UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED April 2, 2005
[ ] 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___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No _X__
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of May 2, 2005, there were
outstanding 2,741,168 shares of the issuer's only class of common stock.
Page 1
BURKE MILLS, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
-----------
Item 1 - Financial Statements
-----------------------------
Condensed Balance Sheets 3
April 2, 2005 and January 1, 2005
Condensed Statements of Operations and
Retained Earnings 4
Thirteen Weeks Ended April 2, 2005
and April 3, 2004
Statements of Cash Flows 5
Thirteen Weeks Ended April 2, 2005
and April 3, 2004
Notes to Condensed Financial Statements 6-10
- ---------------------------------------------------------
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
- ---------------------------------------------------------
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 14
- ---------------------------------------------------------
Item 4 - Controls and Procedures 14
- -------------------------------------------------------
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities and Use of Proceeds, Use
of Proceeds and Issuer Purchases of Equity Securities 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security
Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
- ---------------------------------------------------------
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBITS/CERTIFICATIONS 17-25
Page 2
BURKE MILLS, INC. ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
April 2
2005 January 1
(Unaudited) 2005
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 578,971 $ 316,745
Accounts receivable 3,560,790 3,064,365
Inventories 2,013,594 1,640,983
Prepaid expenses and other current assets 224,229 112,580
----------- -----------
Total Current Assets 6,377,584 5,134,673
----------- -----------
Equity Investment in Affiliate 154,800 196,300
----------- -----------
Property, plant & equipment - at cost 29,677,205 29,848,475
Less: accumulated depreciation 23,832,293 23,724,193
----------- -----------
Property, Plant and Equipment- Net 5,844,912 6,124,282
----------- -----------
Other Assets 16,575 16,575
----------- -----------
Total Assets $12,393,871 $11,471,830
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,533,027 1,465,630
Accrued salaries and wages 164,118 89,847
Other liabilities and accrued expenses 207,169 120,137
---------- -----------
Total Current Liabilities 2,904,314 1,675,614
----------- -----------
Total Liabilities $ 2,904,314 $ 1,675,614
----------- -----------
Commitments and contingencies
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 4,569,037 4,875,696
----------- -----------
Total Shareholders' Equity 9,489,557 9,796,216
----------- -----------
$12,393,871 $11,471,830
=========== ===========
See notes to condensed financial statements.
Page 3
BURKE MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Thirteen Weeks Ended
------------------------
Restated
April 2 April 3
2005 2004
---- ----
Net Sales $7,138,046 $6,600,614
- ----------
Costs and Expenses
Cost of Sales 6,887,413 6,401,110
----------- -----------
Gross profit 250,633 199,504
Selling, general and
administrative expenses 618,761 639,291
Gain on disposal of property assets 100,625 -0-
----------- -----------
Operating Loss (267,503) (439,787)
----------- -----------
Other Income
Interest Income 2,411 175
Other, net 177 80
----------- -----------
Total Other Income 2,588 255
----------- -----------
Other Expenses
Interest Expense 244 552
Other, net -0- 12,580
----------- -----------
Total Other Expenses 244 13,132
----------- -----------
Loss Before Income Tax Benefit and
Equity in Net Loss of Affiliate (265,159) (452,664)
Income Tax Benefit -0- (289,000)
---------- -----------
Loss Before Equity in Net Loss
of Affiliate (265,159) (163,664)
Equity in Net Loss of Affiliate (41,500) (298,180)
----------- -----------
Net Loss (306,659) (461,844)
Retained Earnings at Beginning of Period 4,875,696 5,662,839
----------- -----------
Retained Earnings at End of Period $4,569,037 $4,999,995
========== ==========
Basic Net Loss Per Share $ (0.11) $ (0.17)
========== ==========
Dividends Per Share of Common Stock None None
========= =========
Weighted Average Common Shares Outstanding 2,741,168 2,741,168
========= =========
See notes to condensed financial statements.
