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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended January 3, 1998
Commission File No. 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
(I.R.S. Employer Identification No.) 56-0506342
State or other jurisdiction of incorporation or organization:
North Carolina
191 Sterling Street, N.W.
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
828 874-6341
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value (Stated Value of $0.66 Per Share)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if a disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (computed by reference to the average bid and asked price on
February 17, 1998) was $3,228,394.
The number of shares outstanding of the registrant's only class of common
stock as of February 28, 1998 is 2,741,168 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's proxy statement, which is to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report, are incorporated by reference in Part III of this
report.
PART I
ITEM 1 - BUSINESS
(a) General Development of Business. The general development of the
business of Burke Mills, Inc., (the Company), during the fiscal year ended
January 3, 1998 was to position the Company for future growth. The Company
concentrated on improving efficiencies and reducing cost, while maintaining
its existing products and its existing markets. In the fourth quarter, the
Company's joint venture, Fytek, S.A. de C.V., began operations. Fytek will
provide twisted filament yarns to the Company as well as to the Mexican,
Central American and South American markets. Fytek will also sell and
distribute the Company's yarns in these markets.
During the year, the Company also consolidated its relations with a major
yarn producer, which can provide a consistent supply of lower cost yarns and
participate with the Company on yarn development projects. Also, the Company
found a successor for its president who retired during the year.
(b) Financial Information about Industry Segments - The Company had only one
industry segment during the fiscal year ended January 3, 1998.
(c) Narrative Description of Business - The Company is engaged in twisting,
texturing, winding, dyeing, processing and selling of filament, novelty and
spun yarns and in the dyeing and processing of these yarns for others on a
commission basis.
The principal markets served by the Company are upholstery and industrial
uses through the knitting and weaving industry.
The Company's products are sold in highly competitive markets primarily
throughout the United States. Competitiveness of the Company's products is
based on price, service and product quality. Many of the Company's competitors
are divisions or segments of larger, diversified firms with greater financial
resources than those of the Company.
The methods of distributions of the Company's products consist of the efforts
of the Company's sales force which makes contact with existing and prospective
customers. The Company markets its products throughout the United States and
Canada, with the bulk of business being primarily in the eastern United States,
through two salesmen employed directly by the Company on salary and a number of
commissioned sales agents working on various accounts. The Company also has
begun to market its products in Mexico, Central America and South America
through its joint venture, Fytek, S.A. de C.V.
The dollar amount of backlog of unshipped orders as of January 3, 1998 was
$4,098,000 and as of December 28, 1996 was $4,834,000. Generally, all orders
in backlog at the end of a year are shipped the following year. The backlog
has been calculated by the Company's normal practice of including orders which
are deliverable over various periods and which may be changed or canceled in
the future.
The most important raw materials used by the Company are unprocessed raw yarn,
dyes and chemicals. The Company believes that its sources of supply for these
materials are adequate for its needs and that it is not substantially dependent
upon any one supplier.
With respect to the practices of the Company relating to working capital items,
the Company generally carries enough inventory for approximately 48 days. On
average, the Company turns its inventory approximately 6 to 8 times each year.
The Company has been able to meet its delivery schedules and has been able to
enjoy a ready supply of raw materials from suppliers. For the fiscal year
ended January 3, 1998, approximately 4.3% of the Company's sales were from
dyeing and processing of yarn for customers who supplied the yarn. The Company
does not allow customers the right to return merchandise except where the
merchandise is defective. The Company rarely allows payment terms to its
customers beyond sixty (60) days, and the Company has experienced no
significant problems in collecting its accounts receivable. The Company
believes that industry practices are very similar to that of the Company in
regard to these matters.
Substantially all of the Company's manufacturing operations are run by
electrical energy purchased from local utility companies and its premises are
heated with oil and gas. The Company has not experienced any shortages in
electricity, oil or gas during the fiscal year. The Company has made no
arrangements for alternate sources of energy. While energy related
difficulties are not expected to prevent the Company from achieving desired
production levels, energy shortages of extended duration could have an adverse
impact on the Company's operations.
The Company has established a recycling program for its major waste items:
yarn, cardboard, plastic tubes and cleaning fluid.
The Company has made various changes in its plant that regulates discharge of
materials into the environment. The Company believes its manufacturing
operations are in compliance with all presently applicable federal, state and
local legislative and administrative regulations concerning environmental
protection; and, although it cannot predict the effect that future changes in
such regulations may have, particularly as such changes may require capital
expenditures or affect earnings, it does not believe that any competitor
subject to the same or similar regulations will gain any significant and
competitive advantages as a result of any such changes. Compliance by the
Company during the fiscal year ended January 3, 1998 with federal, state and
local environmental protection laws had no material effect on capital
expenditures, earnings or the competitive position of the Company.
During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on
its property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used
by the Company in the past but no longer used. The contamination was reported
to the North Carolina Department of Health, Environment and Natural Resources
(DHENR). DHENR required a Comprehensive Site Assessment that has been
completed. The Company's outside engineering firm has conducted testing and
will prepare a Corrective Action Plan for submission to DHENR. The Company has
identified remediation issues and is moving toward a solution of natural
attenuation. The Company believes it has made an adequate provision to
earnings in 1997 to cover any future cost.
On, February 19, 1998, the Company had 287 employees.
The Company's yarn division is its only division.
During the fiscal year ended January 3, 1998, sales to CMI Industries, Inc.
exceeded ten percent of the Company's revenue for that year. The loss of the
customer would have a material adverse effect on the Company in the short run;
and, the Company believes that it would be able to replace the business within
a reasonable time.
The Company owns 49.8% of the stock and 50% of the voting control of Fytek,
S.A. de C.V. (Fytek), a Mexican corporation with its principal place of
business in Monterey, Mexico. The other shareholder in Fytek is Fibras
Quimicas, S.A., a Mexican Corporation. The purpose of Fytek is the
manufacture and marketing of yarns. The Company will acquire yarn from Fytek
and use Fytek to market and distribute its dyed yarn in Mexico, Central
America and South America. Fytek began production in the fourth quarter of
1997.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales - The Company had sales to Brazil, Canada and Mexico during 1997,
which accounted for approximately 6% of total net sales. During 1996 and 1995
the Company had sales to Canada and Mexico which were less than 5% and 3%,
respectively.
