UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
January 3, 2004
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
_________________ to _________________
Commission File No. 0-5680
BURKE MILLS, INC.
(Exact name of registrant as specified in its charter)
(I.R.S. Employer Identification No.)
56-0506342
State or other jurisdiction of incorporation or organization:
North Carolina
191 Sterling Street, NW
Valdese, North Carolina 28690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
828-874-6341
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.[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No _X_
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 as of the
last business day of the registrant's most recently completed second fiscal
quarter) was $891,459.
The number of shares outstanding of the registrant's only class of common stock
as of March 3, 2004 is 2,741,168 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's proxy statement related to the annual meeting of
shareholders of the Company scheduled for May 18, 2004, which is to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report, are incorporated by reference in Part III of this
report.
Page 1
BURKE MILLS INC.
PART I
ITEM 1 - BUSINESS
- ------------------
(a) General Development of Business - The Company's general development of
business consisted of improving operating performance in all areas of the
Company, maintaining sales in a down economy, and strengthening its balance
sheet.
During 2003, the Company continued to experience a very weak textile economy
causing a very competitive market, a shrinking potential customer base, and an
erosion in customer credit quality. The Company's customers were affected by the
weak economy and also by competition from imports.
The Company restructured its financing during the year and paid off its
long-term debt.
(b) Financial Information about Industry Segments - The Company had only
one industry segment during the fiscal year ended January 3, 2004.
(c) Narrative Description of Business - The Company is engaged in texturing,
winding, dyeing, processing and selling of filament, novelty and spun yarns, and
and in the dyeing and processing of these yarns for others on a commission
basis.
The principal markets served by the Company are apparel, upholstery and
industrial uses through the knitting and weaving industry.
The Company's products are sold in highly competitive markets primarily
throughout the United States. Competitiveness of the Company's products is based
on price, service and product quality. Many of the Company's competitors are
divisions or segments of larger, diversified firms with greater financial
resources than those of the Company.
The methods of distribution of the Company's products consist of the efforts
of the Company's sales force which makes contact with existing and prospective
customers. The Company markets its products throughout the United States,
Caribbean Basin, Mexico and Canada, with the bulk of the business being
primarily in the eastern United States, through five salesmen employed directly
by the Company on salary and a number of commissioned sales agents working on
various accounts. The Company also markets its products in Mexico, Central
America and South America through its fifty-percent (50%) owned affiliate,
Fytek, S.A. de C.V.
The dollar amount of backlog of unshipped orders as of January 3, 2004 was
$1,519,000 and as of December 28, 2002 was $1,017,000. 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 61 days.
On average, the Company turns its inventory approximately 5 to 7 times each
year. The Company meets its delivery schedules on a consistent on-time basis,
and has a ready supply of raw materials from suppliers. For the fiscal year
ended January 3, 2004 approximately 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 to return merchandise except where the merchandise is defective.
Page 2
BURKE MILLS, INC. PART I
ITEM 1 - BUSINESS (continued)
- ------------------------------
The Company rarely extends payment terms to its customers beyond sixty (60) days
and 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 fuel oil or
natural gas are used to heat the premises and fuel the boilers. The Company has
not experienced any shortages in electricity, oil or gas during the fiscal year,
and has made no other 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 operations.
The Company has established a recycling program for its major waste items:
yarn, cardboard, plastic tubes and cleaning fluid.
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, 2004 with
federal, state and local environmental protection laws had no material effect on
capital expenditures, earnings, or the competitive position of the Company.
During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used by
the Company in the past but no longer used. The contamination was reported to
the North Carolina Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed. The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR. The Company has identified remediation issues and is
moving toward a solution of natural attenuation. The cost of monitoring will be
approximately $31,000 per year.
On, February 17, 2004, the Company had 170 employees. The Company's yarn
division is its only division. During the fiscal year ended January 3, 2004
sales to one customer, Quaker Fabric Corporation, exceeded ten percent of the
Company's revenue. The loss of this customer would have a material adverse
effect on the Company in the short run, but the Company believes that it would
be able to replace the business within a reasonable time.
The Company owns 49.8% of the stock and 50% of the voting control of Fytek,
S.A. de C.V. (Fytek), a Mexican corporation with its principal place of business
in Monterrey, Mexico. The other shareholders in Fytek are Fibras Quimicas, S.A.,
a Mexican Corporation, and Teijin, Inc., a Japanese company. The purpose of
Fytek is the manufacture, marketing, and distribution of yarns. The Company
acquires yarn from Fytek. Fytek began production in the fourth quarter of 1997.
The Company and its joint venture partner are evaluating the benefit of the
Fytek joint venture, and there is a high probability that a formal decision will
be made in the first quarter of 2004 to discontinue Fytek's operations.
(d) Financial Information about Geographic Areas. For each of the last three
fiscal years of the Company, revenues of the Company from external customers
is as follows:
Page 3
BURKE MILLS, INC. PART I
Country of Domicile 2003 2002 2001
Mexico $ 272,000 $ 567,000 $ 231,000
Canada -0- 66,000 1,340,000
Honduras 980,000 221,000 786,000
Barbados -0- 140,000 673,000
---------- ------------ ----------
Total.......... $1,252,000 $ 994,000 $3,030,000
The basis for attributing revenues from external customers to individual
countries is payment by country of domicile on invoices from the Company. The
Company does not have any long-lived assets, long-term customer relationships
with a financial institution, mortgage and other servicing rights, deferred
policy acquisition costs or deferred tax assets located in any foreign country.
The Company does not deem material any risks attendant to foreign operations
through its investment in Fytek due to the minimal amount of revenue produced
for the Company by Fytek.
(e) Available Information. No report required.
(f) Reports to Securities Holders. No report required.
(g) Enforceability of Civil Liabilities Against Foreign Persons. No report
required.
ITEM 2. PROPERTIES
- -------------------
The executive offices and manufacturing plant of the Company are located at
Valdese, North Carolina, which is 75 miles northwest of Charlotte, North
Carolina, and 60 miles east of Asheville, North Carolina. The main plant and
executive offices are located on an approximate nineteen-acre tract of land
owned by the Company. The Company also owns approximately 18 acres adjacent to
the plant which is undeveloped. The main plant building used by the Company
contains approximately 309,000 square feet. The Company also owns an auxiliary
building containing 36,600 square feet located adjacent to its main plant. This
latter building is currently used for warehousing yarn and as a distribution
center.
The plant buildings are steel and brick structures protected by automatic
sprinkler systems. The various departments, with the exception of the production
dyehouse, are heated, cooled and humidified. The Company considers all its
properties and manufacturing equipment to be in a good state of repair, well
maintained and adequate for its present needs.
The Company utilizes substantially all of the space in its main plant for its
offices, machinery and equipment, storage and receiving areas. The Company
utilizes substantially all of the space in the auxiliary building for warehouse
and distribution purposes.
The approximate maximum capacity in pounds per year of the Company's machinery
and equipment, based upon operating the machinery and equipment seven (7) days
per week fifty (50) weeks per year, and the approximate percentage of
utilization thereof during the fiscal year ended January 3, 2004 are as follows:
Pounds/Year 2003
Department Capacity Utilization
---------- -------- -----------
Winding Machines 21,155,000 8%
Texturing Machines 816,000 28%
Dyeing Equipment 25,800,000 35%
Page 4
BURKE MILLS, INC. PART I
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is not presently involved in any legal proceedings other than
ordinary, routine litigation incidental to the business of the Company.