Page 4
BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
-----------------------
Restated
April 2 April 3
2005 2004
--------- ---------
Cash flows from operating activities
Net Loss $ (306,659) $(461,844)
---------- ----------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 418,009 457,637
Allowance for bad debts 18,500 -0-
Allowance for mark-down inventory 9,000 25,200
Deferred income tax -0- (289,000)
Equity in affiliate 41,500 298,180
Gain on disposal of property assets (100,625) -0-
Changes in assets and liabilities:
Accounts receivable (514,925) (1,109,671)
Inventories (381,611) (216,965)
Prepaid expenses & other
current assets (111,649) (82,801)
Other non-current assets -0- -0-
Accounts payable 1,067,397 1,119,470
Accrued salaries & wages 74,271 129,541
Other liabilities and accrued expenses 87,032 87,869
----------- -----------
Total Adjustments 606,899 419,460
----------- -----------
Net cash provided (used) by operating activities 300,240 (42,384)
----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (138,639) (14,049)
Proceeds from sale of equipment 100,625 -0-
----------- ----------
Net cash used by investing activities (38,014) (14,049)
----------- ----------
Cash flows from financing activities:
Bank overdraft -0- 50,885
Net payments to revolving credit line -0- (141,514)
----------- ----------
Net cash used by financing activities -0- (90,629)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 262,226 (147,062)
Cash and cash equivalents at beginning of year 316,745 147,062
---------- ----------
CASH AND EQUIVALENTS AT END OF FIRST QUARTER $ 578,971 $ -0-
========== ==========
See notes to condensed financial statements
Page 5
BURKE MILLS, INC.
Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
As previously reported by the Company on Form 10K dated January 1, 2005, the
Company restated its previously issued financial statement for the quarter ended
April 3, 2004. The changes are set forth below:
Quarter Ended April 3, 2004
----------------------------
(In 000s except per share data)
As
Originally As
Reported Restated
---------- --------
Statement of Operations:
Net loss $ (663) $ (462)
Net loss per share $ (0.24) $ (0.17)
Balance Sheet:
Deferred income tax asset $ 62 $ -0-
Total assets $13,635 $13,573
Deferred income tax liability $ 1,288 $ 105
Total liabilities $ 3,715 $ 2,532
Total Shareholders' Equity $ 9,921 $11,042
Also see the Company's 10K for year ended January 1, 2005.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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 accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all necessary adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the thirteen-week period ended April 2, 2005 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2005. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended January 1, 2005.
NOTE 3 - CASH AND CASH EQUIVALENTS
- ----------------------------------
For the purposes of the statements of cash flows, the Company considers cash on
hand, deposits in banks, interest bearing demand matured funds, and all highly
liquid debt instruments with a maturity of three months or less when purchased
as cash and cash equivalents. FASB No.95 requires that the following
supplemental disclosures to the statements of cash flows be provided in related
disclosures. Cash paid for interest for the thirteen weeks ended April 2, 2005,
and April 3, 2004 was $200 and $600 respectively. The Company had no cash
payments for income taxes the thirteen weeks ending April 2, 2005 and April 3,
2004.
NOTE 4 - OPERATIONS OF THE COMPANY
- ----------------------------------
The Company is engaged in dyeing, texturing, winding, processing and selling of
filament, novelty, cotton and spun yarns, and in the dyeing and processing of
these yarns for others on a commission basis.
The Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest to December 31. Its fiscal quarters also end on the Saturday nearest to
the end of the calendar quarter.
Page 6
BURKE MILLS, INC.
Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - OPERATIONS OF THE COMPANY (continued)
- ----------------------------------------------
Revenues from sales are recognized at the time shipments are made to the
customer. Related shipping and handling costs are included in cost of sales.
NOTE 5 - USE OF ESTIMATES
- -------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. Significant
estimates are the liability for self-funded health claims, inventory markdowns,
provision for bad debts, and the investment value of affiliates.