ITEM 2. PROPERTIES
The executive offices and manufacturing plant of the Company are located at
Valdese, North Carolina, which is 75 miles northwest of Charlotte, North
Carolina, and 60 miles east of Asheville, North Carolina. The main plant and
executive offices are located on a sixteen-acre tract of land owned by the
Company. Eleven acres of this tract are encumbered by a first priority lien
deed of trust held by First Union National Bank of North Carolina. The main
plant building used by the Company contains approximately 308,928 square feet.
The Company also owns an auxiliary building containing 36,600 square feet
located adjacent to its main plant. This latter building is currently used for
warehousing yarn and as a distribution center.
The plant buildings are steel and brick structures protected by automatic
sprinkler systems. The various departments, with the exception of the
production dyehouse, are heated, cooled and humidified. The Company considers
all its properties and manufacturing equipment to be in a good state of repair,
well maintained and adequate for its present needs.
The Company utilizes substantially all of the space in its main plant for its
offices, machinery and equipment, storage and shipping and receiving areas.
The Company utilizes about half of the space in the auxiliary building and
plans to utilize all of this building for warehouse and distribution purposes
in the near future.
The approximate maximum capacity in pounds per year of the Company's machinery
and equipment, based upon operating the machinery and equipment seven (7) days
per week fifty (50) weeks per year, and the approximate percentage of
utilization thereof during the fiscal year ended January 3, 1998 are as
follows:
Pounds/Year 1997
Department Capacity Utilization
(1)Twisting Machines 1,300,000 79%
Winding Machines 20,000,000 46%
Texturing Machines 4,835,000 59%
Dyeing Equipment 20,000,000 65%
(1)Represents the average capacity for the year, as machines were moved
to the Company's joint venture during 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party and its property is not subject to any material
pending legal proceedings other than ordinary routine litigation incidental to
the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The principal United States (or other) market on which the Company's common
stock is being traded is the United States over-the-counter market. The range
of high and low bid quotations for the Company's common stock for each
quarterly period during the past two fiscal years ended January 3, 1998 (as
obtained from the NASDAQ Stock Market, Inc., in Washington, DC) is as follows:
Quarter Ending High Bid Low Bid
1996
March 31 $3.50 $2.625
June 30 $3.00 $2.00
September 30 $4.00 $2.25
December 31 $4.00 $2.875
1997
March 31 $3.50 $2.625
June 30 $3.375 $2.50
September 30 $3.375 $2.375
December 31 $3.50 $2.50
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
(b) As of February 19, 1998 there were 452 holders of the common stock
of the Company.
(c) The Company has declared no dividends on its common stock during the past
two years.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth on the following page, for the five years
ended January 3, 1998 have been derived from the audited financial statements
of the Company. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and related notes thereto and other financial
information included therein.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data)
Years Ended
Jan. 3 Dec. 28 Dec. 30 Dec. 31 Jan. 1
1998 1996 1995 1994 1994
SELECTED INCOME STATEMENT DATA
Net Sales $41,156 $40,649 $34,148 $36,194 $26,835
Cost of Sales 36,765 36,887 30,666 30,928 24,292
Gross Profit $ 4,391 $ 3,762 $ 3,482 $ 5,266 $ 2,543
Income before Income Taxes $ 1,059 $ 869 $ 1,156 $ 3,376 $ 690
Income Taxes 433 284 212 867 316
Net Income $ 626 $ 585 $ 944 $ 2,509 $ 374
Per Share (Note A)
Net income $ .23 $ .21 $ .34 $ .92 $ .14
Cash dividends declared
Per common share None None None None None
Weighted average number
of common shares
outstanding 2,741 2,741 2,741 2,741 2,741
SELECTED CASH FLOW DATA
Capital expenditures $ 1,343 $ 1,025 $ 6,372 $ 1,541 $ 1,374
Depreciation $ 1,600 $ 1,508 $ 1,052 $ 1,006 $ 903
Cash provided by
operating activities $ 3,646 $ 1,527 $ 2,004 $ 2,186 $ 985
Jan. 3 Dec. 28 Dec. 30 Dec. 31 Jan. 1
1998 1996 1995 1994 1994
< C>
SELECTED BALANCE SHEET DATA
Current assets $11,785 $ 9,905 $ 7,641 $ 8,814 $ 7,382
Current liabilities 3,378 1,738 2,171 2,944 2,923
Working capital $ 8,407 $ 8,167 $ 5,470 $ 5,870 $ 4,459
Current ratio 3.49 5.70 3.52 2.99 2.53
Total assets $24,348 $22,554 $20,769 $16,621 $14,655
Long-term debt $ 5,313 $ 6,000 $ 4,964 $ 995 $ 1,645
Deferred income taxes $ 2,218 $ 2,003 $ 1,406 $ 1,399 $ 1,312
Shareholders' equity $13,440 $12,813 $12,228 $11,284 $ 8,775
(A) Income per share has been computed based on the weighted average number of
common shares outstanding during each period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth selected operating data of the Company as
percentages of net sales for the periods indicated.
Relationship to Total Revenue
For the Year Ended Period to Period
Jan. 3 Dec. 28 Dec. 30 Increase (Decrease)
1998 1996 1995 1996-1997 1995-1996
Net Sales 100.0% 100.0% 100.0% 1.2% 9.0%
Cost of Sales 89.3 90.7 89.8 ( 0.3) 20.3
Gross profit margin 10.7 9.3 10.2 16.7 8.0
Selling, general,
administrative and
factoring expenses 6.9 6.3 6.2 11.9 19.2
Operating earnings 3.8 3.0 4.0 26.6 (9.4)
Other income 0.4 0.3 0.2 35.8 67.5
Other expenses (1.7) (1.2) (0.8) 37.5 75.6
Income before income
taxes 2.5 2.1 3.4 21.8 (24.8)
Income taxes 1.0 0.7 0.6 52.3 33.8
Net income 1.5% 1.4% 2.8% 7.0% (38.0%)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
1997 Compared to 1996
Net Sales
Net sales for the 1997 year aggregated $41.1 million, representing an increase
of $ .5 million, as compared to net sales volume of $40.6 million recorded by
the Company for 1996. Net sales dollars increased by 1.2% and total pounds
shipped increased by 3.5% over those of 1996. Full yarn sales dollars
increased 2.8% and full yarn pounds shipped increased by 4.6%. Sales from
commission yarn sales (the dyeing and processing of customer owned yarns)
decreased in both dollars and pounds by 25.3% and 30.0%, respectively, in 1997
compared with 1996.