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 in which the Company's
common stock is being traded is the Nasdaq over-the-counter bulletin board
market. The range of high and low bid quotations for the Company's common stock
for each quarterly period during the past two years ended December 31, 2003, and
on the latest practicable date (as obtained from Commodity Systems, Inc.) is as
follows:
Quarter Ending
2003 High Bid Low Bid
------------ -------- --------
March 31 $0.85 $0.61
June 30 $1.48 $0.70
September 30 $1.20 $0.76
December 31 $1.20 $0.85
Quarter Ending
2002 High Bid Low Bid
------------ -------- --------
March 31 $0.92 $0.40
June 30 $1.62 $0.51
September 30 $1.30 $1.15
December 31 $1.40 $0.64
February 17, 2004 $1.01 $1.01
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 17, 2004 there were 360 holders of record of the common
stock of the Company.
(c) The Company has declared no dividends on its common stock during the past
two fiscal years.
(d) Securities Authorized For Issuance Under Equity Compensation Plans. No
equities securities of the Company are authorized for issuance under equity
compensation plans.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The following selected financial data set forth for the five fiscal years ended
January 3, 2004 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.
Page 5
BURKE MILLS, INC. PART II
ITEM 6. SELECTED FINANCIAL DATA (continued)
- --------------------------------
(in thousands except per share data)
Years Ended
----------------------------------------
Jan. 3 Dec. 28 Dec. 29 Dec. 30 Jan. 1
2004 2002 2001 2000 2000
---- ---- ---- ---- ----
SELECTED INCOME STATEMENT DATA
Net Sales $24,815 $29,990 $37,194 $39,456 $42,840
Cost of Sales 24,237 27,968 33,711 37,123 38,779
------- ------- ------- ------- -------
Gross Profit $ 578 $ 2,022 $ 3,483 $ 2,333 $ 4,061
------- ------- ------- ------ ------
Income (loss) before income
taxes $(2,222) $ (641) $ 487 $(1,390) $ (300)
Income Taxes (credit) 282 (322) 172 (540) (98)
------- ------- ------- ------- -------
Net Income (loss) $(2,504) $ (319) $ 315 $ (850) $ (202)
======= ======= ======= ======= =======
Per Share (Note A)
Net income (loss) $ (.91) $ (.12) $ .11 $ (.31) $ (.07)
======== ======== ======= ======== ========
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 $ 127 $ 888 $ 388 $ 631 $ 4,640
======= ======= ======= ======= =======
Depreciation $ 2,010 $ 2,055 $ 2,203 $ 2,332 $ 1,839
======= ======= ======= ======= =======
Cash provided (used) by
operating activities $ (40) $ 2,110 $ 4,301 $ 1,386 $ 74
======= ======= ======= ======= =======
SELECTED BALANCE SHEET DATA
Current assets $ 4,445 $ 8,670 $10,132 $ 9,161 $ 9,988
Current liabilities 1,181 2,482 3,322 3,503 4,381
------ ----- ----- ----- -----
Working capital $ 3,264 $ 6,188 $ 6,810 $ 5,658 $ 5,607
======= ======= ======= ======= ======
Current ratio 3.76 3.49 3.05 2.62 2.28
==== ==== ==== ==== ====
Total assets $13,138 $20,225 $22,803 $23,994 $25,995
======= ======= ======= ======= =======
Long-term debt $ -0- $ 2,920 $ 4,098 $ 5,241 $ 5,551
======= ======= ======= ======= =======
Deferred income tax liability $ 1,374 $ 1,735 $ 1,977 $ 2,159 $ 2,122
======= ======= ======= ======= =======
Shareholders' equity $10,583 $13,088 $13,406 $13,091 $13,941
======= ======= ======= ======= =======
(A) Income per share has been computed based on the weighted average number of
common shares outstanding during each period.
Page 6
BURKE MILLS, INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
EXECUTIVE SUMMARY
- -----------------
The Company's major market is supplying packaged dyed polyester yarn for home,
contract, and automotive upholstery. Although the Company has increased its
customer base and not lost any major customers, sales have declined in each of
the last three years. The sales decline can be attributed to the following:
o Weak textile economy.
o Imports of finished products that compete with the Company's
customers' products.
o Exodus of apparel manufacturing from the U.S., causing other package
dyers to compete in the company's markets.
o Over capacity in the industry has caused competitive biding for
business and driven down prices.
The Company has not experienced any major bad debt write offs, but the credit
quality of its customers has eroded and it is more difficult to collect account
receivables within credit terms.
In 2003, the Company hired an additional salesman and has begun to supply other
fibers in addition to polyester. The Company is also expanding its marketing of
sewing thread. The Company believes that its major emphasis must be increasing
sales, but there is no assurance that with the current market conditions sales
will not continue to decline.
Polyester yarn is the Company's major raw material. In January 2004 two major
suppliers announced price increases. The Company has not yet received a price
increase from its suppliers, but believes it is a possibility that prices will
be raised in the second quarter of 2004. The Company will try to pass any price
increase to its customers, but with the competitive nature of the market there
is no assurance that all of the increase can be recovered.
Over the last three years, the Company has been able to reduce overhead expenses
except for employee health cost, all insurance cost, and fuel oil and natural
gas costs. All of these costs have been discussed in the national media as a
problem for domestic companies.
The employee health claims are self-funded by the Company with specific and
aggregate stop loss insurance. During the last year cost increased due to higher
utilization by employees, medical inflation, and higher premiums for stop loss
insurance. The Company is continuously modifying the plan to reduce cost.
Property insurance has increased due to a firm market and world events.
Directors and officers insurance has increased due primarily to corporate
scandals.
The Company has the ability to switch between natural gas and fuel oil to power
its boilers. Equivalent cost is calculated and the less expensive fuel is used.
Fytek, the Company's joint venture in Mexico, has experienced a decline in sales
for each of the last three years. In the first quarter of 2004 the Company will
meet with its joint venture partner and decide the fate of the joint venture.
There is high probability that the joint venture will be terminated. If Fytek
operations are discontinued, yarns sold to the Company by Fytek would be
purchased domestically or produced by the Company.
If the joint venture is terminated, the Company believes that there will be a
cash disbursement to the partners. At year end the joint venture had cash in
excess of liabilities, and with liquidation of the other assets, there will be
cash available for distribution.
Page 7
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
EXECUTIVE SUMMARY (continued)
- ----------------------------------
During 2003 the Company paid off its long-term debt and enters 2004 with a
strong balance sheet. There is no plan for large capital expenditures. Any
capital spending will have to generate a strong payback.
The Company will continue its efforts to increase sales and reduce cost, but
with the conditions discussed above, there is no assurance that the Company can
return to profitability in 2004.
------------------------------------------------------------
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
------------------------------
Jan. 3 Dec. 28 Dec. 29
2004 2002 2001
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 97.7 93.3 90.6
------ ------ ------
Gross profit margin 2.3 6.7 9.4
Selling, general, administrative and
factoring expenses 10.8 8.6 7.4
------ ------ ------
Operating earnings/(loss) (8.5) (1.8) 2.0
Other income 0.4 0.3 0.2
Other expenses (0.6) (0.6) (1.0)
------ ------ ------
Income (loss) before income taxes and
net equity in affiliates (8.8) (2.1) 1.2
Income taxes (credit) 1.1 (1.1) 0.5
------- ------- -------
(9.9) (1.0) 0.7
Equity (Loss) in Net Earnings
Of Affiliate (0.2) 0.1 0.1
------- ------ -------
Net income (loss) (10.1)% (1.1)% 0.8%
======= ======= =======
Results of Operations: 2003 Compared to 2002
--------------------------------------------
Net Sales
- ----------
Net sales for 2003 decreased to $24.8 million from $29.9 million in 2002 or
17.1%. The Company has not lost any major customers, but as a result of a weak
textile economy and competition from imports, the Company's customers have
experienced a decrease in sales.