NOTE 6 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable comprise the following:
April 2 January 1
2005 2005
---- ----
Due from factor on
regular factoring account $ -0- $2,192,000
Non-factored accounts
receivable 3,561,000 872,000
---------- ---------
Total $3,561,000 $3,064,000
========== ==========
During the first quarter of 2005, the Company moved its accounts receivable
in-house, eliminating its factoring arrangement.
NOTE 7 - INVENTORIES
- --------------------
Inventories are summarized as follows:
April 2 January 1
2005 2005
---- ----
Finished & in process $ 894,000 $ 864,000
Raw materials 815,000 493,000
Dyes & chemicals 232,000 186,000
Other 73,000 98,000
---------- ----------
Total $2,014,000 $1,641,000
========== ==========
NOTE 8 - LINE OF CREDIT
- -----------------------
During the first quarter of 2005, the Company moved its accounts receivable
in-house, eliminating its factoring arrangement. The Company is in the process
of securing a line of credit to replace its line of credit with the factor.
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.
Page 7
BURKE MILLS, INC.
Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 - INCOME TAXES (continued)
- ---------------------------------
The items that comprise deferred tax assets and liabilities are as follows:
April 2 Jan. 1
2005 2005
---- --------
Deferred tax assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carryover 816,000 873,000
Charitable contributions carryover 12,000 12,000
State tax credits 41,000 41,000
Bad debts 7,000 -0-
Inventory 57,000 52,000
---------- ---------
Total gross deferred tax assets $1,282,000 $1,327,000
Valuation Allowance (405,000) (301,000)
----------- ----------
Net deferred tax assets $ 877,000 $1,026,000
----------- ----------
Deferred tax liabilities:
Accelerated depreciation for tax purposes 877,000 1,026,000
----------- ----------
Net deferred tax asset/(liability) $ -0- $ -0-
=========== ===========
Thirteen Weeks Ended
-------------------
April 3
April 2 2004
2005 (Restated)
Income tax benefit ---- ----
consists of:
Deferred $ -0- $(289,000)
Federal -0- -0-
State -0- -0-
--------- ----------
$ -0- $(289,000)
========= ==========
The net operating loss carryforward from a prior year is $2,197,000 expiring
2022/2023. The tax effect at the maximum tax rate is $747,000. 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.
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
periods ended April 2, 2005 and April 3, 2004.
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
accounts receivable.
Page 8
BURKE MILLS, INC.
Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 - COMMITMENTS
- ---------------------
a) 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 exceed 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 yarn prices increase or decrease by 5% or
more.
b) 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 report 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
continues to move toward a solution of natural attenuation. The cost of
monitoring is 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. The Company and its joint venture
partner, Teijin/Akra, voted on March 26, 2004 to close their joint venture,
Fytek. The joint venture operated on a scaled down basis through mid-August
2004. Company estimates that it will receive approximately $175,000 cash
distribution after liquidation in addition to a $150,000 disbursement received
in September 2004. Burke Mills does not guarantee any debt for its joint
venture. Financial information for Fytek is as follows:
STATEMENT OF INCOME
(In thousands of U.S. dollars)
(Unaudited)
1st Quarter
-----------
2005 2004
---- ----
Net Sales $ 13 $ 560
Gross Loss (72) (82)
Loss from operations (98) (106)
Loss before taxes (98) (106)
Provision (credit) for income tax (15) 36
------- -------
Net Loss $ (83) $ (70)
======= =======
Page 9
BURKE MILLS, INC.
Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
- ----------------------------------------------------------------------------
BALANCE SHEET
(In thousands of U.S. dollars)
March 31, March 31,
2005 2004
----------- -----------
ASSETS
Current assets $ 720 $1,840
Non-current assets 176 242
------ -------
Total Assets $ 896 $2,082
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 170 $ 537
Non-current liabilities -0- 28
------ -------
Total Liabilities $ 170 $ 565
Shareholders equity $ 726 $1,517
------ -------
Total Liabilities & Shareholders' Equity $ 896 $2,082
====== =======
NOTE 14 - ACCOUNTING FOR POSSIBLE IMPAIRMENT OF LONG-LIVED ASSETS
- -----------------------------------------------------------------
Long-lived assets are evaluated for impairment when events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of these assets
and its eventual disposition are less than its carrying amount. Impairment, if
any, is assessed using discounted cash flows.
