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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 SEPTEMBER 28, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
IRS EMPLOYER IDENTIFICATION (56-0506342)
NORTH CAROLINA
(State or other jurisdiction of incorporation or organization)
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
(828) 874-6341
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of October 25, 2002, there
were outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1
BURKE MILLS, INC
INDEX
PART 1 - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
- -----------------------------
Condensed Balance Sheets:
September 28, 2002, and December 30, 2001 3
Condensed Statements of Operations and Retained Earnings: 4
Thirteen Weeks Ended September 28, 2002 and September 29,
2001
Thirty-Nine Weeks Ended September 28, 2002 and
September 29, 2001
Statements of Cash Flows: 5
Thirty-Nine Weeks Ended September 28, 2002
and September 29, 2001
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 12
- ---------------------------------------------------------
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 16
- -------------------------------------------------------
Item 4 - Controls and Procedures 16
- -------------------------------------------------------
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
- -----------------------------------------
SIGNATURES and CERTIFICATIONS 18
Page 2
BURKE MILLS, INC.
CONDENSED BALANCE SHEETS
September 28, December 29,
2002 2001
(Unaudited) (Note A)
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 3,393,529 $ 4,144,340
Accounts receivable 3,073,903 2,671,324
Inventories 2,678,206 3,220,194
Prepaid expenses, taxes and other
current assets 334,446 96,087
----------- -----------
Total Current Assets 9,480,084 10,131,945
----------- -----------
Equity Investment in Affiliate 612,275 620,592
----------- -----------
Property, Plant and Equipment - at cost 31,148,239 30,962,533
Less: Accumulated depreciation 20,480,053 19,564,639
----------- -----------
Property, Plant and Equipment - Net 10,668,186 11,397,894
----------- -----------
Other Assets
Deferred income taxes 370,600 606,800
Other 55,500 45,769
----------- -----------
Total Other Assets 426,100 652,569
----------- -----------
Total Assets $21,186,645 $22,803,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,178,571 $ 1,178,571
Accounts payable 1,300,171 1,720,067
Accrued salaries, wages and vacation pay 151,245 253,582
Other liabilities and accrued expenses 155,774 168,790
Income taxes payable 0 503
----------- -----------
Total Current Liabilities 2,785,761 3,321,513
Long-term Debt 3,214,286 4,098,214
Deferred Income Taxes 1,846,800 1,977,000
----------- -----------
Total Liabilities 7,846,847 9,396,727
----------- -----------
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 8,419,278 8,485,753
----------- -----------
Total Shareholders' Equity 13,339,798 13,406,273
----------- -----------
Total Liabilities & Shareholders' Equity $21,186,645 $22,803,000
=========== ============
Note A: The December 29, 2001, 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
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- -----------------------
Sept. 28 Sept. 29 Sept. 28 Sept. 29
2002 2001 2002 2001
-------- -------- -------- --------
Net Sales $ 6,997,121 $9,255,121 $24,164,701 $29,055,726
- --------- ----------- ----------- ----------- -----------
Costs and Expenses
Cost of Sales 6,709,894 8,447,210 22,239,375 26,525,177
Selling, General and
Administrative Expenses 588,282 632,518 1,905,453 1,935,010
Factor's Charges 28,818 39,789 98,043 122,363
-------- -------- -------- --------
Total Costs and Expenses 7,326,994 9,119,517 24,242,871 28,582,550
---------- ---------- ---------- ---------
Operating Earnings/(Loss) (329,873) 135,604 (78,170) 473,176
--------- -------- --------- --------
Other Income
Interest Income 13,148 20,495 36,698 60,456
Gain (loss) on disposal of
property assets ( 4,502) 0 (4,393) (2,275)
Other, net 22,710 7,005 35,849 9,325
------- ------- ------- -------
Total 31,356 27,500 68,154 67,506
------- ------- ------- -------
Other Expenses
Interest Expense 43,844 83,872 139,547 307,311
Other, net 0 (7,308) 0 27,095
------- ------- ------- -------
Total 43,844 76,564 139,547 334,406
------- ------- ------- -------
Income (loss) before Provision for
Income Taxes and Equity in Net
Earnings (Loss) of Affiliate (342,361) 86,540 (149,563) 206,276
Provision/(Credit) for Income
Taxes (213,005) 18,923 (91,406) 69,910
------- ------- ------- -------
Net Income/(Loss) before Equity
in Net Earnings of Affiliate (129,356) 67,617 (58,157) 136,366
Equity in Net Earnings (Losses)
of Affiliate (8,317) 17,778 (8,317) 56,277