Cost of Sales and Gross Margin
Although net sales increased by 1.2%, and the sales mix changed to a larger
portion of full yarn sales, cost of sales actually declined by $122,000.
Material cost declined by $321,000, or 1.3%, mainly as a result of a lower unit
cost of yarns and an improvement in reworks.
Total labor cost increased by 2.1% mainly as a result of an annual wage
increase.
Manufacturing overhead declined by 0.8% mainly as a result of improvements in
reworks.
Inasmuch as net sales for 1997 as compared to 1996, increased by 1.2%, while
cost of sales decreased by 0.3%, the 1997 gross margin increased to 10.7% as
compared to 9.3% recorded in 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1997 aggregated $2.7 million,
as compared to $2.3 million in 1996. During the fourth quarter of 1997, the
Company recorded $157,000 for the severance arrangements for its retiring
president. The Company also experienced $63,000 in recruiting costs for its
new president.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (continued)
1997 compared to 1996 (continued)
Factor's Charges
Factor's charges for 1997 aggregated $183,000, or 0.4%, of net sales, as
compared to $194,000, or 0.5%, of net sales. The ratio of sales made to
factored accounts versus non-factored accounts was slightly lower in 1997.
Operating Margins
As a result of the discussion above with respect to the 1997 increase in sales
with an increase in gross profit percentage, coupled with an increase in
selling, general, and administrative expenses, the Company reported operating
earnings of $1.6 million in 1997, compared to $1.2 million in 1996.
Interest Income
Interest income for 1997 was $152,000 as compared to $36,000 for 1996. The
increase in interest income was the result of improved cash flow, which allowed
the Company to maintain a higher average investment of cash. The 1997 and 1996
interest income was primarily interest earned on short-term cash equivalents
held in the Company's bank.
Interest Expense
Interest expense for 1997 was $503,000 as compared to $495,000 in 1996. The
Company's average long-term debt did not change during the year. The increase
in interest expense resulted primarily from a 53-week fiscal year in 1997
compared to a 52-week fiscal year in 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (continued)
1997 Compared to 1996 (continued)
Loss on Disposal of Assets
In 1997 the Company incurred a loss of $177,000 on disposal of assets, as
compared to a gain on disposal of assets or $94,000 in 1996. During the fourth
quarter, the Company wrote off $154,000 for software which it abandoned and
$15,000 for the original undepreciated installation cost for the twisting
machines sent to Fytek, S.A. de C.V., its joint venture company.
Income Before Provision for Income Taxes
Income before provision for income taxes for 1997 was $1,059,000, compared to
$869,000 in 1996. The 1997 increase of $190,000 was the result of an increase
in operating earnings, discussed above, and an increase in interest income,
which was partially offset by a loss on disposed of assets.
Provision for Income Taxes
Provision for income taxes for 1997 was $433,000, compared to $284,000 in 1996.
The increase in the provision for income taxes was primarily due to higher
taxable income in 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
1996 Compared to 1995
Net Sales
Net sales for the 1996 year aggregated $40.6 million, representing an increase
of $6.5 million, as compared to net sales volume of $34.1 million recorded by
the Company for 1995. Net sales dollars increased by 19.0% and total pounds
shipped increased by 33.9% over those of 1995. Full yarn sales dollars
increased 38.5% and full yarn pounds shipped increased by 52.4%. Sales from
commission yarn sales (the dyeing and processing of customer owned yarns)
decreased in both dollars and pounds by 36.3% and 34.1%, respectively, in 1996
compared with 1995.
Cost of Sales and Gross Margin
Cost of sales that aggregated $36.9 million for 1996 increased by $6.2 million,
or 20.3%, as compared to 1995.
Material cost increased by $5.4 million, or 29.1%, as a result of the increase
in full yarn sales of 38.5%.
Labor costs increased by 0.3% and manufacturing overhead increased by 13.4%,
primarily as a result of continuing costs incurred for the time and overhead
spent in the new technology undertaken by the Company in 1995.
Inasmuch as net sales for 1996 as compared to 1995 increased by 19.0%, while
costs of sales increased by 20.3%, the 1996 gross margin decreased to 9.3% as
compared to 10.2% recorded in 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1996 aggregated $2.3 million,
as compared to $1.9 million in 1995, representing for each year 5.7% of net
sales.
Factor's Charges
Factor's charges for 1996 aggregated $194,000, or 0.5% of net sales, as
compared to $178,000 in 1995, representing a like 0.5% of net sales in 1995.
The ratio of sales made to factored accounts versus non-factored accounts
for 1996 remained approximately the same as 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (continued)
1996 Compared to 1995 (continued)
Operating Margins
As a result of the discussion above with respect to the 1996 increase in net
sales with the reduction in gross profit percentage, coupled with the almost
identical percentage to net sales of selling, general and administrative
expenses, the Company reported operating earnings of $1.2 million in 1996,
compared to operating earnings of $1.4 million in 1995.
Interest Income
Interest income for 1996 was $36,000 as compared to $68,000 in 1995. The 1996
interest income was primarily interest earned on short-term cash equivalents
held in the Company's bank.
Interest Expense
Interest expense for the year ended December 28, 1996 increased to $495,000 as
compared to $282,000 in 1995. Interest expense for 1996 and 1995 resulted
primarily from interest on the Company's long-term debt. The increase resulted
from additional long-term debt incurred to fund the acquisition of property.