In 2004 the Company wrote off equipment with a net book value of $198,000. With
the decrease in sales volume and no anticipated business increase in products
that will run on the machinery, the machinery was written off as a
non-performing asset. No salvage value has been assigned to the machinery, as
the Company has no potential buyer. There were no write offs necessary in the
first quarter of 2005.
NOTE 15 - EARNINGS PER SHARE
- ----------------------------
Earnings per share are based on the net income divided by the weighted average
number of common shares outstanding during the thirteen week periods ended April
2, 2005, and April 3, 2004.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
- -----------------
The Company's major market is supplying packaged dyed yarn for home, contract,
automotive upholstery, and home furnishings. The Company's production is on a
make-to-order basis.
The Company's customers continue to experience extreme competition from imports
that has caused their requirements for dyed yarns to decline. Expansion into
other fibers has helped gain new customers and offset the decline in demand from
older customers.
Page 10
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY (continued)
- -----------------------------
During 2004 there were price increases of approximately 17% on polyester yarns,
and in the first quarter of 2005 another 9% increase. These increases were
passed on in the prices to customers.
As discussed in previous filings, the Company continues to experience increased
costs for employee health cost, fuel oil, and natural gas.
In the second quarter of 2005, the Company should receive approximately $175,000
as proceeds for liquidation of its joint venture Fytek.
Results of Operations
- ---------------------
2005 Compared to 2004
- ---------------------
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.
The following table sets forth operating data of the Company as a percentage of
net sales for the periods indicated below:
Thirteen Weeks Ended
----------------------
April 2 April 3
2005 2004
------ ------
Net Sales 100.0% 100.0%
Cost of Sales 96.5 97.0
------ ------
Gross Profit 3.5 3.0
Selling, General, and Administrative Costs 7.2 9.7
------ ------
Operating Loss (3.7) (6.7)
Interest Expense 0.0 (0.0)
Other Expense 0.0 (0.2)
------ ------
Loss before Income Taxes (3.7) (6.9)
Equity in Net Loss of Affiliate (0.6) (4.5)
Income Taxes (Credit) -- (4.4)
------ ------
Net Loss (4.3) (7.0)
====== ======
Net Sales
- ---------
Net sales for the first quarter of 2005 increased by 8.2% to $7,138,000 compared
to $6,601,000 for the first quarter of 2004. Pounds shipped increased by 2.1%.
The primary reasons for the increase in sales were an increase in shipments,
price increases, and sales mix.
Cost of Sales and Gross Margin
- ------------------------------
Cost of sales increased in the first quarter of 2005 by $486,000 or 7.6%.
Cost of materials used increased by 9.4% primarily due to price increases for
raw yarns and increased volume.
Direct labor increased by 10.0% primarily due to an increase in volume and sales
mix.
Overhead cost increased by $108,000 or 5.1% primarily as a result of increases
in cost for electricity, natural gas, fuel oil, and water.
Page 11
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses decreased by $21,000 or 3.2% as
compared to the first quarter of 2004.
Gain on Disposal of Assets
- --------------------------
The Company sold some of its machinery located at its joint venture in Mexico.
The machinery was fully depreciated.
Interest Expense
- ----------------
Interest expense was $200 for the first quarter of 2005 compared to $600 for the
first quarter of 2004. The Company has used it credit line sparingly.
Loss Before Provision for Taxes and Equity in Loss of Affiliate
- ---------------------------------------------------------------
For the first quarter the Company experienced a loss of $265,000 compared to a
loss in the first quarter of 2004 of $453,000.
