor assumes the credit risk for these accounts
and effects the collection of the receivables. As of December 30, 2000, the
Company had $2,152,000 due from its factor, which will mature on January 22,
2001. The Company has the right to borrow up to 90% of the face amount of each
account sold to the factor.
Page 13 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Liquidity and Capital Resources (continued)
- -------------------------------------------
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.
The Company had inventories of $4,634,000 as of December 30, 2000. The
Company's average inventories aggregated approximately $4,658,000 for 2000,
representing approximately 72 days inventory on hand. The Company's inventories
turn approximately 4 to 6 times each year.
The Company's working capital increased by approximately $668,000 at
December 30, 2000, from that of January 1, 2000, primarily as a result of
proceeds from long-term borrowing. The working capital of the Company and its
line of credit with its bank are deemed adequate for the operational needs of
the Company. The following table sets forth the Company's working capital and
working capital ratios as of the close of the last three years:
2000 1999 1998
---- ---- ----
Working Capital $5,658,000 $5,607,000 $7,830,000
Working Capital Ratio 2.62 to 1 2.28 to 1 3.31 to 1
As a measure of current liquidity, the Company's quick position (cash, cash
equivalents and receivables over current liabilities) discloses the following at
December 30, 2000 and January 1, 2000:
December 30 January 1
2000 2000
---- ----
Cash, cash equivalents
and receivables $4,393,000 $4,388,000
Current liabilities 3,503,000 4,381,000
--------- ---------
Excess of quick assets
over current liabilities $ 890,000 $ 7,000
========== ==========
The aggregate long-term debt at December 30, 2000 and January 1, 2000 was
$6,419,642 and $6,562,500 respectively. In order to finance the acquisition of
new property, plant and equipment of $6,372,000 in 1995, and $4,640,000 in 1999,
the Company incurred a long-term debt of $6,000,000 in 1996, 2,000,000 in 1999,
and $1,000,000 in 2000 as more fully described in Note 7 of Notes to Financial
Statements. Pursuant to an agreement with its bank, the obligation had no
principal maturities until February 1998. Thereafter, principal payments of
$62,500 are payable monthly for ninety-six (96) consecutive months. The
$3,000,000 obligation principal maturities will begin February 24, 2000, and are
payable at $35,714 monthly for eighty-four (84) consecutive months.
The Company's long-term debt to equity ratios aggregated 40.0% at December
30, 2000, 39.8% at January 1, 2000, and 32.3% at January 2, 1999.
Capital budget expenditures are estimated for 2001 at $1,200,000. The
Company plans to finance its capital needs from cash provided from operations
and bank financing.
Page 14 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Year 2000 Compliance
- ---------------------
During 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.
Environmental Matters
- ----------------------
During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used by
the Company in the past but no longer used. The contamination was reported to
the North Carolina Department of 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 remediable 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
additional provision was made in 1999 or 2000. The Company believes this
situation will have no material impact on the capital expenditures, earnings or
competitive position of the Company.
Inflation
- ----------
The results of operations of the Company for the periods discussed have
been affected by inflation in its polyester yarns (the Company's major raw
material). Prices have increased steadily since mid-year 1999, and the suppliers
have said that there is a possibility of further increases in 2001. Also,
natural gas costs have increased approximately 60% since 1999.
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",
Page 15 of 50
BURKE MILLS, INC.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
- -------------------------------------------------------------------
Forward Looking Statements (continued)
- --------------------------------------
and 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.
7A. Quantitative and Qualitative Disclosures about Market Risk
- ---------------------------------------------------------------
The Company has not purchased any instruments or entered into any
arrangements resulting in market risk to the Company for trading purposes or for
purposes other than trading purposes.
Page 16 of 50
BURKE MILLS, INC.
