ITEM 1A. RISK FACTORS
Risk factors applying to the Company and its business are as follows:
(a)
The textile market in the United States has been in substantial decline for at least the past ten years due to fibers, fabrics and apparel being imported from foreign countries where manufacturers can produce the product at much lower cost than in the United States, primarily because of much lower labor costs. The problem has been exacerbated by free trade agreements and particularly the reluctance of the Federal Government to impose duties upon foreign products where the foreign government in effect subsidizes production of products. The Company, whose customers are in the textile business, as a yarn processor is faced with a shrinking customer base, as well as the price pressures due to imports faced by the Company’s customers. The Company’s customer base has been declining as some of its customers close, go into bankruptcy or are bought out by other entities.
(b)
The Company is a relatively small player in a large market. Many of the Company’s competitors are divisions or segments of larger or diversified entities with far greater financial resources than those of the Company.
(c)
The last fiscal year in which the Company made a profit was the fiscal year ended December 29, 2001. For each fiscal year since that year, the Company had a net loss.
(d)
Sales of the Company for the fiscal year ended December 29, 2001 were $37,194,000. Sales have declined since that year, dropping to $23,884,000 for the fiscal year ended December 30, 2006.
(e)
The market for the common stock of the Company is not favorable. During 2006, the stock of the Company had a high bid of $1.31 per share and steadily declined through the year to close the year at a bid of $0.81 per share.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
No report required.
ITEM 2.
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 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.
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BURKE MILLS, INC. PART I
ITEM 2. PROPERTIES (continued)
The plant buildings are steel and brick structures protected by automatic sprinkler systems. The various departments, with the exception of the production dyehouse, are heated, cooled and humidified. The Company considers all its properties and manufacturing equipment to be in a good state of repair, well maintained and adequate for its present needs.
The Company utilizes substantially all of the space in its main plant for its offices, machinery and equipment, storage and receiving areas. The Company utilizes substantially all of the space in the auxiliary building for warehouse and distribution purposes.
The approximate maximum capacity in pounds per year of the Company's machinery and equipment, based upon operating the machinery and equipment seven (7) days per week fifty (50) weeks per year, and the approximate percentage of utilization thereof during the fiscal year ended December 30, 2006 are as follows:
Department
Pounds/Year
Capacity
Utilization
Winding Machines
21,961,000
21%
Texturing Machines
816,000
29%
Dyeing Equipment
22,376,000
42%
ITEM 3.
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.
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.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)
The principal United States (or other) market in which the Company's common stock is being traded is the over-the-counter market. The stock is quoted in the Nasdaq Over-The-Counter Bulletin Board quotations system under the symbol BMLS.OB. 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 30, 2006, and on the latest practicable date (as obtained from Commodity Systems, Inc.) is as follows:
Quarter Ending
High Bid
Low Bid
March
$0.90
$0.55
June
$1.31
$0.51
September
$0.81
$0.75
December
$0.81
$0.65
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BURKE MILLS, INC. PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES (continued)
Quarter Ending
High Bid
Low Bid
March
$1.30
$0.80
June
$1.65
$0.61
September
$1.15
$0.85
December
$1.15
$0.57
February 1, 2007
$0.81
$0.81
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 1, 2007, there were 318 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.
(e)
Performance Graph. The graph which follows compares the yearly percentage change in the Company’s cumulative total shareholder return on its common stock with the cumulative total return of (a) all United States companies traded on the NASDAQ stock market and (b) five companies traded on the NASDAQ stock market which carry NASDAQ Standard Industrial Classification (SIC) Code 2200-2299, being companies producing textile mill products (Dixie Group, Inc., Hampshire Group, Interface, Inc., Quaker Fabric, Corp. and True Religion Apparel, Inc.) Dividend reinvestment is assumed. (This graph was prepared for the Company by Research Data Group, Inc. of San Francisco, CA.)
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data set forth for the last five fiscal years of the Company 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.