Equity in Net Loss of Affiliate
- -------------------------------
The Company and its joint venture partner, Teijin/Akra voted on March 26, 2004
to close their joint venture, Fytek. The joint venture operated on a scaled down
basis through mid-August 2004. The Company estimates that it will receive
$175,000 cash distribution after liquidation.
The Company recorded a $42,000 loss as its share of the loss on discontinued
operations of Fytek.
Provision (Credit) for Income Taxes
- -----------------------------------
There was no provision or credit provided for income taxes in the first quarter
compared to a credit of $289,000 on a loss of $751,000 in the first quarter of
2004. See Note 8.
Critical Accounting Policies and Estimates
- ------------------------------------------
The preparation of financial statements, in accordance with accounting
principles generally accepted in the United States, requires management to make
assumptions and estimates that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses recognized
and incurred during the reporting period then ended. In addition, estimates
affect the determination of contingent assets and liabilities and their related
disclosure. The Company bases its estimates on a number of factors, including
historical information and other assumptions that it believes are reasonable
under the circumstances. Actual results may differ from these estimates in the
event there are changes in related conditions or assumptions. The development
and selection of the disclosed estimates have been discussed with the Audit
Committee of the Board of Directors. The following accounting policies are
deemed to be critical, as they require accounting estimates to be made based
upon matters that are highly uncertain at the time such estimates are made.
The Company is self-funded for its employee health claims. The health claims are
paid by the Company after review by the Company's third party administrator. The
Company's liability for health claims includes claims that the Company estimates
have been incurred, but not yet presented to the administrator. A historical
basis is used to establish the amount.
Page 12
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates (continued)
- ------------------------------------------------------
The Company reviews its inventory and when necessary establishes a markdown
allowance for obsolete and slow moving items. The markdown allowance is
determined by aging the inventory, reviewing the inventory with the salesmen,
and determining a salvage value.
The Company records charges for impairment of its Investment in Affiliate when
necessary. The charges for impairment are based on assumptions made by
management of the net realizable value of the affiliate.
The Company reviews it accounts receivable and when necessary establishes an
allowance for bad debts. The allowance is established based on customer payment
trends, customer financial statements, industry trends, and discussion with the
Company's sales personnel.
Liquidity and Capital Resources
- -------------------------------
The Company financed its operations and capital requirements in 2004 and the
first quarter of 2005 through its funds generated from operations.
The Company's ability to generate cash from operating activity is subject to the
level of net sales. As discussed earlier, the Company has expanded into other
fibers and added customers.
As set forth in the Statement of Cash Flows, funds provided from operating
activities were $300,000. Although there was an increase in funds used of
$887,000 for accounts receivable and inventory, accounts payable increased by
$1,067,000 providing more than enough funds to offset the fund needs.
Cash used in investing activities was $38,000. The Company used $138,000 for
capital expenditures versus $14,000 in the first quarter of 2004. Planned
capital expenditures for the year 2005 are $200,000. The sale of Company owned
machinery located at Fytek provided $100,000.
In the second quarter of 2005 proceeds from the liquidation of Fytek, estimated
at $175,000, should be received.
During the first quarter of 2005, the Company moved its accounts receivable
in-house, eliminating its factoring agreement. The Company is in the process of
securing a line of credit to replace the line of credit with the factor.
The Company's working capital at April 2, 2005, aggregated $3,474,000
representing a working capital ratio of 2.2 to 1 compared to a working capital
at January 1, 2005 of $3,459,000 and representing a 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) disclosed the following at
April 2, 2005:
Cash, cash equivalents and receivables........... $4,140,000
Current liabilities.............................. 2,904,000
---------
Excess of quick assets over current liabilities.. $1,236,000
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
Page 13
BURKE MILLS, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements (continued)
- --------------------------------------
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 judgment 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
- ---------------------------------
As of the end of the fiscal quarter covered by this report, the Company's
management, with the participation of the Company's chief executive officer and
chief financial officer, carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures as defined in SEC Rule 13a-15(e).