PART II
305 Madison Avenue 72 Essex Street
New York, NY 10165 Lodi, NJ 07644
(212) 972-9600 (201)368-9300
FAX: (212) 972-9605 FAX: (201)368-9069
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Independent Auditors' Report
----------------------------
To the Board of Directors of
Burke Mills, Inc.
We have audited the accompanying balance sheets of Burke Mills Inc. as of
December 30, 2000 and January 1, 2000, and the related statements of operations,
changes in shareholders' equity, and cash flows for each of the three years in
the period ended December 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Burke Mills, Inc. as of
December 30, 2000 and January 1, 2000, and the results of its operations and its
cash flows for each of the three years in the period ended December 30, 2000, in
conformity with U.S. generally accepted accounting principles.
Cole, Samsel & Bernstein LLC
Certified Public Accountants
Lodi, New Jersey
January 26, 2001
Page 17 of 50
BURKE MILLS, INC.
PART II
BALANCE SHEETS
December 30 January 1
2000 2000
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 1,305,362 $ 592,513
Accounts receivable 3,088,069 3,795,519
Inventories 4,633,978 5,062,294
Prepaid expenses, taxes, and other
current assets 133,711 537,980
---------- ----------
Total Current Assets 9,161,120 9,988,306
========== ==========
Equity Investment in Affiliate 586,728 455,728
---------- ----------
Property, plant & equipment - at cost 31,314,896 31,154,954
Less: accumulated depreciation 18,018,018 16,078,440
---------- ----------
Property, Plant and Equipment- Net 13,296,878 15,076,514
---------- ----------
Other Assets
Deferred income taxes 933,000 356,722
Deferred charges 16,575 118,102
---------- ----------
Total Other Assets 949,575 474,824
---------- ----------
$23,994,301 $25,995,372
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,011,905
Accounts payable 1,897,308 2,929,217
Accrued salaries and wages 220,063 200,911
Other liabilities and accrued expenses 207,300 239,437
Income taxes payable - -
-------------------- ---------- ----------
Total Current Liabilities 3,503,242 4,381,470
Long-Term Debt 5,241,071 5,550,595
Deferred Income Taxes 2,158,500 2,121,800
---------- ----------
Total Liabilities 10,902,813 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 8,170,968 9,020,987
---------- ----------
Total Shareholders' Equity 13,091,488 13,941,507
---------- ----------
$23,994,301 $25,995,372
=========== ===========
See notes to financial statements.
Page 18 of 50
BURKE MILLS, INC.
PART II
STATEMENTS OF OPERATIONS
Years Ended
----------------------------------------
December 30 January 1 January 2
2000 2000 1999
---- ---- ----
Net Sales $39,456,009 $42,839,759 $42,169,106
----------- ----------- -----------
Costs and Expenses
Cost of Sales $37,122,514 $38,778,823 $37,825,038
Selling, general and
administrative expenses 3,067,594 4,062,367 2,813,137
Factor's charges 155,151 155,334 186,234
---------- ---------- ----------
Total Costs and Expenses 40,345,259 42,996,524 40,824,409
---------- ---------- ----------
Operating Earnings (Loss) (889,250) (156,765) 1,344,697
---------- ---------- ----------
Other Income
Interest income 74,531 75,998 163,506
Gain on disposal of
property assets 22,051 190,397 -
Other, net 23,058 11,815 3,209
---------- ---------- ----------
Total Other Income 119,640 278,210 166,715
---------- ---------- ----------
Other Expenses
Interest expense 592,280 430,443 463,099
Loss on disposal of
property assets - - 137
Other, net 158,707 126,127 103,702
---------- ---------- ----------
Total Other Expenses 750,987 556,570 566,938
---------- ---------- ----------
Income (Loss) Before Provision (credit)
for income taxes and equity in
net earnings of affiliate (1,520,597) (435,125) 944,474
Provision (Credit)
for Income Taxes (539,578) (97,705) 383,125
---------- ---------- ----------
Income (Loss) Before Equity in
Net Earnings of Affiliate (981,019) (337,420) 561,349
Equity in Net Earnings of
Affiliate 131,000 135,000 143,000
---------- ----------- -----------
Net Income (Loss) $ (850,019) $ (202,420) $ 704,349
=========== ============ ===========
Net Earnings (Loss) per share $ (.31) $ (.07) $ .26
=========== ============ ===========
Weighted Average Common
Shares Outstanding 2,741,168 2,741,168 2,741,168
=========== =========== ===========
See notes to financial statements.