Income Before Provision for Income Taxes
Income before provision for income taxes for 1996 was $869,000, as compared to
$1,156,000 for 1995. The 1996 decrease of $287,000 resulted from the reduction
in gross profit margin, increased selling, general and administrative expenses
and interest costs.
Provision for Income Taxes
The increase in 1996 income taxes on pre-tax income of $869,000, compared with
income taxes on pre-tax income of $1,156,000 in 1995, arose from the over
accrual of 1994 income taxes resulting in a reduction of 1995 income taxes and
by a 1995 upward adjustment of alternative minimum taxes available.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
1997 - 1994 Sales Analysis
The table below sets forth an analysis of sales volume for the period 1994 to
1997, inclusive. The table below discloses that full yarn sales prices
decreased from the high of $3.60 per pound in 1995 to $3.24 in 1997. Unit
prices for commission sales increased from $1.60 in 1994 to $1.87 in 1997.
The decrease in full yarn average sales prices is a result of a shift from
vertical dyeing and winding yarn on cones to horizontal dyeing and direct
shipping which began in 1996. The Company expects in the future a larger
portion of its sales will be from horizontal dyeing and direct shipping of
yarn.
% of Sales $
% of Pounds of Per
Net Sales Yarn Sold Pound
1997:
Yarn sales 96% 93% $3.24
Commission sales 4 7 1.87
Total 100 100
1996:
Yarn sales 94% 89% $3.29
Commission sales 6 11 1.74
Total 100 100
1995:
Yarn sales 88% 79% $3.60
Commission sales 12 21 1.82
Total 100 100
1994:
Yarn sales 83% 69% $3.58
Commission sales 17 31 1.60
Total 100 100
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources:
The Company sells a substantial portion of its accounts receivable to a
commercial factor so that the factor assumes the credit risk for these accounts
and effects the collection of the receivables. As of January 3, 1998, the
Company had $3,328,000 due from its factor, of which $2,840,000 matured on
January 21, 1998.
The Company has a line of credit loan from its bank under which the Company may
borrow the lesser of $2,000,000 and the borrowing base (as defined). Credit
balances due the Company under its factoring contract have been assigned to the
bank as collateral for loans under this line of credit.
The Company had inventories of $3,006,000 as of January 3, 1998. The Company's
average inventories aggregated approximately $3,234,000 for 1997, representing
approximately 48 days inventory on hand. The Company's inventories turn
approximately 6 to 8 times each year.
The Company's working capital increased by approximately $240,000 at January 3,
1998 from that of December 28, 1996, primarily as a result of 1997 earnings,
and an increase in accounts receivables. The working capital of the Company
and its line of credit with its bank are deemed adequate for the operational
needs of the Company. The following table sets forth the Company's working
capital and working capital ratios as of the close of the last three years:
1997 1996 1995
Working Capital $8,406,985 $8,166,976 $5,469,831
Working Capital Ratio 3.5 to 1 5.7 to 1 3.5 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 January 3, 1998 and December 28, 1996:
January 3 December 28
1998 1996
Cash, cash equivalents
and receivables $8,077,841 $5,355,639
Current liabilities 3,377,686 1,737,646
Excess of quick assets
over current
liabilities $4,700,155 $3,617,993
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources: (Continued)
The aggregate long-term debt at January 3, 1998 and December 28, 1996 was
$6,000,000. In order to finance the acquisition of new property, plant and
equipment of $6,371,819 in 1995, and $1,024,598 in 1996, the Company incurred
a long-term debt of $6,000,000, as more fully described in Note 7 of Notes to
Financial Statements. Pursuant to an agreement with its bank, the obligation
has no principal maturities until February 1998. Thereafter, principal
payments of $62,500 will be payable monthly for 96 consecutive months.
The Company's long-term debt to equity ratios aggregated 39.5% at January 3,
1998, 46.8% at December 28, 1996 and 40.6% at December 30, 1995.
Capital budget expenditures approved for 1998 aggregate $3,500,000. The
Company plans to finance its capital needs from cash provided from operations
and bank financing.
Environmental Matters
During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on
its property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used
by the Company in the past but no longer used. The contamination was reported
to the North Carolina Department of Health, Environment and Natural Resources
(DHENR). DHENR required a Comprehensive Site Assessment that has been
completed. The Company's outside engineering firm has conducted testing and
will prepare a Corrective Action Plan for submission to DHENR. The Company
has identified remediation issues and is moving toward a solution of natural
attenuation. The Company believes it has made an adequate provision to
earnings in 1997 to cover any future cost.
Inflation
The Company does not believe that operations for the periods discussed have
been significantly affected by inflation. Further, the Company's performance
in maintaining control over elements of overhead, in conjunction with the
infusion of state of the art dyeing technology, have enabled it to remain
competitive with its competition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
7A. Quantitative and Qualitative Disclosures about Market Risk
Under its loan agreement dated March 29, 1996 with First Union National Bank
of North Carolina, providing for a term loan of $6,000,000 and a line of
credit facility of $2,000,000, the effective rate of interest being paid by
the Company on its term loan is 8.06% per annum. The interest rate is in
effect a fixed rate because in a fixed rate hedge contract between the Company
and the bank, the bank converted its floating rate into a fixed rate. Under
the fixed rate hedge contract, the Company pays the bank 8.06% per annum for
the term of the loan. The floating rate (LIBOR PLUS 1.9%) that the Company
pays the bank is equal to the floating rate that the bank's capital markets
will pay to the Company under the agreement. Whether LIBOR rates rise or fall
over the life of the loan agreement, the Company pays the bank a fixed rate of
8.06%, thereby resulting in a fixed rate loan. Other than the foregoing
arrangement with First Union National Bank, the Company has not entered into
any instruments resulting in market risk to the Company for trading purposes
or for purposes other than trading purposes.
COLE, SAMSEL & BERNSTEIN LLC
Certified Public Accountants
305 Madison Avenue 72 Essex Street
New York, NY 10165 Lodi, NJ 07644
(212) 972-9600 (201) 368-9300
FAX: (212) 972-9605 FAX: (201) 368-9069
Item 8 - Financial Statements
Independent Auditors' Report
To the Board of Directors of
Burke Mills, Inc.