Based upon that evaluation, the Company's chief executive officer and chief
financial officer concluded that the Company's disclosure controls and
procedures are effective. During the fiscal quarter covered by this report,
there has been no significant change in the Company's internal controls or in
other factors that could significantly affect such internal controls.
Page 14
BURKE MILLS, INC.PART II - OTHER INFORMATION
Item 1 - Legal Proceedings. No report required.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds. No report
required.
Item 3 - Defaults Upon Senior Securities. No report required.
Item 4 - Submission of Matters to a Vote of Security Holders. No matter has been
submitted to a vote of security holders during the period covered by this
report.
Item 5 - Other Information. No report.
Item 6 - Exhibits.
(a) The exhibits required by Item 601 of Regulation SK are specified on
the Exhibit Index and are attached to this report or incorporated by reference
from prior filings.
BURKE MILLS, INC.
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: May 13, 2005 BURKE MILLS, INC.
By: /s/Humayun N. Shaikh
-------------------------
Humayun N. Shaikh,
Chairman of the Board
(Principal Executive Officer)
Date: May 13,2005 By: /s/Thomas I. Nail
-----------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 15
BURKE MILLS, INC.
EXHIBIT INDEX
Exhibit
Number Description
3(ia) Articles of Incorporation and amendments thereto -
incorporated by reference as a part of a registration
statement on Form S-1 filed with the Securities and Exchange
Commission in 1969.
3(ib) Articles of Merger filed with Secretary of State of North Carolina
January 29, 1972.
3(ic) Articles of Amendment filed with Secretary of State of North
Carolina December 1, 1978.
3(id) Articles of Amendment filed with the Secretary of State of North
Carolina May 7, 1979.
3(ie) Articles of Amendment filed with the Secretary of State of North
Carolina June 9, 1993.
3(ii) By-Laws - incorporated by reference as a part of a registration
statement on Form S-1 filed with the Securities and Exchange
Commission in 1969.
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
Page 16
EXHIBIT 3(ib)
ARTICLES OF MERGER
OF WHOLLY OWNED SUBSIDIARY
INTO
BURKYARNS, INC.
The undersigned corporations hereby execute these Articles of Merger
for the purpose of merging the wholly-owned subsidiary corporation into its
parent corporation:
I
The following Plan of Merger was duly adopted by the Board of Directors
of each of the undersigned corporations in the manner prescribed by law:
PLAN OF MERGER
A. CORPORATIONS PARTICIPATING IN MERGER.
The names of the corporations proposing to merge (hereinafter referred
to collectively as the "Merging Companies" and individually as the "Merging
Company") are:
1. BURKYARNS, Inc., Valdese, North Carolina.
2. VALDESE ENTERPRISES, INC., Valdese, North Carolina. The name of the
corporation into which the Merging Companies propose to merge is BURKYARNS,
INC., hereinafter referred to as the "Surviving Company", which shall be the
surviving corporation.
3. NAME OF THE SURVIVING COMPANY.
The name of the Surviving Company shall be BURKYARNS, INC.
C. MERGER OF MERGING COMPANIES INTO SURVIVING COMPANY.
Pursuant to the terms and conditions of this Plan, the Merging
Companies shall be merged into the Surviving Company. Upon the merger of the
Merging Companies into the Surviving Company, the corporate existence of the
Merging Companies shall cease and the corporate existence of the Surviving
Company shall continue. The time at which the merger becomes effective is
hereinafter referred to as the "Effective Date."
D. DATE OF MERGER.
The effective date of the merger shall be 5:00 p.m. January 31, 1972.
E. CONVERSION OF SHARES.
Upon the merger becoming effective, the outstanding shares of the
corporations participating in the merger shall be converted as follows:
1. SHARES OF SURVIVING COMPANY. The shares of the Surviving Company
outstanding on the Effective Date shall not be converted nor altered in any
manner as a result of the Merger and shall remain outstanding as shares of the
Surviving Company.