Cost of Sales and Gross Margin
- -------------------------------
Cost of sales for 2003 decreased to $24.2 million compared to $28.0 million in
2002 or 13.3%.
Material cost decreased $3,457,000 or 19.4%. The decrease in material cost was
primarily due to a decrease in sales and sales mix.
Page 8
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Results of Operations: 2003 Compared to 2002 (continued)
- --------------------------------------------
Cost of Sales and Gross Margin (continued)
- -------------------------------------------
Direct labor decreased by 16.9%, mainly as a result of lower sales volume.
Overhead expenses decreased by only .1%. Although the Company reduced indirect
labor, water and electricity cost, natural gas and fuel oil increased 26.6%,
employee health claims increased 9.1%, and equipment repair cost increased by
40.0%. The Company also had 53 weeks in 2003 compared to 52 weeks in 2002.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses decreased by 8.6%. Although the
Company added a sales person in first quarter of 2003 and had one extra week in
2003, the Company was able to effect an overall reduction in selling, general,
and administrative expenses.
Factor's Charges
- -----------------
During the fourth quarter of 2003, the Company changed factors and paid a
minimum fee to the old factor per the factoring agreement. This fee was
approximately $42,000. Consequently, the factoring expense for 2003 increased
$35,000 or 28.7% compared to 2002.
Interest Expense
- -----------------
Interest expense decreased by $87,000 or 48.7%. The decrease was due to a lower
average long-term debt.
The Company paid off its long-term debt the last week of December 2003.
Interest Income
- ----------------
Interest income decreased by $24,000 or 50.3% as a result of lower average funds
invested.
Gain (Loss) on Disposal of Equipment
- ------------------------------------
In 2003 the Company wrote off equipment with a net book value of $268,000. 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.
Equity in Net Earnings of Affiliate
- -----------------------------------
The Company recorded its portion of a loss of ($59,000) after a charge for
impairment, compared to a loss of ($8,300) after a charge for impairment in
2002. The joint venture began operations in November of 1997.
Fytek sales in 2003 were $2,305,000 with a loss before taxes of ($139,000), and
a after tax loss of ($87,000). The balance at the end of 2003 in Fytek's
stockholders equity was $1,559,000 compared to $1,797,000 at the end of 2002.
For conservative purposes the Company is taking a charge for impairment against
the equity investment in Fytek. (See Note 10.)
Provision (Credit) for Income Taxes
- -----------------------------------
The Company recorded a net provision of $282,000 for income taxes compared to a
credit of $322,000 in 2002. A credit of $857,000 was provided for the net loss
before taxes of $2,445,000, but was more than offset as the Company recorded a
valuation allowance of $920,000 for its tax asset. See Note 9 Income Taxes for
the detail of the $282,000 provision for income taxes.
Page 9
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Results of Operations: 2003 Compared to 2002 (continued)
- --------------------------------------------
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.
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 recorded a charge for impairment for Investment in Affiliate. The
charge for impairment was based on assumptions made by management of the
realizable value of the affiliates assets less the affiliates liabilities
compared to the value on the company's balance sheet.
Results of Operations: 2002 Compared to 2001
---------------------------------------------
Net Sales
- ----------
Net sales for 2002 decreased to $29.9 million from $37.2 million in 2001 or
19.4%. The decline in sales was due to lower customer demand, primarily in the
third and fourth quarters of 2002. The Company has not lost any major customers,
but as a result of a weak textile economy and competition with imports, the
Company's customers have experienced a decrease in sales.
Cost of Sales and Gross Margin
- -------------------------------
Cost of sales for 2002 decreased to $27.9 million compared to $33.7 million in
2001 or 17.0%.
Material cost decreased $4,182,000 or 19% primarily as a result of lower sales.
Material cost decreased 19% while net sales decreased by 19.4%.
Direct labor decreased by 30.8%. The Company's direct labor decreased primarily
as a result of increased volume in direct yarns (there is no winding process),
more efficient utilization of labor, and lower sales volume.
Overhead cost decreased by 9.2%. Large reductions were realized in repairs and
maintenance ($162,113 or 33.2%), indirect labor ($30,287 or 35.7%).
Inasmuch as net sales decreased by 19.4% and cost of sales decreased by 17.0%,
the 2002 gross margin decreased to 6.7%, compared to 9.4% in 2001.
Page 10
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Results of Operations: 2002 Compared to 2001 (continued)
- --------------------------------------------
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses for 2002 aggregated $2.5 million as
compared to $2.6 million in 2001.
Factor's Charges
- -----------------
Factor's charges as a percentage of sales were 0.4% for 2002 and 0.4% for 2001.
There was no change in the factor's agreement.
Interest Expense
- -----------------
Interest expense decreased by $189,300 or 51.6% primarily due to lower existing
interest rates and a lower average long-term debt.
Interest Income
- ----------------
Interest income decreased by $25,423 or 34.4% primarily due to lower existing
rates.
Other Net Income
- ----------------
Other net income increased $13,670 from 2001 due to an increase in leases and
rents.
Gain (Loss) on Disposal of Equipment
- ------------------------------------
The loss on disposal of equipment of $5,144 was primarily due to the retirement
of the outdated computer equipment.
Equity in Net Earnings of Affiliate
- -----------------------------------
The Company's Mexican joint venture, Fytek, recorded a loss of ($8,300) after
valuation reserve, compared to earnings of $34,000 in 2001. The joint venture
only began operations in November of 1997.
Fytek sales in 2002 was $3,827,000 with income before taxes of $306,000, and
after tax income of $228,000. The balance at the end of 2002 in Fytek's
stockholders equity was $1,797,000 compared to $1,753,000 at the end of 2001.
For conservative purposes the Company is taking a valuation reserve against the
equity investment in Fytek. (See Note 10.)
Provision for Income Taxes
- ---------------------------
Provision for income taxes for 2002 aggregated a tax credit of $322,400 compared
to a tax provision of $172,000 in 2001. Tax credit for 2002 arose from a pre-tax
loss of $633,000.
Results of Operations 2003 - 2001 Sales Analysis
-------------------------------------------------
The table below sets forth an analysis of sales volume for the period 2001 to
2003, inclusive. It discloses that full yarn sales prices decreased from a high
of $2.73 per pound in 2001 to $2.61 in 2003. Unit prices for commission sales
have varied based on mix and market conditions.
The decrease in full yarn average sales prices is a result of a shift from
dyeing and winding yarn on cones to dyeing and direct shipping which began in
1996, and competitive pressure on pricing.
Page 11
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Results of Operations 2003 - 2001 Sales Analysis (continued)
--------------------------------------------------------------
% of Sales $
% of Pounds of Per
Net Sales Yarn Sold Pound
--------- --------- -----
2003:
Yarn sales 97% 97% $2.61
Commission sales 3 3 2.78
---- ----
Total 100% 100%
==== ====
2002:
Yarn sales 97% 97% $2.67
Commission sales 3% 3% 2.60
---- ----
Total 100% 100%
==== ====
2001:
Yarn sales 97% 97% $2.73
Commission sales 3 3 3.47
---- ----
Total 100% 100%
==== ====
Liquidity and Capital Resources
- -------------------------------
The Company has a line of credit with its factor for accounts receivable and
inventory. The Company sells a substantial portion of its accounts receivable to
a commercial factor so that the factor assumes the credit risk for these
accounts and effects the collection of the receivables. At January 3, 2004 the
Company had $1,520,000 due from its factor which should be collected over the
next 60 days. The Company has the right to borrow up to 90% of the face amount
of each account sold to the factor.