Page 19 of 50
BURKE MILLS, INC.
PART II
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANARY 1, 2000
Common Stock
No Par Value
Stated Value
$.66 Per Share
5,000,000 Shares
AUTHORIZED
Total
Shares Paid-In Retained Shareholders
Issued Amount Capital Earnings Equity
------ ------ ------- -------- ------
Balance at Jan. 3,
1998 2,741,168 $1,809,171 $3,111,349 $8,519,058 $13,439,578
Net Income (loss)
for the year ended
Jan. 2, 1999 - - - 704,349 704,349
---------- ---------- ---------- ---------- ----------
Balance at Jan. 2,
1999 2,741,168 $1,809,171 $3,111,349 $9,223,407 $14,143,927
Net Income (loss) for
the year ended
Jan. 1, 2000 - - - ($202,420) ($202,420)
--------- ---------- ---------- ---------- ----------
Balance at Jan. 1,
2000 2,741,168 $1,809,171 $3,111,349 $9,020,987 $13,941,507
Net Income (loss)
for the year ended
Dec. 30, 2000 - - - (850,019) (850,019)
---------- ---------- ---------- ---------- ----------
Balance at
Dec. 30, 2000 2,741,168 $1,809,171 $3,111,349 $8,170,968 $13,019,488
========== ========== ========== ========== ===========
See notes to financial statements.
Page 20 of 50
BURKE MILLS, INC.
PART II
STATEMENTS OF CASH FLOWS
Years Ended
-----------------------------------
December 30 January 1 January 2
2000 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (850,019) $ (202,420) $ 704,349
---------- ---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,331,632 1,838,995 1,743,524
(Gain) loss on sales of plant and
equipment, including loss on disposals (22,051) (190,397) 137
Deferred income taxes (539,578) (106,758) 315,236
Equity in net earnings of affiliate (131,000) (135,000) (143,000)
Changes in assets and liabilities:
Accounts receivable 707,450 (335,212) 310,994
Inventories 428,316 (1,356,445) (699,551)
Prepaid expenses, taxes & other
current assets 404,269 (224,108) (275,040)
Other non-current assets 101,527 48,975 26,239
Accounts payable (1,031,909) 625,341 222,639
Accrued salaries & wages 19,152 40,049 (30,266)
Other liabilities and accrued expenses (32,137) 102,341 (280,725)
Income taxes payable -- (31,600) 31,600
---------- --------- ---------
Total adjustments 2,235,671 276,181 1,221,787
---------- --------- ---------
Net cash provided by operating activities 1,385,652 73,761 1,926,136
---------- --------- ---------
Cash flows from investing activities:
Acquisition of property, plant
and equipment (631,445) (4,640,380) (2,161,837)
Proceeds from sales of plant
and equipment 101,500 524,693 1,100
Investment in affiliate -- -- --
---------- ---------- ----------
Net cash (used) by investing activities (529,945) (4,115,687) (2,160,737)
---------- ----------- ----------
Cash flows from financing activities:
Proceeds from long-term bank note 1,000,000 2,000,000 --
Principal payments of long-term debt (1,142,858) (750,000) (687,500)
----------- ----------- ----------
Net cash provided (used) by financing
activities (142,858) 1,250,000 (687,500)
----------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents 712,849 (2,791,926) (922,101)
Cash & cash equivalents at beginning
of year 592,513 3,384,439 4,306,540
----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,305,362 $ 592,513 $3,384,439
=========== =========== ==========
See notes to financial statements.