2. SHARES OF MERGING COMPANIES. No shares of stock will be issued by
the Surviving Company in as much as the Merging Company is the wholly-owned
subsidiary of BURKYARNS, INC., the Surviving Company.
Filed with the North Carolina Secretary of State on January 29, 1972.
Page 17
II
At the time of the approval of the foregoing Plan of Merger by the
Board of Directors of each of the undersigned corporations the surviving
corporation was the owner of all outstanding shares of the other corporation;
and the foregoing Plan of Merger does not provide for any changes in the charter
of, or the issuance of any shares by, the surviving corporation.
IN WITNESS WHEREOF, these Articles are signed by the President and
Secretary of each corporation, this 21st day of January, 1972.
BURKYARNS, INC.
By: /s/C. Frank Gaddy, Jr.
--------------------------
President
ATTEST:
/s/Sebren Cannon
- ----------------
Assistant Secretary
VALDESE ENTERPRISES, INC.
By: /s/C. Frank Gaddy, Jr.
--------------------------
President
ATTEST:
/s/Sebren Cannon
- ----------------
Assistant Secretary
STATE OF NORTH CAROLINA
COUNTY OF BURKE
I, D. Jean Richards, a Notary Public, hereby certify that on this 21st
day of January, 1972, personally appeared before me C. FRANK GADDY, JR. AND
SEBREN CANNON, each of whom being by me first duly sworn, declared that he
signed the foregoing document in the capacity indicated, and that the statements
therein contained are true.
/s/D. Jean Richards {SEAL}
-------------------
Notary Public
My commission expires: 7/13/76
-------
Page 18
EXHIBIT 3(ic)
ARTICLES OF AMENDMENT TO THE CHARTER
OF
BURKYARNS, INC.
The undersigned Corporation hereby executes these Articles of Amendment
for the purpose of amending its Charter:
1. The name of the Corporation is BURKYARNS, INC.
2. The following Amendment to the Charter of the Corporation was
adopted at a specially convened meeting of the Shareholders of the Corporation
held on the 30th day of November, A.D., 1978, in the manner prescribed by law:
The present ARTICLE IV is hereby deleted in its entirety and a new
ARTICLE IV is substituted therefore as follows:
ARTICLE IV
The Corporation shall have authority to issue 3,100,000 shares of
Common Stock having no par value.
3. The number of shares of the Corporation outstanding at the time of
the adoption of said Amendment was 1,063,229; and the number of shares entitled
to vote thereon was 754,739.
4. The number of shares voted FOR such Amendment was 753,739; and the
number of shares voted AGAINST such Amendment was 1,000.
5. The Amendment herein effected does not give rise to dissenter's
rights to payment for the reason that the only effect of such Amendment is to
increase the number of authorized shares and to change from a $2.00 par value
per share to no par value per share.
IN WITNESS WHEREOF, these Articles are signed by the Vice-President and
Secretary of the Corporation this 30th day of November, 1978.
BURKYARNS, INC.
By: /s/R. Thomas Peltier
------------------------
Vice-President
By: /s/W. Harold Mitchell
-------------------------
Secretary
{CORPORATE SEAL}
Filed with the North Carolina Secretary of State on December 1, 1978.
Page 19
STATE OF NORTH CAROLINA
COUNTY OF BURKE
I, D. Jean Richards, a Notary Public, hereby certify that on this 30th
day of November, 1978, personally appeared before me R. THOMAS PELTIER and W.
HAROLD MITCHELL, each of whom being by me first duly sworn, declared that he
signed the foregoing document in the capacity indicated, and that the statements
therein contained are true.
/s/D. Jean Richards {SEAL}
-------------------
Notary Public
My commission expires: 7/13/81
-------
Page 20
EXHIBIT 3(id)
ARTICLES OF AMENDMENT
TO THE CHARTER OF
BURKYARNS, INC.