The inventory line of credit allows the Company to borrow 40% of the value of
the eligible inventory up to $1,000,000.
At year end the Company had debt under the line of credit of $142,000. The
unused line of credit was approximately $1,739,000.
The Company had inventories of $1,880,000 as of January 3, 2004. The Company's
average inventories aggregated approximately $2,468,000 for 2003, representing
approximately 61 days inventory on hand. The Company's inventories turn
approximately 5 to 7 times each year.
The Company's working capital at January 3, 2004 decreased by approximately
$2,924,000 primarily as a result of a decrease in cash of $4,044,000 used to pay
off the Company's long-term debt of $3,957,000. 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:
Page 12
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Liquidity and Capital Resources (continued)
- -------------------------------------------
2003 2002 2001
---- ---- ----
Working Capital $3,264,000 $6,188,000 $6,810,000
Working Capital Ratio 3.76 to 1 3.49 to 1 3.05 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, 2004 and December 28, 2002:
January 3 December 28
2004 2002
---- ----
Cash, cash equivalents
and receivables $2,512,000 $6,460,000
Current liabilities 1,181,000 2,482,000
--------- ---------
Excess of quick assets
over current liabilities $1,331,000 $3,978,000
========== ==========
The Company's long-term debt at the beginning of its fiscal year December 29,
2002 was $4,098,000. During the year the Company restructured its financing and
paid off its long-term debt.
During 2003, the Company acquired new machinery and equipment of approximately
$127,000 as set forth in the accompanying statement of cash flows. The Company
financed its capital expenditures from cash provided from operations and bank
financing.
The Company's long-term debt to equity ratios aggregated 0% at January 3, 2004,
22.3% at December 28, 2002, and 30.6% at December 29, 2001.
Planned capital budget expenditures are estimated at $100,000 for 2004. The
Company plans to finance its capital needs from cash provided from operations
and bank financing.
Contractual Obligations
- -----------------------
The following is a summary of the Company's known contractual obligations as of
the latest fiscal year end on January 3, 2004.
Payments due by period
----------------------------------------------
Less More
than 1 1-3 3-5 than 5
Total year years years years
----- ------ ------ ----- -----
Contractual Obligations
Revolving Debt
Obligations $142,000 $142,000 $ -0- $ -0- $ -0-
Operating Lease
Obligations $ 86,000 $ 50,000 $34,000 $2,000 $ -0-
Unconditional purchase
Obligations(A) $1,339,000 $1,339,000 $ -0- $ -0- $ -0-
(A)Represents legally-binding commitments to purchase inventory and other
commitments made in the normal course of business to meet operational
requirements.
Page 13
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Environmental Matters
- ----------------------
During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property. The assessment indicated the presence of a contaminant in the
groundwater under the Company's property. The contaminant was a solvent used by
the Company in the past but no longer used. The contamination was reported to
the North Carolina Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed. The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR. The Company has identified remediation issues and is
moving toward a solution of natural attenuation. The cost of monitoring will be
approximately $31,000 per year.
Inflation
- ----------
The Company is experiencing increased costs for property and liability insurance
and in officer and director insurance as a result of inflationary insurance
markets, which were also negatively impacted from the events of September 11,
2001 and recent accounting scandals.
The healthcare cost for reinsurance has increased as well as health claims per
employee.
The Company's fuel oil and natural gas cost have increased 26%.
Also, in January 2004 some major suppliers of natural yarn have announced price
increases of approximately 10%.
Forward Looking Statements
- ---------------------------
Certain statements in this Management's Discussion and Analysis of Financial
condition and Results of Operations, and other sections of this report, contain
forward-looking statements within the meaning of federal securities laws about
the Company's financial condition and results of operations that are based on
management's current expectations, beliefs, assumptions, estimates and
projections about the markets in which the Company operates. Words such as
"expects", "anticipates", "believes", "estimates", variations of such words and
other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgement only as of the date hereof. The
Company undertakes no obligations to update publicly any of these
forward-looking statements to reflect new information, future events or
otherwise.
Factors that may cause actual outcome and results to differ materially from
those expressed in, or implied by, these forward-looking statements include, but
are not necessarily limited to, availability, sourcing and pricing of raw
materials, pressures on sales prices due to competition and economic conditions,
reliance on and financial viability of significant customers, technological
advancements, employee relations, changes in construction spending and capital
equipment expenditures (including those related to unforeseen acquisition
opportunities), the timely completion of construction and expansion projects
planned or in process, continued availability of financial resources through
financing arrangements and operations, negotiations of new or modifications of
existing contracts for asset management and for property and equipment
construction and acquisition, regulations governing tax laws, other governmental
and authoritative bodies, policies and legislation, and proceeds received from
the sale of assets held for disposal. In addition to these representative
factors, forward-looking statements could be impacted by general domestic and
international economic and industry conditions in the markets where the Company
competes; such as, changes in currency exchange rates, interest and inflation
rates, recession and other economic and political factors over which the Company
has no control.
Page 14
BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
7A. Quantitative and Qualitative Disclosures about Market Risk
- ---------------------------------------------------------------
The Company has not purchased any material instruments or entered into any
arrangements resulting in market risk to the Company for trading purposes or for
purposes other than trading purposes. There have been no changes in interest
rates in the Company's long-term or current maturities of long-term debt that
would have a material impact on the financial position, results of operations or
cash flows of the Company during the period ended January 3, 2004.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Independent Auditors' Report
To the Stockholders and
Board of Directors of
Burke Mills, Inc.
We have audited the accompanying balance sheet of Burke Mills, Inc. as of
January 3, 2004 and the related statement of operations, stockholders' equity,
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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. at January 3,
2004, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
BDO Seidman, LLP
High Point, North Carolina
February 9, 2004
Page 15
BURKE MILLS, INC.
PART II
BALANCE SHEET
January 3 December 28
2004 2002
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 147,062 $4,191,173
Accounts receivable 2,365,284 2,269,089
Inventories 1,880,477 2,095,863
Prepaid expenses, taxes, and other
current assets 52,633 114,000
---------- ----------
Total Current Assets 4,445,456 8,670,125
========== ==========
Equity Investment in Affiliate 553,180 612,275
--------- ----------
Property, plant & equipment - at cost 30,513,251 31,161,672
Less: accumulated depreciation 22,450,432 20,939,167
---------- ----------
Property, Plant and Equipment- Net 8,062,819 10,222,505
---------- ----------
Other Assets
Deferred income taxes 60,000 703,200
Deferred charges and other 16,575 16,575
---------- ----------
Total Other Assets 76,575 719,775
---------- ----------
$ 13,138,030 $20,224,680
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 141,514 $1,178,571
Accounts payable 871,695 1,097,131
Accrued salaries and wages 54,050 100,848
Other liabilities and accrued expenses 113,412 105,595
---------- ----------
Total Current Liabilities 1,180,671 2,482,145
Long-Term Debt -0- 2,919,643
Deferred Income Taxes 1,374,000 1,735,400
---------- ----------
Total Liabilities 2,554,671 7,137,188
---------- ----------
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 5,662,839 8,166,972
---------- ----------
Total Shareholders' Equity 10,583,359 13,087,492
---------- ----------
$13,138,030 $20,224,680
=========== ===========
See notes to financial statements.