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BURKE MILLS, INC. PART II
ITEM 6. SELECTED FINANCIAL DATA (continued)
SELECTED CASH FLOW DATA
Capital expenditures
$
$
$
$
$
Depreciation
$
1,588
$
1,674
$
1,779
$ 2,010
$ 2,055
SELECTED BALANCE SHEET DATA
Current assets
$
4,357
$
4,728
$
5,135
$ 4,445
$ 8,670
Current liabilities
1,677
1,630
1,676
1,181
2,482
Working capital
$
2,680
$
3,098
$
3,459
$ 3,264
$ 6,188
Current ratio
2.60
2.89
3.06
3.76
3.49
Total assets
$ 7,674
$
9,504
$
11,472
$ 13,078
$ 20,225
Long-term debt
$
$
$
$
$ 2,920
Net deferred tax liability
$
$
$
$
$ 1,735
Shareholders' equity
$ 5,997
$
7,874
$
9,796
$ 11,503
$ 13,088
(A)
Income per share has been computed based on the weighted average number of common shares outstanding during each period.
ITEM 7.
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 yarn to knitters and weavers for apparel, home furnishings, home upholstery, automotive upholstery, contract upholstery and some specialty products.
The Company continued to add customers in 2006, as sales to older customers continued to decline. Although the Company's net sales declined, pounds shipped remained approximately the same as commission customers were added during the year. During the second quarter of 2006, the Company added commission (the dyeing and processing of customer owned yarns) customers and changed the sales mix significantly. Commission pounds shipped in 2006 accounted for 21% of total shipments versus 5% in 2005. Commission pounds shipped in the fourth quarter of 2006 accounted for 28% of pounds shipped. The average sales price for commission sales will be lower as there is no yarn cost in the sales price. An advantage of processing on a commission basis is the Company does not tie up cash in raw yarn inventory.
Since the Company began diversifying into other fibers in 2004, its non-polyester volume has increased to 29% of total pounds shipped. These fibers have longer cycle times in the dye machines and require winding after dyeing.
In the fourth quarter of 2006, it was announced that the Company's largest supplier of textured yarns, Dillion Yarns, would be purchased by the Company's largest competitor, Unifi Corporation, effective January 2007. Unifi has told the Company that it will continue to supply yarns at a competitive price to the Company.
During 2006, the Company had developed other sources for textured yarns before the acquisition was announced. At the time, the sources were developed to lower the cost of the Company's textured yarns.
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BURKE MILLS, INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY (continued)
Duke Energy, the Company's supplier of electricity, has notified the Company that there will be a rate increase effective July 1, 2007 of 14% to 18%. The Company is studying ways to reduce its electricity usage.
In the fourth quarter, the Company sold its shares in Fytek to its joint venture partner Akra. The joint venture has been liquidated, and Akra will maintain the financial records for the prescribed time required by the Mexican tax laws.
The following table sets forth selected operating data of the Company as percentages of net sales for the periods indicated.
Results of Operations: 2006 Compared to 2005
Net Sales
Net sales for the year decreased by 5.4% to $23,884,000 compared to $25,253,000 in 2005. Pounds shipped decreased by only .3%.
The Company continued to add customers in 2006, as sales to older customers continued to decline. Although the Company's net sales declined, pounds shipped remained approximately the same as commission customers were added during the year.
During the second quarter of 2006, the Company added commission (the dyeing and processing of customer owned yarns) customers and changed the sales mix significantly. Commission pounds shipped in 2006 accounted for 21% of total shipments versus 5% in 2005. Commission pounds shipped in the fourth quarter of 2006 accounted for 28% of pounds shipped. The average sales price for commission sales will be lower as there is no yarn cost in the sales price. An advantage of processing on a commission basis is the Company does not tie up cash in raw yarn inventory.
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BURKE MILLS, INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: 2006 Compared to 2005
Net Sales (continued)
Since the Company began diversifying into other fibers in 2004, its non-polyester volume has increased to 29% of total pounds shipped. These fibers have longer cycle times in the dye machines and require winding after dyeing.