We have audited the accompanying balance sheets of Burke Mills, Inc. as
of January 3, 1998 and December 28, 1996, and the related statements of
operations, changes in shareholders' equity, and cash flows for each of the
three years in the period ended January 3, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Burke Mills, Inc.
as of January 3, 1998 and December 28, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended January 3,
1998, in conformity with generally accepted accounting principles.
/s Cole, Samel & Bernstein LLC
Cole, Samsel & Bernstein LLC
Certified Public Accountants
Lodi, New Jersey
January 30, 1998
BALANCE SHEETS
January 3 December 28
1998 1996
ASSETS
Current assets
Cash and cash equivalents $ 4,306,540 $ 2,157,428
Accounts receivable 3,771,301 3,198,211
Inventories 3,006,298 3,450,805
Prepaid expenses and other current assets 38,832 94,028
Prepaid and refundable income taxes - 129,340
Deferred income taxes 661,700 874,810
Total current assets 11,784,671 9,904,622
Equity investment in affiliate 177,728 5,993
Property, plant & equipment - at cost 26,350,679 26,194,241
Less: accumulated depreciation 14,158,330 13,550,436
Property, plant and equipment - net 12,192,349 12,643,805
Oher assets
Deferred charges 193,316 -
$24,348,064 $22,554,420
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 687,500 $ -
Accounts payable 2,081,237 1,436,054
Accrued salaries and wages 191,128 129,952
Other liabilities and accrued expenses 417,821 171,640
Total current liabilities 3,377,686 1,737,646
Long-term debt 5,312,500 6,000,000
Deferred income taxes 2,218,300 2,003,300
Total liabilities 10,908,486 9,740,946
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 8,519,058 7,892,954
Total shareholders' equity 13,439,578 12,813,474
$24,348,064 $22,554,420
[FN]
See notes to financial statements.
STATEMENTS OF OPERATIONS
Years Ended
January 3 December 28 December 30
1998 1996 1995
Net sales $41,155,629 $40,648,920 $34,148,493
Costs and expenses
Cost of sales 36,764,917 36,887,077 30,666,567
Selling, general and
administrative expenses 2,651,031 2,337,450 1,945,951
Factor's charges 183,072 194,427 177,901
Total costs and expenses 39,599,020 39,418,954 32,790,419
Operating earnings 1,556,609 1,229,966 1,358,074
Other income
Interest income 151,996 35,567 67,966
Gain on disposal of
property assets - 93,940 -
Other, net 4,068 4,891 12,275
Total other income 156,064 134,398 80,241
Other expenses
Interest expense 503,306 495,009 281,752
Loss on disposal of
property assets 177,234 -- 112
Total other expenses 680,540 495,009 281,864
Income before income taxes and
equity in net earnings of
affiliate 1,032,133 869,355 1,156,451
Equity in net earnings of
affiliate 26,500 -- --
1,058,633 869,355 1,156,451
Provision for income taxes 432,529 283,954 212,210
Net income $ 626,104 $ 585,401 $ 944,241
Net earnings per share $ .23 $ .21 $ .34
Weighted average common
Shares outstanding 2,741,168 2,741,168 2,741,168
[FN]
See notes to financial statements.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANARY 3, 1998
Common stock no
par value stated
value $.66 per share
5,000,000 shares
authorized Total
Shares Paid-in Retained Shareholders'
Issued Amount Capital Earnings Equity
Balance at December 31, 1994 2,741,168 $1,809,171 $3,111,349 $6,363,312 $11,283,832
Net income for the year
ended December 30, 1995 - - - 944,241 944,241
Balance at December 30, 1995 2,741,168 1,809,171 3,111,349 7,307,553 12,228,073
Net income for the year
ended December 28, 1996 - - - 585,401 585,401
Balance at December 28, 1996 2,741,168 1,809,171 3,111,349 7,892,954 12,813,474
Net income for the year
ended January 3, 1998 - - - 626,104 626,104
Balance at January 3, 1998 2,741,168 $1,809,171 $3,111,349 $8,519,058 $13,439,578
[FN]
See notes to financial statements.
STATEMENTS OF CASH FLOWS
Years Ended
January 3 December 28 December 30
1998 1996 1995
Cash flows from operating activities:
Net income $ 626,104 $ 585,401 $ 944,241
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,599,662 1,508,423 1,051,529
(Gain) loss on sales of plant and
equipment, including loss on
disposals 177,234 (93,940) 112
Deferred income taxes 428,110 302,390 2,800
Changes in assets and liabilities:
Accounts receivable (573,090) (224,110) 318,055
Inventories 444,507 (580,866) 54,255
Prepaid expenses, taxes & other
current assets 184,536 159,145 (194,561)
Other non-current assets (193,316) (5,993) -
Accounts payable 645,183 (72,422) 595,200
Income taxes payable - - (581,267)
Accrued salaries & wages 61,176 6,315 (247,036)
Other liabilities and accrued
expenses 246,181 (57,472) 60,554
Total adjustments 3,020,183 941,470 1,059,641
Net cash provided by operating activities 3,646,287 1,526,871 2,003,882
Cash flows from investing activities:
Acquisition of property, plant
and equipment (1,343,090) (1,024,598) (6,371,819)
Proceeds from sales of plant
and equipment 17,650 - -
Investment in affiliate (171,735) - -
Net cash (used) by investing activities (1,497,175) (1,024,598) (6,371,819)
Cash flows from financing activities:
Proceeds from long-term bank note - 1,670,663 4,180,957
Principal payments of long-term debt - (850,341) (812,176)
Net cash provided by financing
activities - 820,322 3,368,781
Net increase (decrease) in cash and
cash equivalents 2,149,112 1,322,595 (999,156)
Cash & cash equivalents at beginning
of year 2,157,428 834,833 1,833,989
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 4,306,540 $2,157,428 $ 834,833
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Accounting period - The Company's fiscal year is the 52 or 53 week period
ending the Saturday nearest to December 31. Fiscal years 1997, 1996 and 1995
ended on January 3, 1998, December 28, 1996 and December 30, 1995,
respectively. The fiscal years ended December 28, 1996 and December 30, 1995
consisted of 52 weeks. The fiscal year ended January 3, 1998 consisted of 53
weeks.