Page 21 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Accounting period - The Company's fiscal year is the 52 or 53 week period
ending the Saturday nearest to December 31. Fiscal years 2000, 1999, and 1998
ended on December 30, 2000, January 1, 2000, and January 2, 1999, respectively.
The three fiscal years consisted of 52 weeks.
Revenue recognition - Revenues from sales are recognized at the time
shipments are made to the customer.
Statement of cash flows - For the purposes of the statements of cash flows,
the Company considers cash and cash equivalents to include cash on hand,
deposits in banks, interest bearing demand matured funds on deposit with factor,
and all highly liquid debt instruments with a maturity of three months or less
when purchased.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market. Cost elements included in work-in-process and finished
goods inventories are raw materials, direct labor and manufacturing overhead.
Market is considered to be net realizable value.
Property, plant and equipment - Property, plant and equipment are stated at
cost.
Depreciation and amortization of the property accounts are provided over
the estimated useful lives of the assets. For financial reporting purposes,
depreciation on plant and equipment is provided primarily at straight-line
rates. For income tax purposes, depreciation has been provided at straight-line
rates for all property, plant and equipment acquired prior to 1981 and the
accelerated and modified accelerated cost recovery system for property assets
acquired subsequent to December 31, 1980. The estimated useful lives used for
computing depreciation for financial reporting purposes are generally:
Buildings and improvements 5 - 45 years
Plant machinery and equipment 5 - 17 years
Office equipment 5 - 10 years
Automotive equipment 3 - 5 years
Computer equipment 3 - 5 years
Earnings per share - Earnings per share are based on the net income divided
by the weighted average number of common shares outstanding during the
respective periods.
Use of Estimates in Preparing Financial Statements - 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 2 - SEGMENTS OF BUSINESS ENTERPRISE
- ----------------------------------------
The Company is engaged in 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.
Page 22 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE (continued)
- ----------------------------------------------------
With respect to its operations, the Company's products and its services for
others on a commission basis are sold and/or performed for customers primarily
located in the territorial limits of the United States.
The Company had foreign sales as follows:
Country 2000 1999 1998
------- ---- ---- ----
Mexico .82% .2% 1.0%
Canada 4.8% 4.3% 6.4%
Brazil .0% .3% .3%
Honduras .74% .0% .0%
Nicaragua .09% .0% .0%
Barbados .07% .0% .0%
---- ---- ----
Total.......... 6.52% 4.8% 7.7%
Other than sales as shown above, the Company had no other sales in foreign
markets during the three year period ended December 30, 2000. For the three year
period ended December 30, 2000, the Company has operated within a single
industry segment with classes of similar products. The principal markets served
by the Company are upholstery and industrial uses through the knitting and
weaving industry.
In connection with sales to major customers, no customers have exceeded 10%
of the Company's sales during each of the three years ended December 30, 2000.
One customer has exceeded 10% in 1999 and 2000. For the purpose of this
determination, sales to groups of companies under common control have been
combined and accounted for as sales to individual companies. The following table
gives information with respect to these two customers:
% of
2000 Amount Net Sales
---- ------ ---------
Customer 1 $5,608,000 14.2%
Customer 2 * --
Customer 3 5,541,000 14.0
% of
1999 Amount Net Sales
---- ------ ---------
Customer 1 $8,012,000 18.7
Customer 2 5,089,000 11.9
Customer 3 * --
% of
1998 Amount Net Sales
---- ------ ---------
Customer 1 * --
Customer 2 $5,793,000 13.7
Customer 3 * --
*Less than 10%
Page 23 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE
- --------------------------------
Accounts receivable comprise the following:
December 30 January 1
2000 2000
---- ----
Due from factor on
regular factoring account $2,152,000 $2,271,000
Non-factored accounts
receivable 936,000 1,525,000
---------- ---------
Total $3,088,000 $3,796,000
========== ==========
Pursuant to a factoring agreement, the Company sells substantial portions
of its accounts receivable to a commercial factor without recourse, up to
maximum credit limits established by the factor for individual accounts. The
factor assumes the credit risks for these accounts and effects the collection of
the receivables. Amounts invoiced to customers on accounts receivable factored
in excess of the established maximum credit limits are sold to the factor with
recourse in the event of nonpayment by customers.