Cost of Sales and Gross Margin
Cost of good sold decreased by $1,367,000 or 5.4%.
Cost of materials decreased by $1,827,000 or 11.9% primarily due to a change in sales mix to a greater portion of commission sales.
Direct labor increased by $74,000 or 6.6% as a result of a change in sales mix that required more winding of the yarn and some excessive overtime in the third quarter of 2006.
Overhead cost increased by $412,000 or 4.8% primarily as a result of the following:
(a)
Electricity increased by $176,000 or 20.8% primarily due to a change in the product mix which requires longer drying cycles and increased winding of the yarn. Duke Energy, the Company’s supplier of electricity, has notified the Company that there will be a rate increase effective July 1, 2007 of 14% to 18%.
(b)
Natural gas and fuel oil increased by $312,000 or 30.6%. Approximately 8% of the increase was caused by the change in product mix, requiring longer cycle times. The reminder of the increase was due to price. The price of natural gas and fuel oil are difficult to predict because of world events.
(c)
Water increased by $66,000 or 16.5% primarily as a result of the product mix change. Usage was up approximately 13%, and the remainder of the increase was a price increase. The Company expects a price increase of approximately 5% in July 2007.
(d)
Repair and maintenance of machinery increased by $53,000 or 10.1%. As the Company’s machinery ages, the repair cost will increase.
The above cost increases were particularly offset by the following:
(a)
Employee health claims decreased by $129,000 or 20.3%. It is impossible to predict the frequency or severity of the employees' medical needs.
(b)
Depreciation decreased by $66,000 or 4.0% and should continue to decrease unless the Company makes large capital expenditures.
As a result of a decrease in net sales of 5.4% and a decrease in cost of sales of 5.4%, the Company's gross margin remained at .4%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $234,000 or 10.5% primarily as a result of cost cutting measures put in place in the fourth quarter of 2005.
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BURKE MILLS, INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: 2006 Compared to 2005
Equity in Affiliate
In the fourth quarter, the Company sold its shares in Fytek to its joint venture partner, Akra, for $15,000. The Company has no further ownership in the joint venture.
Provision (benefit) for Income Taxes
There was no provision or benefit provided for income taxes for the year 2006 and 2005. See Note 8.
Results of Operations: 2005 Compared to 2004
Net Sales
Net sales for 2005 increased to $25.3 million from $25.1 million or .4%. During 2005 the Company continued to expand into other fibers and added customers. Customers added during 2004 also contributed to the increase in sales. Although the Company added new customers for the last two years, sales remained about the same as older customer's sales have declined. Five customers accounted for a decrease in sales of $3.1 million. The major reasons for their decrease in sales are bankruptcy, credit problems, and competition from imports. The Company passed the price increases on polyester yarn to its customers as price increases.
Cost of Sales and Gross Margin
Total cost of sales increased $598,000 or 2.4%.
Material cost increased by 4.2% mainly as a result of price increases on polyester yarns and sales mix.
In September 2005, the polyester yarn suppliers placed a surcharge of approximately 12% on all polyester yarns. The surcharge was caused by Hurricane Katrina's disruption of the oil refineries in the Gulf Coast area that produced the chemicals used to produce polyester. The surcharge was removed in stages during the fourth quarter, but was replaced with a price increase in January 2006 of approximately 4%. The Company adjusted its pricing accordingly to its customers for the surcharge and the January increase. Another price increase was announced for March 2006 of approximately 4.5%.
Direct labor decreased by 2.2% mainly due to sales mix and better management of labor cost.
Manufacturing overhead cost increased by 1.5% primarily as a result of the following:
(a)
Natural gas and fuel oil cost increased 23.6% due to the increased market price of petroleum products. The Company cannot predict the direction of the fuel oil price for 2007.
(b)
Repair and maintenance of machinery and equipment increased by 15.8% due to some major repairs of dye machinery and the age of the other machinery.