Statement of cash flows - For the purposes of the statements of cash flows,
the Company considers cash and cash equivalents to include cash on hand,
deposits in banks, interest bearing demand matured funds on deposit with
factor, and all highly liquid debt instruments with a maturity of three months
or less when purchased.
Inventories - Inventories are stated at the lower of cost (first-in, first-out)
or market. Cost elements included in work in process and finished goods
inventories are raw materials, direct labor and manufacturing overhead. Market
is considered to be net realizable value.
Property, plant and equipment - Property, plant and equipment are stated at
cost.
Depreciation and amortization of the property accounts are provided over the
estimated useful lives of the assets. For financial reporting purposes,
depreciation on plant and equipment is provided primarily at straight-line
rates. For income tax purposes, depreciation has been provided at straight-
line rates for all property, plant and equipment acquired prior to 1981 and the
accelerated and modified accelerated cost recovery system for property assets
acquired subsequent to December 31, 1980. The estimated useful lives used for
computing depreciation for financial reporting purposes are generally:
Buildings and improvements 5 - 45 years
Plant machinery and equipment 5 - 17 years
Office equipment 5 - 10 years
Automotive equipment 3 - 5 years
Computer equipment 3 - 5 years
Earnings per share - Earnings per share are based on the net income divided
by the weighted average number of common shares outstanding during the
respective periods.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
The Company is engaged in twisting, texturing, winding, dyeing, processing and
selling of filament, novelty and spun yarns and in the dyeing and processing of
these yarns for others on a commission basis.
With respect to its operations, the Company's products and its services for
others on a commission basis are sold and/or performed for customers primarily
located in the territorial limits of the United States. The Company did have
sales to customers in Mexico, during the three fiscal years ended January 3,
1998, which amounted to 1.7% in 1997, 4.2% in 1996 and 0.5% in 1995. Sales to
customers in Canada in 1997, 1996 and 1995 aggregated 3.9%, 2.8% and 1.2%,
respectively. Additionally, the Company had sales to Brazil in 1997 which
amount to 0.2% Other than sales to Mexico, Canada and Brazil, as discussed
above, the Company had no other sales in foreign markets during the three year
period ended January 3, 1998. For the three-year period ended January 3,
1998, the Company has operated within a single industry segment with classes of
similar products. The principal markets served by the Company are upholstery
and industrial uses through the knitting and weaving industry.
In connection with sales to major customers, only one customer has exceeded
10% of the Company's sales during each of the three years ended January 3,
1998. One other customer has exceeded 10% in 1996, and a third customer has
exceeded 10% of aggregate sales in 1995. For the purpose of this
determination, sales to groups of companies under common control have been
combined and accounted for as sales to individual companies. The following
table gives information with respect to these three customers:
% of
1997 Amount Net Sales
Customer 1 $5,737,000 14.0
Customer 2 *
Customer 3 *
% of
1996 Amount Net Sales
Customer 1 $5,387,000 13.3
Customer 2 4,074,000 10.0
Customer 3 *
% of
1995 Amount Net Sales
Customer 1 $3,706,000 10.9
Customer 2 *
Customer 3 3,534,000 10.3
*Less than 10%
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable comprise the following:
January 3 December 28
1998 1996
Due from factor on
regular factoring
account $3,327,680 $3,032,655
Non-factored accounts
receivable 443,621 165,556
Total $3,771,301 $3,198,211
Pursuant to a factoring agreement, the Company sells substantial portions of
its accounts receivable to a commercial factor without recourse, up to maximum
credit limits established by the factor for individual accounts. Amounts
invoiced to customers on accounts receivable factored in excess of the
established maximum credit limits are sold to the factor with recourse in the
event of nonpayment by customers.
The Company pays a service charge to its factor to cover credit checking,
assumption of credit risk, record keeping and similar services. In addition,
if the Company takes advances from its factor prior to the average maturity of
the receivables sold (as defined), it is required to pay interest to the
factor on these advances. The Company incurred no interest costs during the
1997 year, inasmuch as it borrowed no funds from its factor during that year.
In connection with such advances from its factor for 1996 and 1995, the
Company incurred interest costs of only $5,442 in 1996 and $4,929 in 1995.
The Company's factor is collateralized by the accounts receivable sold to the
factor. No interest in inventory, other than returned goods, has been granted
to the factor under the factoring contract.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
January 3, December 28,
1998 1996
Finished & in process $1,813,018 $2,191,957
Raw materials 716,520 709,099
Dyes & chemicals 336,957 394,335
Other 139,803 155,414
Total $3,006,298 $3,450,805
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment are as follows:
January 3, 1998 December 28, 1996
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Land $ 78,032 $ - $ 78,032 $ -
Land improvements 136,504 77,709 136,504 73,954
Building & improvements 6,337,114 4,056,293 6,204,501 3,910,833
Plant machinery & equipment 18,694,009 9,448,212 18,447,105 8,973,505
Office equipment 964,974 493,257 1,205,764 488,245
Automotive equipment 140,046 82,859 122,335 103,899
Total $26,350,679 $14,158,330 $26,194,241 $13,550,436
NOTE 6 - LINE OF CREDIT LOAN
Pursuant to a loan agreement dated March 29, 1996, the Company secured a line
of credit facility from its bank wherein it may borrow, repay and re-borrow
amounts from the line of credit facility for short-term working capital needs.
The aggregate principal amount outstanding at any time under this loan may not
exceed the lesser of $2,000,000 and the borrowing base (as defined). Interest
on this loan facility is at a rate that varies with the Libor Rate and is
payable on the last day of each month. The line of credit loan has an initial
maturity of April 30, 1997, unless extended by the bank in its sole discretion.
The company extended the line of credit loan to April 30, 1998.