------- ------- ------- -------
Net Income (Loss) (137,673) 85,395 (66,474) 192,643
Retained Earnings at Beginning
of Period 8,556,950 8,278,216 8,485,753 8,170,968
--------- --------- --------- ---------
Retained Earnings at End
of Period $8,419,278 $8,363,611 $8,419,278 $8,363,611
========== ========== ========== ==========
Earnings (Loss) Per Share $ (.05) $ .03 $ (.02) $ .07
========== ========== ========== =========
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
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
----------------------
Sept. 28, Sept. 29,
2002 2001
---- ----
Cash flows from operating activities:
Net Income (Loss) $ (66,474) $ 192,643
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 1,543,713 1,686,525
Provision for deferred income taxes 106,000 31,000
Equity in earnings of affiliate 8,317 (56,277)
Loss (gain) on disposal of
property assets 4,392 2,275
Changes in assets and liabilities:
Accounts receivable (402,579) (1,165,400)
Inventories 541,987 617,610
Prepaid expenses, taxes and other
current assets (238,359) (44,913)
Other non-current assets (9,731) 0
Accounts payable (419,896) 1,438,123
Income taxes payable (503) 889
Accrued salaries, wages and
vacation pay (102,337) 3,215
Other liabilities and accrued expenses (13,016) 279,329
--------- ----------
Total Adjustments 1,017,988 2,792,376
--------- ----------
Net cash provided by operating activities 951,514 2,985,019
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (821,097) (196,298)
Proceeds from sale of equipment 2,700 68,000
--------- ---------
Net cash (used) by investing activities (818,397) (128,298)
--------- ---------
Cash flows from financing activities:
Principal payments of long-term debt (883,928) (883,928)
Proceeds from long-term bank note 0 0
--------- ---------
Net cash (used) by financing activities (883,928) (883,928)
--------- ---------
Net increase (decrease) in cash and
cash equivalents (750,811) 1,972,793
Cash and cash equivalents at
beginning of year 4,144,340 1,305,362
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
THIRD QUARTER $3,393,529 $3,278,155
========== ==========
See notes to condensed financial statements
Page 5
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 thirty-nine week period ended September 28,
2002 are not necessarily indicative of the results that may be expected for the
year ended December 28, 2002. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 29, 2001.
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 thirty-nine weeks ended September 28, 2002 and September 29,
2001 was $140,000 and $307,000, respectively. The Company had cash payments of
$14,200 for income taxes for the thirty-nine weeks ended September 28, 2002,
versus cash payments of $12,000 for the thirty-nine weeks ending September 29,
2001.
NOTE 3 - OPERATIONS OF THE COMPANY
- ----------------------------------
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 Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest to December 31. Its fiscal quarters also end on the Saturday nearest to
the end of the calendar quarter.
Revenues from sales are recognized at the time shipments are made to the
customer.
NOTE 4 - USE OF ESTIMATES
- -------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 5 - ACCOUNTS RECEIVABLE
- -----------------------------
Accounts receivable are comprised of the following:
September 28, December 29,
2002 2001
---- ----
Account current - Factor:
Due from Factor on regular
factoring account........ $2,274,000 $2,070,000
Non-factored accounts
receivable............... 800,000 601,000
---------- ----------
$3,074,000 $2,671,000
========== ==========
Page 6
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued) (Unaudited)
NOTE 6 - INVENTORIES
- --------------------
Inventories are summarized as follows:
September 28, December 29,
2002 2001
---- ----
Finished & in process $1,594,000 $2,263,000
Raw materials 757,000 635,000
Dyes & chemicals 216,000 208,000
Other 111,000 114,000
---------- ---------
Total $2,678,000 $3,220,000
========== ==========
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.
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. As of September 28, 2002 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:
(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 September 28, 2002 are as
follows:
Current portion $ 750,000
2003/2004 $ 750,000
2004/2005 750,000
2005/2006 250,000 1,750,000
--------- ---------
$2,500,000
Page 7
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued) (Unaudited)
NOTE 8 - LONG-TERM DEBT (cont.)
- -------------------------------
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 1.9%. The Company converted the Line of Credit
and began installments on February 29, 2000.