The Company pays a service charge to its factor to cover credit checking,
assumption of credit risk, record keeping and similar services. In addition, if
the Company takes advances from its factor prior to the average maturity of the
receivables sold (as defined), it is required to pay interest to the factor on
these advances. The Company incurred no interest costs during 2000 and 1999,
inasmuch as it borrowed no funds from its factor during these years.
The Company's factor is collateralized by the accounts receivable sold to
the factor, and the factor has filed a UCC-1 to evidence ownership of the
receivables and to separate the receivables from the company's creditors. No
interest in inventory, other than returned goods, has been granted to the factor
under the factoring contract.
NOTE 4 - INVENTORIES
- -----------------------
Inventories are summarized as follows:
December 30, January 1,
2000 2000
---- ----
Finished & in process $3,103,000 $3,235,000
Raw materials 1,136,000 1,345,000
Dyes & chemicals 277,000 343,000
Other 118,000 139,000
---------- ----------
Total $4,634,000 $5,062,000
========== ==========
Page 24 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------
Major classifications of property, plant and equipment are as follows:
December 30, 2000 January 1, 2000
------------------ ----------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------ ---- ------------
Land $ 156,425 $ -- $ 86,565 $ --
Land improvements 182,913 94,653 182,913 88,335
Building & improvements 6,382,541 4,539,462 6,427,129 4,384,047
Plant machinery &
equipment 22,960,405 12,344,171 22,854,112 10,721,424
Office equipment 1,466,535 928,629 1,381,155 755,061
Automotive equipment 166,077 111,103 223,080 129,573
--------- ---------- ---------- ----------
Total $31,314,896 $18,018,018 $31,154,954 $16,078,440
=========== =========== =========== ===========
NOTE 6 - LINE OF CREDIT LOAN
- --------------------------------
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. 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. During
2000 the Company had no borrowings from its factor.
NOTE 7 - 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 (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%.
Page 25 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT (continued)
- -----------------------------------
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 this long-term debt at December 30, 2000
are as follows:
Current portion $ 750,000
2002 750,000
2003 750,000
2004 750,000
2005 750,000
Thereafter 62,500 3,062,500
--------- ---------
$3,812,500
Under the loan agreement, the Equipment Line of Credit was converted to a
$3,000,000 long-term note payable in 84 installments of $35,714 plus interest at
the floating LIBOR rate plus 1.90%. The Company converted the Line of Credit and
began installments on February 29, 2000.