The Company had no borrowings on the line of credit loan during the year ended
January 3, 1998.
The following represents a summary of borrowings on the line of credit loan
during 1996:
Balance at end of year $ NONE
Maximum outstanding during the year 1,195,000
Average outstanding during the year 435,000
Weighted average interest rate 7.7%
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT
On March 29, 1996, the Company entered into a new loan agreement with its bank
providing for a term loan of $6,000,000 and, as discussed in Note 6 above, a
line of credit facility of $2,000,000 for ongoing, short-term working capital
needs. The new 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 new term loan agreement, interest only will be payable monthly until
February 1998. Thereafter, principal maturities will be payable in the amount
of $62,500 per month for ninety-six consecutive months plus interest at the
fixed rate of 8.06%. In order to effect this fixed interest rate, the bank
converted its interest rate cap into a fixed rate loan by entering into a fixed
rate hedge contract with the Company. Under this fixed rate hedge contract,
the Company will pay the bank 8.06% for the term of the contract. The floating
rate (LIBOR plus 1.9%) that the Company will pay the bank will be equal to the
floating rate that the bank's capital markets will pay to the Company. Whether
LIBOR RATES rise or fall over the life of the loan agreement, the Company will
continue to pay the bank a fixed rate of 8.06% for the life of the contract,
thereby creating a fixed rate loan.
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 the long-term debt at January 3, 1998 are as
follows:
Current portion $ 687,500
1999 $ 750,000
2000 750,000
2001 750,000
2002 750,000
Thereafter 2,312,500 5,312,500
$6,000,000
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES
Other liabilities and accrued expenses consist of the following:
January 3 December 28
1998 1996
Employee 401k contributions $ 47,113 -
Payroll taxes payable 109,063 44,716
Utilities payable 132,165 90,669
Accrued interest 21,493 12,125
Accrued environmental cost 77,100 -
Other 30,887 24,130
Total $417,821 $171,640
NOTE 9 - INCOME TAXES
The Company uses the liability method as required by FASB Statement 109
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws.
The items that comprise deferred tax assets and liabilities are as follows:
Jan. 3 Dec. 28
1998 1996
Deferred tax assets:
Alternative minimum taxes paid $608,825 $ 608,825
Net operating loss carry-forward 12,190 246,100
Inventory capitalization 18,700 8,300
Business credits 11,585 11,585
Charitable contributions
Carryover 10,400 -
$ 661,700 $ 874,810
Deferred tax liabilities:
Accelerated depreciation for
tax purposes $2,218,300 $2,003,300
Provision for taxes consist of:
Year Ended
January 3 December 28 December 30
1998 1996 1995
Current:
Federal $ 4,419 $ - $120,978
State - - 88,432
Deferred 428,110 283,954 2,800
Total $432,529 $283,954 $212,210
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
The provision for income taxes on historical income differs from the amounts
computed by applying the applicable Federal statutory rates, due to the
following:
January 3, December 28, December 30,
1998 1996 1995
Income before income taxes $1,058,633 $869,355 $1,156,451
Federal income taxes 34% 34% 34%
Computed taxes at maximum
statutory income tax rate 359,936 295,581 393,193
Increase (reduction) in taxes
resulting from:
State income taxes, net of
Federal income tax benefit 56,051 44,468 60,205
Adjustment for deferred
income taxes - (20,670) -
Alternative minimum tax
adjustment - (35,425) (174,883)
Over-accrual of prior year
income taxes - - (59,336)
Prior year tax examination
and other 16,542 - (6,969)
Provision for income taxes $ 432,529 $283,954 $ 212,210
NOTE 10 - INVESTMENT IN AFFILIATE AND RELATED TRANSACTIONS
The company owns 49.8% of Fytek, S.A. de C.V. (Fytek),a Mexican corporation.
The company accounts for the ownership using the equity method. During 1997,
the company had no sales to Fytek, but purchased $156,000 of yarn from Fytek.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - STATEMENTS OF CASH FLOWS
FASB No. 95 requires that the following supplemental disclosures to the
statements of cash flows be provided in related disclosures. Cash paid for
interest was $494,000 in 1997, $515,000 in 1996 and $258,000 in 1995. Cash paid
for income taxes aggregated $6,000 in 1996 and $1,081,000 in 1995. Taxes
refunded in 1997 aggregated $125,000.
NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS
Rental expenses under all lease commitments for the three fiscal years ended
January 3, 1998, aggregated $45,000, $40,000 and $46,000, respectively. Minimum
lease commitments under terms of all non-cancelable leases, which consist only
of leased equipment, are as follows as of January 3, 1998:
1998 $39,000
1999 23,000
2000 19,000
2001 19,000
2002 3,000
$103,000
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands of dollars except for per share amounts)
Quarter
1997 First Second Third Fourth
Net sales $10,060 $10,442 $ 9,874 $10,780
Cost of sales 9,061 9,393 8,797 9,514
Gross profit 999 1,049 1,077 1,266
Net income 143 181 230 72
Net income per
common share $ .05 $ .07 $ .08 $ .03
1996
Net sales $ 9,905 $10,304 $10,225 $10,215
Cost of sales 9,215 9,519 9,122 9,031
Gross profit 690 785 1,103 1,184
Net income (loss) (40) 26 285 314
Net income (loss)
per common share $ (.02) $ .01 $ .11 $ .11
1995
Net sales $ 9,545 $ 8,586 $ 7,385 $ 8,632
Cost of sales 8,364 7,488 7,127 7,687
Gross profit 1,181 1,098 258 945
Net income (loss) 396 369 (173) 352
Net income (loss)
per common share $ .14 $ .14 $ (.06) $ .12
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - EMPLOYEE BENEFIT PLAN
The Company is a participating employer in the Burke Mills, Inc. Savings and
Retirement Plan and Trust that has been qualified under Section 401(k) of the
Internal Revenue Code. This plan allows eligible employees to contribute a
salary reduction amount of not less than 1% nor greater than 25% of the
employee's salary. The salary reduction percentage must equal an increment of
1%. The employer may make a matching contribution for each employee out of
current net profits or accumulated net profits (as defined), in an amount the
employer may from time to time deem advisable. Based on the Company's profit
sharing formula, no provision was required for matching contributions in 1996
or 1997. A matching contribution of $94,176 was made for 1995.