Page 16
BURKE MILLS, INC.
PART II
STATEMENTS OF OPERATIONS
Years Ended
----------------------------------------
January 3 December 28 December 29
2004 2002 2001
---- ---- ----
Net Sales $24,814,941 $29,989,912 $37,194,240
----------- ----------- -----------
Costs and Expenses
Cost of sales $24,237,006 $27,967,612 $33,711,559
Selling, general and
administrative expenses 2,243,263 2,454,973 2,593,320
Factor's charges 157,072 122,032 155,843
Loss (gain) on disposal of
property assets 276,468 (5,144) 10,265
----------- ----------- -----------
Total Costs and Expenses 26,913,809 30,539,473 36,470,987
----------- ----------- -----------
Operating Earnings (Loss) (2,098,868) (549,561) 723,253
----------- ----------- -----------
Other Income
Interest income 24,030 48,378 73,801
Other, net 67,720 56,523 42,853
----------- ----------- -----------
Total Other Income 91,750 104,901 116,654
----------- ----------- -----------
Other Expenses
Interest expense 91,176 177,916 367,250
Other, net 64,944 -0- 19,787
----------- ----------- -----------
Total Other Expenses 156,120 177,916 387,037
----------- ----------- -----------
Income (Loss) Before Provision (Credit)
for Income Taxes and Equity in
Net Earnings of Affiliate (2,163,238) (632,864) 452,870
Provision (Credit)
for Income Taxes 281,800 (322,400) 171,949
----------- ----------- -----------
Income (Loss) Before Equity in
Net Earnings of Affiliate (2,445,038) (310,464) 280,921
Equity in Net Earnings (Loss)
of Affiliate (59,095) (8,317) 33,864
----------- ---------- -----------
Net Income (Loss) $ (2,504,133) $ (318,781) $ 314,785
Retained Earnings at
Beginning of Period 8,166,972 8,485,753 8,170,968
----------- ---------- -----------
Retained Earnings at
End of Period $ 5,662,839 $ 8,166,972 $ 8,485,753
============ ============ ===========
Basic and Diluted
Net Earnings (Loss) per share $ (.91) $ (.12) $ .11
============ ============ ===========
Weighted Average Common
Shares Outstanding 2,741,168 2,741,168 2,741,168
=========== =========== ===========
See notes to financial statements.
Page 17
BURKE MILLS, INC.
PART II
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED January 3, 2004
Common Stock
No Par Value
Stated Value
$.66 Per Share
5,000,000 Shares
AUTHORIZED
Total
Shares Common Paid-In Retained Shareholders
Issued Stock Capital Earnings Equity
------ ------ ------- -------- ------
Balance at Dec. 30,
2000 2,741,168 $1,809,171 $3,111,349 $8,170,968 $13,091,488
Net Income
for the year ended - - - 314,785 314,785
Dec. 29, 2001 ---------- ---------- ---------- ---------- ----------
Balance at 2,741,168 $1,809,171 $3,111,349 $8,485,753 $13,406,273
Dec. 29, 2001
Net Loss
for the year ended - - - $ (318,781) $ (318,781)
Dec. 28, 2002 ---------- ---------- ---------- ---------- ----------
Balance at
Dec. 28, 2002 2,741,168 $1,809,171 $3,111,349 $8,166,972 $13,087,492
Net Loss
for the year ended
Jan. 3, 2004 - - - (2,504,133) (2,504,133)
---------- ---------- ---------- ----------- -----------
Balance at
Jan. 3, 2004 2,741,168 $1,809,171 $3,111,349 $5,662,839 $10,583,359
========== ========== ========== ========== ===========
See notes to financial statements.
Page 18
BURKE MILLS, INC.
PART II
STATEMENTS OF CASH FLOWS
Years Ended
-----------------------------------
January 3 December 28 December 29
2004 2002 2001
---- ---- ----
Cash flows from operating activities:
Net income (loss) $(2,504,133) $ (318,781) $ 314,785
---------- ---------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 2,010,674 2,055,226 2,203,324
Loss (gain) on sales of plant & equipment
including loss on disposals 276,468 5,143 15,179
Allowance for mark-down inventory 96,000 -0- -0-
Deferred income taxes 281,800 (338,000) 144,700
Loss (income) in net earnings
of affiliate 59,095 8,317 (33,864)
Changes in assets and liabilities:
Accounts receivable (96,195) 402,235 416,745
Inventories 119,386 1,124,331 1,413,784
Prepaid expenses, taxes & other
current assets 61,367 (17,913) 37,624
Other non-current assets -0- 29,194 (29,194)
Accounts payable (225,436) (622,936) (177,241)
Accrued salaries & wages (46,798) (152,734) 33,520
Other liabilities and accrued expenses 7,817 (63,699) (38,510)
Income taxes payable -0- -0- 503
---------- --------- ---------
Total adjustments 2,544,178 2,429,164 3,986,570
---------- --------- ---------
Net cash provided by operating activities 40,045 2,110,383 4,301,355
---------- --------- ---------
Cash flows from investing activities:
Acquisition of property, plant
and equipment (127,456) (887,679) (387,520)
Proceeds from sales of plant
and equipment -0- 2,700 68,000
---------- --------- ---------
Net cash (used) by investing activities (127,456) (884,979) (319,520)
---------- --------- ---------
Cash flows from financing activities:
Net proceeds from revolving bank line 141,514 -0- -0-
Principal payments of long-term debt (4,098,214) (1,178,571) (1,142,857)
---------- ----------- ----------
Net cash provided (used) by financing
activities (3,956,700) (1,178,571) (1,142,857)
---------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents (4,044,111) 46,833 2,838,978
Cash & cash equivalents at beginning
of year 4,191,173 4,144,340 1,305,362
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 147,062 $4,191,173 $4,144,340
=========== ========== ==========
See notes to financial statements.
Page 19
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Accounting period - The Company's fiscal year is the 52 or 53 week period ending
the Saturday nearest to December 31. Fiscal years 2002 and 2001 ended on
December 28 and December 29, respectively. The two fiscal years consisted of 52
weeks. Fiscal year 2003 ended on January 3, 2004 and consisted of 53 weeks.
Revenue recognition - 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.
Cash and cash equivalents - For the purposes of the statements of cash flows,
the Company considers cash and cash equivalents to include cash on hand,
deposits in banks, and all highly liquid debt instruments with a maturity of
three months or less when purchased.
Accounts Receivable - Substantially all of the Company's accounts receivable are
due from manufacturers in the furniture, contract, automotive upholstery and
apparel industries. Over 50% of the Company's accounts receivable are factored
without recourse. The Company grants credit to non-factored customers and
generally does not require collateral. Management continuously performs credit
evaluations of its customers, considering numerous inputs including past payment
history, financial condition, operating performance, and economic conditions and
prospects. While management believes that adequate allowances for doubtful
accounts have been provided in the financial statement, it is possible that the
Company could experience unexpected credit losses.
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
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 2003 the Company wrote off equipment with a net book value of $268,000. 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.
Page 20
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
- ----------------------------------------------------
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.
Recent accounting pronouncements - In May 2003, the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS No. 150 establishes standards for how to classify
and measure certain financial instruments with characteristics of both
liabilities and equity. The statement is effective for financial instruments
entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did
not have a material impact on the Company's consolidated financial statements.