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BURKE MILLS, INC. PART II
(e)
Health claims increased by 8.9% primarily as a result of higher claims in the first and second quarters of 2005. It is impossible to predict the frequency or severity of the employees' medical needs.
The above cost increases were somewhat offset by the following:
(a)
Production wages (non-direct) decreased by 5.4% primarily due to cost reduction program initiated in the third quarter of 2005.
(b)
Depreciation decreased by 6.2% and should continue to decrease unless the Company makes large capital expenditures.
As a result of an increase in sales of .4%, and an increase in cost of sales of 2.4%, the Company's gross margin decreased to .4% compared to 2.3% in 2004.
Results of Operations: 2005 Compared to 2004
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by 5.3% primarily due to the elimination of the factoring charges of $102,000 and cost reduction program in the third quarter of 2005.
Gain on Disposal of Property Assets
The Company sold its fully depreciated machinery located at its joint venture in Mexico. In the first quarter of 2005, the Company received $101,000, and in the fourth quarter of 2005 received $105,000 from the sale of this machinery.
Equity in Net Loss of Affiliate
The Company's joint venture, Fytek, had a net loss of $464,000 on discontinued operations. The Company's portion of the loss is $232,000, but only $21,000 was recorded as the investment in affiliate was reduced to zero. The Company received $175,000 in the second quarter of 2005 as a distribution of cash from the liquidation.
Provision (Benefit) for Income Taxes
There was no provision or benefit for income taxes in 2005 compared to a benefit of $399,000 in 2004. See Note 8 - Income Taxes.
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Results of Operations 2006 - 2004 Sales Analysis
The table below sets forth an analysis of sales volume for the period 2004 to 2006, inclusive. Unit prices for commission sales have varied based on mix and market conditions.
The increase in full yarn average sales prices is a result of price increases and sales mix.
% of
Net Sales
% of
Pounds of
Yarn Sold
Sales $
Per
Pound
2006:
Yarn sales
88%
79%
$
2.83
Commission sales
12%
21%
1.44
Total
100%
100%
2005:
Yarn sales
96%
95%
$
2.68
Commission sales
4%
5%
2.54
Total
100%
100%
2004:
Yarn sales
94%
93%
$
2.54
Commission sales
2.43
Total
100%
100%
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.
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BURKE MILLS, INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 records the impairment in the carrying value of obsolete and slow moving items. The impairment is determined by aging the inventory, reviewing the inventory with the salesmen, and determining a salvage value.
The Company reviews its net deferred tax asset and when necessary records a valuation allowance to adjust the asset to an amount believed more likely than not to be realizable. Consideration is given to estimated future taxable income, expiration of operating loss carryforwards, and expiration of tax credits to determine the amount of the valuation allowance.
Recent Accounting Pronouncements
In February 2006, the FASB issued FAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB statements No. 133 and 140” (FAS No. 155). This Standard resolves and clarifies the accounting and reporting for certain financial instruments, including hybrid financial instruments with embedded derivatives, interest-only strips, and securitized financial instruments. FAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will be required to adopt this Standard on January 1, 2007, and does not expect adoption of this Standard to have a material effect on its financial statements.
In March 2006, the FASB issued FAS No. 156. “Accounting for Servicing of Financial Assets, an amendment of FAS No. 140”. This Standard amends the accounting treatment with respect to separately recognized servicing assets and servicing liabilities, and is effective for fiscal years beginning after September 15, 2006. The Company does not expect adoption of this Standard to have a material effect on its financial statements.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FAS No. 109” (FIN 48). This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company will adopt FIN 48 in fiscal year 2007, as required. The Company will be required to apply the provisions of FIN 48 to all tax positions upon initial adoption with any cumulative effect adjustment to be recognized as an adjustment to retained earnings. The Company is currently evaluating the effect FIN 48 will have on its financial statements.
In September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No. 157). FAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the Standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of FAS No. 157 to have a material effect on its financial statements.