The annual principal maturities of this long-term debt at September 28, 2002
based on the current amount owned are as follows:
Current Portion $ 428,571
2003/2004 $ 428,571
2004/2005 428,571
2005/2006 428,571
Thereafter 178,573 1,464,286
------- ---------
$1,892,857
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:
September 28, December 29,
2002 2001
---- ----
Deferred Tax Assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating carry forward 11,400 247,600
Charitable contributions
carryover 10,200 10,200
--------- ---------
$ 370,600 $ 606,800
========= =========
Deferred Tax Liabilities:
Accelerated depreciation
for tax purposes $1,842,100 $ 1,972,300
Undistributed earnings of foreign
affiliate, net of tax credit 4,700 4,700
--------- ---------
$1,846,800 $1,977,000
========= ==========
Thirty-Nine Weeks Ended
--------------------
Sept. 28, Sept. 29,
Provision (credit) for income taxes 2002 2001
---- ----
consists of:
Deferred $ 106,000 $ 69,910
Federal (173,855) ---
State (23,550) ---
--------- ----------
$ (91,405) $ 69,910
========= ==========
The net operating loss carryforward from a prior year is $258,000, expiring
2019/2020.
Page 8
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued) (Unaudited)
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 September 28, 2002 and September 29, 2001.
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 September 28,
2002, the Company had $2,274,000 due from its factor of which $2,036,600 matures
on October 18, 2002. Upon maturity, the funds are automatically transferred by
the factor to the Company's bank. The Company insures its qualified export
accounts receivable with Export/Import 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 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.
c) During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used by
the Company in the past but no longer used. The contamination was reported to
the North Carolina Department of 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 cost of monitoring will be
approximately $31,000 per year.
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. Due to the Mexican economy, sales are
Page 9
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued) (Unaudited)
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
- ----------------------------------------------------------------
down. Accounts receivable are also declining. Since repatriation of cash is not
expected from the joint venture, the Company believes it is prudent to record a
valuation allowance for Fytek. This allowance amounts to $33,000 for the
year-to-date, all recorded in the second quarter, and a cumulative effect of
$179,000. During the thirty-nine weeks, the Company had purchases from Fytek of
$1,025,000 compared to $1,066,000 in 2001. Burke Mills does not guarantee any
debt for it's joint venture, Fytek. Financial information for Fytek is as
follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)(Unaudited)
3rd Quarter Nine Months
----------- ----------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $ 993 $1,403 $3,092 $4,314
Gross Profit (Loss) (56) 15 (7) 171
Income (Loss) from continuing
operations (32) 42 49 159
Income (Loss) before taxes (32) 42 49 159
Provision/credit for income tax (16) 6 0 46
------- ------ ------- -------
Net Income (Loss) $ (16) $ 36 $ 49 $ 113
======= ====== ======= =======
BALANCE SHEET
(In thousands of U.S. dollars)
September 28, December 31,
2002 2001
------ ------
ASSETS
Current assets $2,820 $3,137
Non-current assets 196 166
------ ------
Total Assets $3,016 $3,303
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities 1,417 1,694
Non-current liabilities 0 0
----- -----
Total Liabilities 1,417 1,694
Shareholders equity 1,599 1,609
----- -----
Total Liabilities & Shareholders' Equity $3,016 $3,303
====== ======
Page 10
BURKE MILLS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued) (Unaudited)
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 2002 or for the thirty-nine weeks
ended September 28, 2002.
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 thirty-nine week periods ended
September 28, 2002, and September 29, 2001.