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. Significant estimates are the liability for self-funded health
claims, inventory markdowns, and the investment value of affiliates.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109 - "Accounting for
Income Taxes". Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Because the
realization of tax benefits related to the Company's net deferred tax asset is
uncertain, a valuation allowance has been provided against the net deferred tax
asset.
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
- ----------------------------------------
The Company is engaged in texturing, twisting, 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 had foreign sales as follows:
Country 2003 2002 2001
------- ---- ---- ----
Mexico 1.10% 1.89% .62%
Canada .0% .22% 3.60%
Honduras 3.95 .74% 2.11%
Barbados .0% .47% 1.81%
---- ---- ----
Total.......... 5.05% 3.32% 8.14%
Other than sales as shown above, the Company had no other sales in foreign
markets during the three year period ended January 3, 2004. For the three year
period ended January 3, 2004, 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, one customer exceeded 10% of the
Company's sales during each of the three years ended January 3, 2004. 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.
Page 21
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE (continued)
- -----------------------------------------------------
The Company has one customer to exceed 10% each of the three years for fiscal
years 2003, 2002, and 2001. The customer's percentage of sales was 25.5%, 35.8%,
and 30.1% respectively.
The Company has equipment located in Mexico that is leased to its joint venture
Fytek. The equipment has a net book value of $74,000.
NOTE 3 - ACCOUNTS RECEIVABLE
- --------------------------------
Accounts receivable comprise the following:
January 3 December 28
2004 2002
---- ----
Due from factor on
regular factoring account $1,520,000 $1,669,000
Non-factored accounts
receivable 845,000 600,000
---------- ---------
Total $2,365,000 $2,269,000
========== ==========
Pursuant to a factoring agreement, the Company sells substantial portions of its
accounts receivable to a commercial factor without recourse, up to maximum
credit limits established by the factor for individual accounts. The factor
assumes the credit risks for these accounts and effects the collection of the
receivables. Amounts invoiced to customers on accounts receivable factored in
excess of the established maximum credit limits are sold to the factor with
recourse in the event of nonpayment by customers. The Company had accounts
receivables of $232,000 at January 3, 2004 that had been sold to the factor with
recourse. At December 28, 2002 there were no accounts receivables sold to the
factor with recourse.
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 collection 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 2002 and 2001,
inasmuch as it borrowed no funds from its factor during these years. In 2003 the
Company incurred $42.
The Company's factor is collateralized by the accounts receivable sold to the
factor, and the factor has filed a UCC-1 to evidence ownership of the
receivables and to separate the receivables from the Company's creditors.
NOTE 4 - INVENTORIES
- ----------------------
Inventories are summarized as follows:
January 3, December 28,
2004 2002
---- ----
Finished & in process $1,123,000 $1,359,000
Raw materials 473,000 445,000
Dyes & chemicals 194,000 203,000
Other 90,000 89,000
---------- ----------
Total $1,880,000 $2,096,000
========== ==========
Page 22
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------
Major classifications of property, plant and equipment are as follows:
January 3, 2004 December 28, 2002
------------------ -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------ ---- ------------
Land $ 156,425 $ -- $ 156,425 $ --
Land improvements 182,913 113,609 182,913 107,291
Building & improvements 6,385,441 4,984,321 6,385,441 4,839,589
Plant machinery &
equipment 22,638,551 16,337,321 23,300,323 15,111,127
Office equipment 966,132 895,683 955,624 769,285
Automotive equipment 183,789 119,498 180,946 111,875
---------- ---------- ---------- ----------
Total $30,513,251 $22,450,432 $31,161,672 $20,939,167
=========== =========== =========== ===========
NOTE 6 - LINE OF CREDIT LOAN
- -----------------------------
The Company has a revolving credit agreement with its factor. Under the
agreement the Company can borrow up to 90% of the face amount of each account
sold to the factor and up to 40%, or $1,000,000 (whichever is lesser) on
eligible inventory. The borrowing rate is LIBOR plus 2.5%. At year end the
borrowing rate was 3.6%. The factor holds a first lien position on the Company's
inventory. At year end the Company had debt under the line of credit of
$142,000. The unused line of credit was approximately $1,739,000.
The Company classified the revolving debt as a current liability on its balance
sheet.
NOTE 7 - LONG-TERM DEBT
- -----------------------
At December 28, 2002, the Company had long-term debt of $4,098,214. The debt
consisted of two bank loans. The first bank loan was entered into March 29, 1996
and had a remaining balance of $2,312,500. Monthly installments were $62,000
plus interest at LIBOR plus 1.90%. The second bank loan was entered into
February 29, 2000 and had a remaining balance of $1,785,714. Monthly
installments were $35,714 plus interest at LIBOR plus 1.90%.
In the fourth quarter of 2003, the Company paid off its long-term debt. The
Company used its cash and a revolving loan (see Note 6). Subsequently, the first
liens held by the lender on real estate and equipment are terminated.
NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES
- ----------------------------------------------
Other liabilities and accrued expenses consist of the following:
January 3 December 28
2004 2002
---- ----
Employee insurance $ 70,000 $ 70,000
Payroll taxes payable 8,100 4,000
Other 35,300 32,000
-------- --------
Total $113,400 $106,000
========= ========
Page 23
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
- ----------------------
The Company uses the liability method as required by FASB Statement 109
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws.
The items that comprise deferred tax assets and liabilities are as follows:
Jan. 3 Dec. 28
2004 2002
---- ----
Deferred tax assets:
Alternative minimum taxes paid $ 349,000 $ 349,000
Net operating loss carryover 530,000 342,700
Charitable contributions carryover 12,000 11,500
State Tax Credits 41,000 -0-
Other 3,000 -0-
Inventory 45,000 -0-
--------- ---------
Sub-Total $ 980,000 $ 703,200
Valuation Allowance (920,000) -0-
--------- ---------
Total $ 60,000 $ 703,200
========== ==========
Deferred tax liabilities:
Accelerated depreciation for
tax purposes $1,374,000 $1,725,000
Undistributed earnings of foreign
affiliate, net of tax credit -0- 10,400
--------- ---------
$1,374,000 $1,735,400
========== ==========
At January 3, 2004, the Company had a net operating loss carry forward of
approximately $1,316,000 which expires in various amounts starting 2022-2023.
The provision for income taxes on historical income differs from the amounts
computed by applying the applicable Federal statutory rates, due to the
following:
Years Ended
-----------------------------------------
January 3 December 28 December 29
2004 2002 2001
---- ---- ----
Income (loss) before income taxes
(credit) ($2,223,000) $(641,180) $ 452,870
Federal income taxes 34% 34% 34%
-------- ---------- ---------
Computed taxes (credit) at maximum
statutory tax (756,000) (218,001) 154,000
State income taxes (credit), net of
Federal income tax benefits (101,000) (50,886) -0-
Total adjustment for foreign
affiliate earnings 21,000 -0- 17,949
Adjustment for deferred income taxes 194,000 (53,513) -0-
Prior year tax examination and other 4,000 -0 -0-
--------- --------- ---------
Sub-Total $ (638,000) $ (322,400) $ 171,949
Valuation Allowance 920,000 -0- -0-
--------- --------- ---------
Provision (credit)for Income Taxes $ 282,000 $ (322,400) $ 171,949
=========== =========== =========
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.
Page 24
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------
The company owns 49.8% of Fytek, S.A. de C.V. (Fytek), a Mexican corporation.