NOTE 15 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of occasional temporary cash investments and
amounts due from the factor on receivables sold to the factor on a non-recourse
basis. The receivables sold to the factor during a month generally have a
maturity date on the 21st to the 30th of the following month. At January 3,
1998, the Company had $3,328,000 due from its factor of which $2,840,000
matured on January 21, 1998. Upon maturity, the funds are automatically
transferred by the factor to the Company's bank.
NOTE 16 - OTHER COMMITMENTS
a) The Company entered into a supply agreement, dated November 23, 1996, with
its joint venture company, Fytek, S.A. de C.V. to purchase twisted yarns. The
Company agrees to purchase approximately $1,800,000 of twisted yarn annually
for the five years beginning on the startup date of the operation.
b)The Company entered into a supply agreement, dated November 19, 1996, with
Fibras Quimicas, S.A. to purchase yarn. The Company agrees to purchase yarn
based on the schedule below, beginning February 1, 1997, for a five year
period.
Year 1 Approximately $2,600,000
Year 2 Approximately $6,400,000
Year 3 Approximately $7,100,000
Year 4 Approximately $7,700,000
Year 5 Approximately $7,700,000
NOTES TO FINANCIAL STATEMENTS
Note 16 - Other Commitments (continued)
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 Health, Environment and Natural Resources
(DHENR). DHENR required a Comprehensive Site Assessment that has been
completed. The Company's outside engineering firm has conducted testing and
will prepare a Corrective Action Plan for submission to DHENR. The Company has
identified remediation issues and is moving toward a solution of natural
attenuation. The Company believes it has made an adequate provision to
earnings in 1997 to cover any future cost.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in nor disagreements with accountants on accounting
and financial disclosure during the Company's two most recent fiscal years or
during any subsequent interim period. The current accounting firm for the
Company, Cole, Samsel & Bernstein LLC of New York, New York, and Lodi, New
Jersey, has served as accountants for the Company during the last two fiscal
years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required for Part III of this report (Items 10-13) is
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A, involving the election of directors, which
is expected to be filed not later than 120 days after the end of the fiscal
year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this
report.
(a) 1. Report of Independent Certified Public Accountants.
The following financial statements of Burke Mills, Inc. and the related
auditors' report required to be included in Part II Item 8, are listed below:
Auditors' report
Balance sheets
January 3, 1998
December 28, 1996
Statements of operations
Year ended January 3, 1998
Year ended December 28, 1996
Year ended December 30, 1995
Statements of changes in shareholders' equity
Year ended January 3, 1998
Year ended December 28, 1996
Year ended December 30, 1995
Statements of cash flows
Year ended January 3, 1998
Year ended December 28, 1996
Year ended December 30, 1995
Notes to financial statements
Financial statement schedules have been omitted since the required
information is not present in amounts sufficient to require submission of the
schedule, or because the required information is included in the financial
statements or the notes thereto.
(a)2. The exhibits required by Item 601 of Regulation S-K and
paragraph (c) of Item 14 are the articles of incorporation and by-laws of the
Company which are incorporated herein by reference from the Amendment on Form 8
to the annual report on Form 10-K of the Company for the fiscal year ended
January 2, 1982 previously filed with the Commission. The exhibit required by
Item 601(c) of Regulation SK, Financial Data Schedule, is set forth on page 39
of this report.
(b) During the last quarter of the period covered by this report no
report on Form 8-K was filed.
(c) See sub-Item (a)2 above.
(d) Not applicable.
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT
ON FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 3, 1998.
NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) cash & cash items $ 4,306,540
5-02(2) marketable securities 0
5-02(3)(a)(1) notes & accounts receivable-trade 3,771,301
5-02(4) allowances for doubtful accounts 0
5-02(6) inventory 3,006,298
5-02(9) total current assets 11,784,671
5-02(13) property, plant & equipment 26,350,679
5-02(14) accumulated depreciation 14,158,330
5-02(18) total assets 24,348,064
5-02(21) total current liabilities 3,377,686
5-02(22) bonds, mortgages & similar debt 5,312,500
5-02(28) preferred stock - mandatory redemption 0
5-02(29) preferred stock - no mandatory redemption 0
5-02(30) common stock 1,809,171
5-02(31) other stockholders' equity 11,630,407
5-02(32) total liabilities & stockholders' equity 24,348,064
5-03(b)1(a) net sales of tangible products 41,155,629
5-03(b)1 total revenues 41,155,629
5-03(b)2(a) cost of tangible goods sold 36,764,917
5-03(b)2 total costs & expenses applicable
to sales and revenues 36,764,917
5-03(b)3 other costs & expenses 0
5-03(b)5 provision for doubtful accounts & notes 0
5-03(b)(8) interest & amortization of debt discount 503,306
5-03(b)(10) income before taxes & other items 1,058,633
5-03(b)(11) income tax expense 432,529
5-03(b)(14) income/loss continuing operations 626,104
5-03(b)(15) discontinued operations 0
5-03(b)(17) extraordinary items 0
5-03(b)(18) cumulative effect - changes in accounting
principles 0
5-03(b)(19) net income or loss 626,104
5-03(b)(20) earnings per share - primary $.23
5-03(b)(20) earnings per share - fully diluted $.23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1998 BURKE MILLS, INC.
By: /s Humayun N. Shaikh
Humayun N. Shaikh,
Chairman of the Board
(Principal Executive Officer)
By: /s Thomas I. Nail
Thomas I. Nail
Vice President of Finance
(Principal Financial Officer)
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 27, 1998 By: /s Humayun N. Shaikh
Humayun N. Shaikh, Director
Date: March 27, 1998 By: /s Richard F. Whisenant
Richard F. Whisenant, Director
Date: March 27, 1998 By: /s Robert P. Huntley
Robert P. Huntley, Director
Date: March 27, 1998 By: /s William T. Dunn
William T. Dunn, Director