Page 11
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
2002 Compared to 2001
- ---------------------
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 Thirty-Nine Weeks
Ended Ended
-------------------- -------------------
Sept. 28 Sept. 29 Sept. 28 Sept. 29
2002 2001 2002 2001
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 95.9 91.3 92.0 91.3
------ ------ ------ ------
Gross Profit 4.1 8.7 8.0 8.7
Selling, General, Administrative
and Factoring Costs 8.8 7.3 8.3 7.1
----- ----- ----- -----
Operating Earnings (Loss) (4.7) 1.4 (0.3) 1.6
Interest Expense 0.6 0.9 0.6 1.0
Other (Income) - net (0.4) (0.4) (0.3) (0.1)
----- ----- ----- -----
Income (Loss) before
Income Taxes (4.9) 0.9 (0.6) 0.7
Equity in Net Earnings (Loss)
of Affiliate (0.1) 0.2 0 0.2
Income Taxes (Credit) 3.0 0.2 (0.3) 0.2
----- ----- ----- -----
Net Income (Loss) (2.0)% 0.9% (0.3)% 0.7%
===== ===== ===== =====
THIRTEEN WEEKS ENDED SEPTEMBER 28, 2002
COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 29, 2001
Net Sales
- ---------
Net sales for the thirteen week period decreased by 24.4% to $6,997,000 compared
to $9,255,000 in 2001. Pounds shipped decreased by 20.7%, while average sales
prices decreased by 4.7%. Average sales prices decreased as a result of a very
competitive business environment and sales mix. The Company has not lost any
major customers, but as a result of a weak textile economy and competition with
imports, the Company's customers have experienced a decrease in sales.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the third quarter decreased by $1,737,000 or 20.6% compared to
the third quarter of 2001. The Company was able to reduce material cost by
24.7%, direct labor cost by 35.6%, and overhead cost by only 12%.
As a result of a decrease in sales by 24.4% and a decrease in cost of sales by
only 20.6%, the Company experienced a decline in gross margin to 4.1% versus
8.7% in the third quarter of 2001.
Page 12
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses decreased by $44,000 or 7%
compared to the third quarter of 2001. In the weak business environment, the
Company is maintaining a strong sales effort.
Factor's Charges
- ----------------
Factor's charges were .4% of sales compared to .4% of sales in the third quarter
of 2001. There has been no change in the Company's factoring agreement.
Interest Expense
- ----------------
Interest expense decreased by $40,000 or 47.7% as a result of lower existing
interest rates and a lower average long-term debt.
Interest Income
- ---------------
Interest income decreased by $7,000 or 35.8% primarily as a result of lower
existing interest rates.
Equity in Net Earnings (Losses) of Affiliate
- ---------------------------------------------
The Company recorded a loss of $8,000 from Fytek, S.A. De C.V., its joint
venture in Mexico, compared to an income of $18,000 for the third quarter of
2001. Year to date income of $25,000 was offset by a valuation allowance of
$33,000. The Company's share of net earnings and losses is 50%. Fytek began
operations in the fourth quarter of 1997. Also see Note 13.
Income (Loss) before Provision for Income Taxes
- -----------------------------------------------
For the thirteen weeks ended September 28, 2002 the Company recorded a loss of
$342,000. As discussed above, the loss was primarily due to a decrease in sales
volume.
Provision (Credit) for Income Taxes
- ------------------------------------
Due to the loss before taxes, the Company recorded a credit of $213,000 for
taxes.
Page 13
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2002 COMPARED TO
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001
2002 Compared to 2001
Net Sales
- --------
Net sales for the thirty-nine week period decreased by 16.8% to $24,165,000
compared to $29,056,000 in 2001. Pounds shipped decreased by 12.1%, while
average sales prices decreased by 5.4%. Average sales prices decreased as a
result of a very competitive business environment and sales mix. The Company has
not lost any major customers, but as a result of a weak textile economy and
competition with imports, the Company's customers have experienced a decrease in
sales.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales for the thirty-nine weeks decreased by $4,286,000 or 16.2%
compared to 2001. The Company was able to reduce material cost by 17.1%, direct
labor cost by 29.5%, and overhead cost by only 10.8%.
As a result of a decrease in sales by 16.8% and a decrease in cost of sales by
only 16.2%, the Company experienced a decline in gross margin to 8.0% versus
8.7% in 2001.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses decreased by $30,000 or 1.5%
compared to 2001. In the weak business environment, the Company is maintaining a
strong sales effort.
Factor's Charges
- ----------------
Factor's charges were .4% of sales compared to .4% of sales in 2001. There has
been no change in the Company's factoring agreement.
Interest Expense
- ----------------
Interest expense decreased by $168,000 or 54.6% as a result of lower existing
interest rates and a lower average long-term debt.
Interest Income
- ---------------
Interest income decreased by $24,000 or 39.3% primarily as a result of lower
existing interest rates.
Equity in Net Earnings (Losses) of Affiliate
- ---------------------------------------------
The Company recorded a loss of $8,000 from Fytek, S.A. De C.V., its joint
venture in Mexico, compared to an income of $56,000 in 2001. Year to date income
of $25,000 was offset by a valuation allowance of $33,000. The Company's share
of net earnings and losses is 50%. Fytek began operations in the fourth quarter
of 1997. Also see Note 13.