Fytek began operation in the fourth quarter of 1997. The company accounts for
the ownership using the equity method. Due to the Mexican economy, sales are
down. Since repatriation of cash for the total amount in the investment account
is not expected, the Company believes it is prudent to record a charge for
impairment for Fytek. The charge for impairment recorded for 2003 was $15,600.
The Company had purchases from Fytek of $882,000 compared to $1,357,000 in 2002.
Burke Mills does not guarantee any debt for it's joint venture, Fytek. The
Company and its joint venture partner are evaluating the benefit of the Fytek
joint venture, and there is a high probability that a formal decision will be
made in the first quarter of 2004 to discontinue Fytek's operations. If Fytek
operations are discontinued, yarns sold to the Company by Fytek would be
purchased domestically or produced by the Company. Financial information for
Fytek is as follows:
Statement of Income
(In thousands of U.S. Dollars)
December 31
2003 2002
---- ----
Net Sales $2,305 $3,827
Gross Profit 15 680
Income from operating income (192) 208
Income before income taxes (139) 306
Income taxes 52 (78)
---- ----
Net income (loss) $ (87) $ 228
===== =====
Balance Sheet
(In thousands of U.S. Dollars)
December 31
2003 2002
---- ----
Current assets $1,861 $2,448
Non-current 164 139
---- ----
Total assets $2,025 $2,587
====== ======
Current liabilities $ 466 $ 788
Non-current liabilities -0- 2
------ ------
Total liabilities $ 466 $ 790
Stockholder's equity 1,559 1,797
------ ------
Total liabilities and stockholder's equity $2,025 $2,587
====== ======
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 $91,000 in 2003, $178,000 in 2002, and $367,000 in 2001. The
Company had cash payments for state franchise taxes of $14,000 in 2003, $14,000
in 2002, and $12,000 in 2001.
Page 25
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS
- -----------------------------------------------
Rental expenses under all lease commitments for the three fiscal years ended
January 3, 2004, aggregated $60,000, $53,000, and $40,000, respectively.
Minimum commitments under terms of all non-cancelable leases, which consist only
of leased equipment, are as follows as of January 3, 2004:
2004 $50,000
2005 $19,000
2006 $14,000
2007 $1,000
2008 $1,000
2009 $1,000
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------
(in thousands of dollars except for per share amounts)
QUARTER
------------------------------------
2003 First Second Third Fourth
---- ----- ------ ------ ------
Net sales $ 6,620 $ 5,830 $ 6,537 $ 5,828
Cost of sales 6,120 5,799 6,196 6,122
Gross profit 500 31 341 (294)
Net income (loss) (119) (300) (182) (1,903)
Net income (loss) per common share $ (0.04) $ (0.11) $ (0.07) $ (0.69)
2002 First Second Third Fourth
---- ----- ------ ------ ------
Net sales $ 8,976 $ 8,191 $ 6,997 $ 5,825
Cost of sales 7,919 7,610 6,710 5,728
Gross profit 1,057 581 287 97
Net income (loss) 288 (217) (138) (252)
Net income (loss) per common share $ .11 $ (.08) $ (.05) $ (.09)
2001 First Second Third Fourth
---- ----- ------ ------ ------
Net sales $ 9,428 $10,372 $ 9,255 $ 8,139
Cost of sales 8,827 9,251 8,447 7,186
Gross profit 601 1,121 808 953
Net income (loss) (113) 220 85 123
Net income (loss) per common share (.04) .08 .03 .04
NOTE 14 - EMPLOYEE BENEFIT PLAN
- -----------------------------------
The Company is a participating employer in the Burke Mills, Inc., Savings and
Retirement Plan and Trust that has been qualified under Section 401(k) of the
Internal Revenue Code. This plan allows eligible employees to contribute a
salary reduction amount of not less than 1% nor greater than 25% of the
employee's salary but not to exceed dollar limits set by law. The employer may
make a discretionary contribution for each employee out of current net profits
or accumulated net profits in an amount the employer may from time to time deem
advisable. No provision was made for a discretionary contribution in 2003, 2002,
or 2001.
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
Page 26
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - CONCENTRATIONS OF CREDIT RISK (continued)
- ----------------------------------------------------
basis. The receivables sold to the factor during a month generally mature over
the next 60 days. At January 3, 2004 the Company had $1,520,000 due from its
factor of which $232,000 are with recourse. Upon maturity, the funds are
automatically transferred by the factor to the Company's bank.
NOTE 16 - OTHER 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 exceeds 140,000 pounds per week, the Company will purchase at least
50% of its requirements from Titan. The textured yarn pricing structure will be
reviewed every six months and when POY prices increase or decrease by 5% or
more.
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 is
moving toward a solution of natural attenuation. The cost of monitoring will be
approximately $31,000 per year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ACCOUNTING AND FINANCIAL DISCLOSURE
- -----------------------------------------------------
On October 1, 2003 Cole, Samsel & Bernstein LLC, of Lodi, NJ, the independent
accountant engaged for many years by the Company as the principal accountant to
audit the Company's financial statements gave notice to the Company that it
would be resigning as the independent accountant for the Company. The reason
stated for the impending resignation is that this accounting firm is declining
to serve as the independent accountant and certifying accountant for companies
with securities registered with the Securities and Exchange Commission. The
Audit Committee and management of the Company commenced the process to engage a
new independent accountant. The effective date of the resignation of Cole,
Samsel & Bernstein, LLC was December 1, 2003.
The report of Cole, Samsel & Bernstein LLC on the financial statements of the
Company for either of the past two fiscal years did not contain an adverse
opinion nor a disclaimer of opinion, nor was the report qualified or modified as
to uncertainty, audit scope or accounting principles. During the Company's two
most recent fiscal years and during the subsequent interim periods preceding the
resignation of the accounting firm, there were not any disagreements with the
former accounting firm on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
Neither the audit committee of the board of directors nor the board of directors
of the Company recommended any change in the accounting firm for the Company.
During the Company's two most recent fiscal years and the subsequent interim
periods preceding the resignation of the accounting firm, the accounting firm
did not advise the Company that the internal controls necessary for the Company
to develop reliable financial statements do not exist; the accounting firm did
not advise the Company that any information had come to the attention of the
accounting firm that lead it to no longer be able to rely on management's
representations or
Page 27
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ACCOUNTING AND FINANCIAL DISCLOSURE (continued)
- ---------------------------------------------------------
that made it unwilling to be associated with the financial statements prepared
by management; the accounting firm has not advised the Company of the need to
expand significantly the scope of its audit nor that information has come to the
attention of the accounting firm during the stated time period that, if further
investigated, might (a) materially impact the fairness or reliability of either:
a previously issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that may prevent it from rendering an
unqualified audit report on those financial statements), or (b) cause it to be
unwilling to rely on management's representations or be associated with the
Company's financial statements, and there was no connection between the
resignation of the accounting firm and the scope of the audit or further
investigation of the accounting firm; the accounting firm has not advised the
Company that any information has come to the attention of the accounting firm
that it has concluded materially impacts the fairness or reliability of either
(a) a previously issued audit report or the underlying financial statements or
(b) the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that, unless resolved to the satisfaction of
the accounting firm, would prevent it from rendering an unqualified audit report
on those financial statements), and there was no issue to be resolved to the
satisfaction of the accounting firm prior to its resignation.
Attached as Exhibit 99A to this report is a letter addressed to the Securities
and Exchange Commission from Cole, Samsel & Bernstein, LLC provided to the
Company stating that Cole, Samsel & Bernstein, LLC agrees with the statements
made by the Company in this report.