The annual principal maturities of this long-term debt at December 30, 2000
based on the current amount owned are as follows:
Current Portion $ 428,571
2002 $ 428,571
2003 428,571
2004 428,571
2005 428,571
Thereafter 464,287 2,178,571
------- ---------
$2,607,142
NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES
- ----------------------------------------------
Other liabilities and accrued expenses consist of the following:
December 30 January 1
2000 2000
---- ----
Employee insurance $170,000 $120,000
Payroll taxes payable 19,000 106,000
Other 18,000 13,000
-------- --------
Total $207,000 $239,000
======== ========
Page 26 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
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 that comprise deferred tax assets and liabilities are as follows:
Dec. 30 Jan. 1
2000 2000
---- ----
Deferred tax assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net Operating Carryover 570,000
Inventory capitalization 5,500 6,020
Charitable contributions carryover 8,500 1,702
--------- ---------
$ 933,000 $ 356,722
========== ==========
Deferred tax liabilities:
Accelerated depreciation for
tax purposes $2,154,100 $2,100,700
Undistributed earnings of foreign
Affiliate, net of tax credit 4,400 21,100
Other - -
--------- ---------
$2,158,500 $2,121,800
========== ===========
Provision for taxes consist of:
Dec. 30 Jan. 1 Jan. 2
2000 2000 1999
---- ---- ----
Current:
Federal $ - $ - $ 49,445
State - - 18,444
Deferred (539,578) (97,705) 315,236
------- ------- -------
Total $(539,578) ($97,705) $383,125
========= ========= =========
The provision for income taxes on historical income differs from the
amounts computed by applying the applicable Federal statutory rates, due to the
following:
Years Ended
December 30 January 1 January 2
2000 2000 1999
---- ---- ----
Income (loss) before income taxes
(credit) $1,520,597 ($435,125) $1,184,974
Federal income taxes 34% 34% 34%
-------- ---------- ---------
Computed taxes (credit) at maximum
statutory tax rate (517,003) (147,943) 402,891
State income taxes (credit), net of
Federal income tax benefits (23,885) (15,260) 56,098
Total adjustment for foreign
affiliate earnings 1,310 66,130 (81,770)
Prior year tax examination and
other - (632) 5,906
--------- --------- ---------
Provision for income taxes $ (539,578) ($97,705) $ 383,125
========= ========== =========
Page 27 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (continued)
- ---------------------------------
The net operating loss carryforward is $1,861,803, expiring 2019 and 2020.
The tax effect at the maximum tax rate would be $717,000. Inasmuch as the
Company has paid and has set forth $349,000 for alternative minimum taxes paid,
which may only be used to offset normal income taxes that may be incurred in
future years, the Company has provided a valuation allowance of approximately
$150,000 for the tax effect of this net operating loss carryforward.
NOTE 10 - 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. The Company had no sales to
Fytek in 2000 or 1999. Purchases from Fytek in 2000 were $1,869,000 compared to
$1,441,000 in 1999. At December 30, 2000 Fytek owed the Company $49,000 for
leased equipment which will be paid in 2001. Fytek's financial information is as
follows:
Statement of Income
(In thousands of U.S. Dollars)
2000 1999
---- ----
Net Sales $8,508 $7,623
Gross Profit 1,419 1,262
Income from continuing operations 890 709
Income before income taxes 890 709
Income taxes 628 439
---- ----
Net income $ 262 $ 270
====== ======
Balance Sheet
(In thousands of U.S. Dollars)
2000 1999
---- ----
Current assets $4,175 $4,176
Non-current 166 144
---- ----
Total assets $4,341 $4,320
====== ======
Current liabilities $3,024 $3,386
Non-current liabilities -0- -0-
------ ------
Total liabilities $3,024 $3,386
Stockholder's equity 1,317 934
------ ------
Total liabilities and stockholder's equity $4,341 $4,320
====== ======
Page 28 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
- ----------------------------------------------------------------
In 2000, the Company purchased $739,000 of yarns from Nafees Cotton Mills,
Ltd. The Company paid for the yarn purchased by Letters of Credit at 120 and 180
days from bill of lading date. Future purchases could reasonably be anticipated
if the Company receives orders for its 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 a
Director of Nafees Cotton Mills, Ltd., since 1993 and of Legler-Nafees Denim
Mills, Ltd., since 1999.
NOTE 11 - STATEMENTS OF CASH FLOWS
- ----------------------------------
FASB No. 95 requires that the following supplemental disclosures to the
statements of cash flows be provided in related disclosures. Cash paid for
interest was $590,000 in 2000, $446,000 in 1999 and $470,000 in 1998. The
Company had no cash payments during 2000 for income taxes and received $23,000
for a refund compared to $65,055 paid in 1999 and $33,500 in 1998.
NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS
- -----------------------------------------------
Rental expenses under all lease commitments for the three fiscal years
ended December 30, 2000, aggregated $45,000, $48,000, and $37,000 respectively.
Minimum commitments under terms of all non-cancelable leases, which consist only
of leased equipment, are as follows as of December 30, 2000:
2001 $17,640
2002 10,830
------
$28,470
=======
Page 29 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------
(in thousands of dollars except for per share amounts)
QUARTER
------------------------------------
2000 First Second Third Fourth
---- ----- ------ ------ ------
Net sales $11,058 $10,457 $ 9,279 $ 8,662
Cost of sales 10,361 9,681 8,958 8,123
Gross profit 697 776 321 539
Net income (loss) (186) (68) (247) (349)
Net income (loss) per common share $ (.07) $ (.02) $ (.09) $ (.13)
1999 First Second Third Fourth
---- ----- ------ ------ ------
Net sales $ 9,996 $10,796 $11,625 $10,423
Cost of sales 8,719 9,782 10,106 10,172
Gross profit 1,277 1,014 1,519 251
Net income (loss) 106 60 28 (396)
Net income (loss) per common share $ .04 $ .02 $ .01 $ (.14)
1998
----
Net sales $10,649 $10,023 $11,509 $ 9,988
Cost of sales 9,388 9,055 9,976 9,406
Gross profit 1,261 968 1,533 582
Net income (loss) 307 208 394 (205)
Net income (loss) per common share $ .11 $ .08 $ .14 $ (.07)
NOTE 14 - 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 in 2000, 1999,
or 1998.
NOTE 15 - 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 December 30,
2000, the Company had $2,152,000 due from its factor which matures on January
22, 2001. Upon maturity, the funds are automatically transferred by the factor
to the Company's bank.
Page 30 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - OTHER 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 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.
d) 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
additional provision was made in 1998, 1999, or 2000. The Company believes this
situation will have no material impact on the capital expenditures, earnings or
competitive position of the Company.
e) 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.
(f) The Company is one of eight defendants in a case brought in the United
States District Court for the Southern District of Texas, Houston Division, by a
plaintiff individually and as next friend for a minor. The complaint alleges
that the minor plaintiff was injured as a result of burns suffered when
Page 31 of 50
BURKE MILLS, INC.
PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - OTHER COMMITMENTS (continued)
- ---------------------------
stripping on the side of a pair of jeans purchased by the minor caught fire. The
complaint alleges that the Company was one of two manufacturers providing yarn
to the defendant who allegedly manufactured the stripping sewn on to the jeans.
The Company is defending the suit through legal counsel provided by the
Company's products liability insurance carrier. Based upon the facts known to
the Company at this time, the Company does not believe that it will be
determined to have any monetary liability to the plaintiffs in this case. The
Company further believes that if the Company is determined to have any monetary
liability to the plaintiffs, such liability will be covered by its products
liability insurance policy.
NOTE 17 - RECLASSIFICATIONS
- ---------------------------
The deferred income tax assets for January 1, 2000 have been
reclassified from current assets to non-current assets to conform to
presentations utilized in the December 30, 2000, balance sheet.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ACCOUNTING AND FINANCIAL DISCLOSURE
- -----------------------------------------------------
There have been no changes in nor disagreements with accountants on
accounting and financial disclosure during the Company's two most recent fiscal
years or during any subsequent interim period. The current accounting firm for
the Company, Cole, Samsel & Bernstein LLC of New York, New York, and Lodi, New
Jersey, has served as accountants for the Company during the last two fiscal
years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- --------------------------------------------------------------
The information required for Part III of this report (Items 10-13) is
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A for the annual meeting of shareholders
scheduled for May 29, 2001, involving the election of directors, which is
expected to be filed not later than 120 days after the end of the fiscal year
covered by this report.
Page 32 of 50
BURKE MILLS, INC.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------
(a) The following documents are filed as a part of this report.