Page 14
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Income (Loss) before Provision for Income Taxes
- -----------------------------------------------
For the thirty-nine weeks ended September 28, 2002 the Company recorded a net
loss of $66,000. As discussed above, the loss was primarily due to a decrease in
sales volume.
Provision (Credit) for Income Taxes
- ------------------------------------
Due to the loss before taxes, the Company recorded a credit of $91,000 for
taxes.
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. At September 28, 2002, the
Company had $2,274,000 due from its factor of which $2,036,000 matures on
October 18, 2002. 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.
The Company borrowed $3,000,000 from the Line of Credit and converted the Line
of Credit to long-term debt on February 29, 2000 (see Note 8).
The Company's working capital at September 28, 2002, aggregated $6,694,000
representing a working capital ratio of 3.4 to 1 compared with a working capital
of $6,810,000 at December 29, 2001, and a working capital ratio of 3.1 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
September 28, 2002:
Cash, cash equivalents and receivables........... $6,467,000
Current liabilities.............................. 2,786,000
---------
Excess of quick assets over current liabilities... $3,681,000
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.
During the thirty-nine weeks of 2002, the Company acquired and made deposits on
new machinery and equipment of approximately $821,000 as set forth in the
accompanying Statement of Cash Flows. For the balance of 2002, the Company
anticipates the acquisition of machinery and equipment of approximately $179,000
which, together with the acquisitions and deposits on acquisitions incurred to
September 28, 2002, will aggregate an anticipated acquisition of new machinery
of approximately $1,000,000 in 2002. The Company plans to finance its capital
from cash provided from operations and bank financing.
The Company's cash and equivalents decreased for the thirty-nine weeks ended
September 28, 2002, to $3,394,000 from $4,144,000 at December 29, 2001. See
accompanying Statement of Cash Flows.
Page 15
BURKE MILLS, INC.
Item 2: 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.
Item 3 - 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.
Item 4 - Controls and Procedures
- ---------------------------------
A. Evaluation of Disclosure Controls and Procedures:
The Company's President (COO) and other officers are constantly
evaluating the Company's disclosure controls and procedures, as
these controls and procedures are important to the operations
of the Company as well as meeting public reporting requirements.
B. Changes in Internal Controls:
There are no significant changes in internal controls or in other
factors that could significantly affect the controls subsequent to
September 28, 2002.
Page 16
BURKE MILLS, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on 8-K
(a) Reports on Form 8-K -
No report on Form 8-K has been filed during the thirteen weeks
ended September 28, 2002.
Page 17
BURKE MILLS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and 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.
Date: November 8, 2002 By: Humayun N. Shaikh /s
- ----- ---------------- ---------------------
Humayun N. Shaikh
Chairman and CEO
(Principal Executive Officer)
Date: November 8, 2002 By: Thomas I. Nail /s
- ----- ---------------- ---------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 18
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Humayun N. Shaikh, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Burke Mills,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 8, 2002 Humayun N. Shaikh /s
- ---------------- ----------------------------
Date Humayun N. Shaikh
Chairman and CEO
(Principal Executive Officer)
Page 19
I, Thomas I. Nail, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Burke
Mills, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or peration of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 8, 2002 Thomas I. Nail /s
- ---------------- ---------------------
Date Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 20
CERTIFICATION PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Executive Officer of Burke Mills, Inc., (the Issuer)
hereby certifies that the foregoing periodic report containing financial
statements of the issuer fully complies with the requirements of sections 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) and
that the information contained in the foregoing report fairly presents,
in all material respects, the financial condition and results of operations of
the issuer.
Date: November 8, 2002 Humayun N. Shaikh /s
---------------- ------------------------
Humayun N. Shaikh
Chairman and CEO
CERTIFICATION PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Financial Officer of Burke Mills, Inc., (the Issuer)
hereby certifies that the foregoing periodic report containing financial
statements of the issuer fully complies with the requirements of sections 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) and that
the information contained in the foregoing report fairly presents, in all
material respects, the financial condition and results of operations of the
issuer.
Date: November 8, 2002 Thomas I. Nail /s
---------------- ---------------------
Thomas I. Nail
President and COO
(Chief Financial Officer)
Page 21