Effective January 15, 2004, the Company engaged BDO Seidman LLP as the principal
accountant to audit the Company's financial statements. A formal engagement
letter between the Company and BDO Seidman LLP was signed on January 15, 2004.
During the Company's two most recent fiscal years and during any subsequent
interim period, BDO Seidman LLP was not engaged as either the principal
accountant to audit the Company's financial statements or as an independent
accountant to audit a significant subsidiary and on whom the principal
accountant was expected to express reliance in its report. In addition, during
the Company's two most recent fiscal years and during any subsequent interim
period prior to engaging BDO Seidman LLP, neither the Company, nor anyone on its
behalf consulted BDO Seidman LLP regarding (a) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, and no written report was provided to the Company and no oral advice
was provided to the Company by BDO Seidman LLP which was considered by the
Company in reaching a decision as to the accounting, auditing or financial
reporting issues; and (b) there was no matter that was a subject of disagreement
as defined in paragraph 304(a)(1)(iv) of SEC Regulation S-K and the related
instructions to said item, or a reportable event, as described in paragraph
304(a)(1)(v) of SEC Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
- ----------------------------------
As of the end of the quarter ended January 3, 2004, the Company's chief
executive officer and chief financial officer with the participation of other
person's in the Company's management, carried out an evaluation of the
effectiveness of the Company's disclosure controls and procedure. The term
"disclosure controls and procedures" means the controls and other procedures of
the Company that are designed to insure that information required to be
disclosed by the Company in its reports to the Securities and Exchange
Commission ("SEC") is recorded, processed, summarized and reported, within the
time period specified in the rules and forms of the SEC. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
insure that information required to be disclosed by the Company in the reports
Page 28
BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
ITEM 9A. CONTROLS AND PROCEDURES (continued)
- ---------------------------------------------
that it files or submits to the SEC under the Securities Exchange Act of 1934 is
accumulated and communicated to the Company's management, including its chief
executive officer and its chief financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. Based upon that evaluation, the chief executive officer and the
chief financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to
be included in the reports filed with the SEC by the Company. During the
quarter, there have been no significant changes in the Company's disclosure
controls and procedures or in other factors that could significantly affect
internal controls subsequent to the date of such evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART III
The information required for Items 10, 11, 12, 13 and 14 of Part III of this
report is incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the annual meeting of
shareholders scheduled for May 18, 2004, 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 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------
(a) The following documents are filed as a part of this report.
1. Report of Independent Certified Public Accountants.
---------------------------------------------------
2. The following financial statements of Burke Mills, Inc. and the related
auditors' report required to be included in Part II Item 8, are listed below:
Independent auditors' report
Balance sheets
January 3, 2004
December 28, 2002
Statements of operations
Year ended January 3, 2004
Year ended December 28, 2002
Year ended December 29, 2001
Statements of changes in shareholders' equity
Year ended January 3, 2004
Year ended December 28, 2002
Year ended December 29, 2001
Statements of cash flows
Year ended January 3, 2004
Year ended December 28, 2002
Year ended December 29, 2001
Notes to financial statements
Page 29
BURKE MILLS, INC.
PART IV
Financial statement schedules have been omitted since the required
information is not present in amounts sufficient to require submission of the
schedules, or because the required information is included in the financial
statements or the notes thereto.
3. The exhibits required by Item 601 of Regulation S-K and paragraph (c) of
Item 14 are: (a) the articles of incorporation and by-laws of the Company which
are incorporated herein by reference from the Amendment on Form 8K to the annual
report on Form 10-K of the Company for the fiscal year ended January 2, 1982
previously filed with the Commission; (b) Exhibit 31 - Rule 13a-14(a)
certifications; (c) Exhibit 32 - Section 1350 certifications; and (d) Exhibit
99A - Letter from Cole, Samsel & Bernstein LLC; Exhibit 99B - Financial
Statements of Fytek, S.A. de C. V.
(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)3 above.
(d) Exhibit 99A - Letter from Cole, Samsel & Bernstein LLC referred to in
Item 9; Exhibit 99B - Audited Financial Statements of Fytek, S.A. de C.V.
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: April 1,2004 BURKE MILLS, INC.
By: s/Humayun N. Shaikh
----------------------
Humayun N. Shaikh
Chairman of the Board
(Principal Executive Officer)
Date: April 1, 2004 By: s/Thomas I. Nail
-----------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 30
BURKE MILLS, INC.
SIGNATURES
----------
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: April 1, 2004 By: s/Humayun N. Shaikh
---------------------------
Humayun N. Shaikh, Director
Date: April 1, 2004 By: s/Thomas I. Nail
---------------------------
Thomas I. Nail, Director
Date: April 1, 2004 By: s/Richard F. Byers
---------------------------
Richard F. Byers, Director
Date: April 1, 2004 By: s/William T. Dunn
---------------------------
William T. Dunn, Director
Date: April 1, 2004 By: s/Robert P. Huntley
---------------------------
Robert P. Huntley, Director
Date: April 1, 2004 By: s/Robert T. King
---------------------------
Robert T. King, Director
Date: April 1, 2004 By: s/Aehsun Shaikh
---------------------------
Aehsun Shaikh, Director
Page 31
EXHIBIT 31
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Humayun N. Shaikh, certify that:
1. I have reviewed this annual report on Form 10-K of Burke Mills,
Inc.;
2. 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;
3. 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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) 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
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. 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: April 1, 2004 ---------------------------
Humayun N. Shaikh
Chairman and CEO
(Principal Executive Officer)
Page 32
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Thomas I. Nail, certify that:
1. I have reviewed this annual report on Form 10-K of Burke Mills,
Inc.;
2. 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;
3. 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;
4. 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) 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
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. 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: April 1, 2004 ---------------------------
Thomas I. Nail
President and COO
(Principal Financial Officer)
Page 33
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S. CODE 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: April 1, 2004 ---------------------------
Humayun N. Shaikh
Chairman and CEO
CERTIFICATION PURSUANT TO 18 U.S. CODE 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: April 1, 2004 ---------------------------
Thomas I. Nail
President and COO
(Chief Financial Officer)
Page 34
EXHIBIT 99A
March 4, 2004
Securities and Exchange Commission
Washington, DC 20549
Re: Burke Mills, Inc.
Dear Sir/Madam:
Please be advised that our firm has reviewed Item 9 of the annual
report on Form 10-K of Burke Mills, inc. for the fiscal year ended January 3,
2004, and we are in agreement in all respects with the disclosures contained
therein.
Very truly yours,
Cole, Samsel & Bernstein LLC
s/Howard Bernstein
------------------
By: Howard Bernstein
HB/ay
Enc.
Page 35 - Exhibit 99A
EXHIBIT 99B
FYTEK, S. A. DE C. V.
-----------------------
(a Mexican corporation)
FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
CONTENTS
Page
--------
Report of independent accountants 1
Financial statements:
Balance sheets 2
Statements of income 3
Statements of changes in stockholders' equity 3
Statements of cash flows 4
Notes to financial statements 4
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------
Monterrey, N. L., January 19, 2004
To the Stockholders of Fytek, S. A. de C. V.
We have audited the accompanying balance sheets of Fytek, S. A. de C. V. as of
December 31, 2003 and 2002, and the related statements of income, of changes in
stockholders' equity and cash flows for the years then ended. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and that they were prepared in
accordance with generally accepted accounting principles. 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 aforementioned financial statements present fairly, in all
material respects, the financial position of Fytek, S. A. de C. V. at December
31, 2003 and 2002, and the results of its operations, the changes in its
stockholders' equity and its cash flows for the years then