---------------------------
Burkyarns, Inc. hereby executes these Articles of Amendment to its
charter, and for that purpose sets forth as follows:
(1) The name of the corporation is Burkyarns, Inc.
(2) The following amendment to the charter of the corporation was
adopted by its shareholders on April 17, 1979, in the manner prescribed by law:
RESOLVED, that Article I of the Certificate of Incorporation of the
company be amended by deleting there from the name "Burkyarns, Inc."
and substituting therefore the name "Burke Mills, Inc."
(3) The number of shares of the corporation outstanding at the time of
such adoption was 2,658,073. The number of shares entitled to vote thereon was
2,658,073.
(4) The number of shares voted for such amendment was 2,187,062, and
the number of shares voted against such amendment was 21,818.
(5) The amendment herein effected does not give rise to dissenter's
rights to payment for the reason that the only effect of such amendment is to
change the name of the corporation.
IN WITNESS WHEREOF, these Articles are signed by President and the
Secretary of the Corporation this 3rd day of May, 1979.
BURKYARNS, INC.
By: /s/Thomas R. C. Hood
------------------------
Thomas R. C. Hood, President
By: /s/Sebren H. Cannon, Secretary
----------------------------------
Sebren H. Cannon, Secretary
Filed with the North Carolina Secretary of State on May 7, 1979.
STATE OF NORTH CAROLINA
COUNTY OF BURKE
I, Frances M. Pascal, a Notary Public hereby certify that on this 3rd
day of May, 1979, personally appeared before me Thomas R. C. Hood and Sebren H.
Cannon, each of whom being by me first duly sworn, declared that he signed the
foregoing document in the capacity indicated, that he was authorized so to sign
and that the statements therein contained are true.
/s/Frances M. Pascal {Seal}
--------------------
Notary Public
My commission expires: 12/25/83
--------
Page 21
EXHIBIT 3(ie)
ARTICLES OF AMENDMENT
OF
BURKE MILLS, INC.
The undersigned corporation hereby submits these Articles of Amendment
for the purpose of amending its articles of incorporation:
1. The name of the corporation is BURKE MILLS, INC.
2. The following amendment to the articles of incorporation of the
corporation was adopted by its shareholders on the 18th day of May, 1993 in the
manner prescribed by law:
RESOLVED, that Article 4 of the Articles of Incorporation of
the Corporation be amended in its entirety so that, as
amended, said article shall read as follows:
4. The Corporation shall have authority to issue 5,000,000
shares of common stock having no par value.
This the 31st day of May, 1993.
BURKE MILLS, INC.
By: /s/Richard F. Whisenant
---------------------------
Richard F. Whisenant
President
Filed with the North Carolina Secretary of State on June 9, 1993.
Page 22
EXHIBIT 31
RULE 13(a)-14(a) CERTIFICATIONS
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Humayun N. Shaikh, certify that:
I have reviewed this quarterly report on Form 10-Q of Burke Mills,
Inc.;
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
/s/Humayun N. Shaikh
Date: May 13, 2005 -----------------------------
Humayun N. Shaikh
Chairman and CEO
(Principal Executive Officer)
Page 23
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Thomas I. Nail, certify that:
I have reviewed this quarterly report on Form 10-Q of Burke Mills,
Inc.;
Based on my knowledge, this 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 report;
Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
/s/Thomas I. Nail
Date: May 13, 2005 -----------------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 24
EXHIBIT 32
SECTION 1350 CERTIFICATIONS
CERTIFICATION PURSUANT TO 18 U.S. CODE SECTION 1350
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.
/s/Humayun N. Shaikh
Date: May 13, 2005 -------------------------
Humayun N. Shaikh
Chairman and CEO
CERTIFICATION PURSUANT TO 18 U.S. CODE SECTION 1350
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.
/s/Thomas I. Nail
Date: May 13, 2005 -------------------------
Thomas I. Nail
President and COO
(Chief Financial Officer)
Page 25