(a) 1. Report of Independent Certified Public Accountants.
---------------------------------------------------
The following financial statements of Burke Mills, Inc. and the related
auditors' report required to be included in Part II Item 8, are listed below:
Independent auditors' report
Balance sheets
December 30, 2000
January 1, 2000
Statements of operations
Year ended December 30, 2000
Year ended January 1, 2000
Year ended January 2, 1999
Statements of changes in shareholders' equity
Year ended December 30, 2000
Year ended January 1, 2000
Year ended January 2, 1999
Statements of cash flows
Year ended December 30, 2000
Year ended January 1, 2000
Year ended January 2, 1999
Notes to financial statements
Page 33 of 50
BURKE MILLS, INC.
Financial statement schedules have been omitted since the required information
is not present in amounts sufficient to require submission of the schedules, or
because the required information is included in the financial statements or the
notes thereto.
(a) 2. The exhibits required by Item 601 of Regulation S-K and paragraph
(c) of Item 14 are the articles of incorporation and by-laws of the Company
which are incorporated herein by reference from the Amendment on Form 8 to the
annual report on Form 10-K of the Company for the fiscal year ended January 2,
1982 previously filed with the Commission. The exhibit required by Item 601(c)
of Regulation SK, Financial Data Schedule, is set forth on page 35 of this
report.
(b) During the last quarter of the period covered by this report no report
on Form 8-K was filed.
(c) See sub-Item (a)2 above.
(d) Exhibit 99 Audited Financial Statement referred to in Note 10 of
Financial Statements.
Page 34 of 50
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 ANNUAL REPORT
ON FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 30,2000.
NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) cash & cash items $1,305,362
5-02(2) marketable securities 0
5-02(3)(a)(1) notes & accounts receivable-trade 3,088,069
5-02(4) allowances for doubtful accounts 0
5-02(6) inventory 4,633,978
5-02(9) total current assets 9,161,120
5-02(13) property, plant & equipment 31,314,896
5-02(14) accumulated depreciation 18,018,018
5-02(18) total assets 23,994,301
5-02(21) total current liabilities 3,503,242
5-02(22) bonds, mortgages & similar debt 5,241,071
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 11,282,317
5-02(32) total liabilities & stockholders' equity 23,994,301
5-03(b)1(a) net sales of tangible products 39,456,009
5-03(b)1 total revenues 39,456,009
5-03(b)2(a) cost of tangible goods sold 37,122,514
5-03(b)2 total costs & expenses applicable
to sales and revenues 37,122,514
5-03(b)3 other costs & expenses 0
5-03(b)5 provision for doubtful accounts & notes 0
5-03(b)(8) interest & amortization of debt discount 592,280
5-03(b)(10) income (loss) before taxes & other items (1,389,597)
5-03(b)(11) income tax expense (credit) (539,578)
5-03(b)(14) income (loss) continuing operations (850,019)
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 (850,019)
5-03(b)(20) earnings (loss) per share - primary (.31)
5-03(b)(20) earnings (loss) per share - fully diluted (.31)
Page 35 of 50
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2001 BURKE MILLS, INC.
By: Humayun N. Shaikh /s
----------------------
Humayun N. Shaikh,
Chairman of the Board
(Principal Executive Officer)
By: Thomas I. Nail /s
-----------------------
Thomas I. Nail
President
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Date: March 27, 2001 By: Humayun N. Shaikh /s
---------------------------
Humayun N. Shaikh, Director
Date: March 27, 2001 By: Aehsun Shaikh /s
---------------------------
Aehsun Shaikh, Director
Date: March 27, 2001 By: Thomas I. Nail /s
---------------------------
Thomas I. Nail, Director
Date: March 27, 2001 By: Robert P. Huntley /s
---------------------------
Robert P. Huntley, Director
Date: March 27, 2001 By: William T. Dunn /s
---------------------------
William T. Dunn, Director
Page 36 of 50