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BURKE MILLS, INC. PART II
In September 2006, the FASB issued FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (FAS No. 158). FAS No. 158 requires recognition of all obligations related to defined benefit pensions and other postretirement benefits. The Company does not currently have a defined benefit pension plan or other postretirement plan and does not believe FAS No. 158 will have a material effect on its financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that companies should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The adoption of SAB 108 did not have a material effect on the Company’s financial statements.
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BURKE MILLS, INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
In and 2005, the Company financed its operations with funds generated from operations and its line of credit.
The Company's ability to generate cash from its operating activity is subject to the level of net sales. As discussed earlier, the Company continues to expand into other fibers and add customers.
As set forth in the Statement of Cash Flows, funds used by operating activities were $517,000. The funds used reflect the net loss and an increase in accounts receivable and a decrease in accounts payable.
The Company had net inventories of $1,543,000 at December 30, 2006, and an averaged inventory of $1,843,000 for 2006. The inventory turned in 2006 approximately seven times. The Company expects the inventory turns in 2007 will be approximately the same.
In 2006, the Company used $111,000 in its investing activities as compared to funds provided of $75,000 in 2005. In 2005, the Company liquidated most of its investment and equipment at its joint venture Fytek. This liquidation resulted in cash received for machinery of $212,000 and $175,000 as return of investment.
The Company used $137,000 for capital expenditures in 2006 compared to $312,000 in 2005. Planned capital expenditures for 2007 are approximately $100,000.
The Company's line of credit provided $258,000 in 2006. The Company had debt under its line of credit of $258,000 and availability of $2,745,000 at December 30, 2006. See Note 6 Line of Credit.
The Company's working capital decreased by $418,000 primarily as a result of the decrease in cash caused by the net loss.
As a measure of current liquidity, the Company's quick position (cash, cash equivalents and receivables over current liabilities) discloses the following at December 30, 2006 and December 31, 2005:
December
December
Cash, cash equivalents and receivables
$
2,783,000
$
2,995,000
Current liabilities
1,677,000
1,630,000
Excess of quick assets over current liabilities
$
1,106,000
$
1,365,000
Quick Ratio
1.66 to 1
1.83 to 1
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BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contractual Obligations
The following is a summary of the Company’s known contractual obligations as of the latest fiscal year end on December 30, 2006.
(1)
The Company's purchase obligations/commitments represent open purchase orders, Letters of Credit, and other commitments for goods and services that will be received during the year.
Environmental Matters
During 1996, in connection with a bank loan to the Company collateralized 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 is 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 continues to move toward a solution of natural attenuation. The cost of monitoring is approximately $11,000 per year.
Inflation
The Company has experienced volatile pricing for fuel oil and natural gas due to world events. The cost for 2006 on the average was higher.
Polyester yarns, a petroleum based product, had the same type volatility as gas and oil. The cost at year end was approximately 8% higher.
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BURKE MILLS INC. PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Inflation (continued)
Water rates increased by 5% in 2006 and are expected to increased in 2007 by approximately 5%.
Duke Energy, the Company supplier of electricity, has announced a rate increase effective July 1, 2007 of 14% to 18%.
The textile markets served by the Company are very competitive and cost increases of any kind are very difficult to pass on to the customers.
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 judgment only as of the date hereof. The Company undertakes no obligations to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
Factors that may cause actual outcome and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to, availability, sourcing and pricing of raw materials, pressures on sales prices due to competition and economic conditions, reliance on and financial viability of significant customers, technological advancements, employee relations, changes in construction spending and capital equipment expenditures (including those related to unforeseen acquisition opportunities), the timely completion of construction and expansion projects planned or in process, continued availability of financial resources through financing arrangements and operations, negotiations of new or modifications of existing contracts for asset management and for property and equipment construction and acquisition, regulations governing tax laws, other governmental and authoritative bodies, policies and legislation, and proceeds received from the sale of assets held for disposal. In addition to these representative factors, forward-looking statements could be impacted by general domestic and international economic and industry conditions in the markets where the Company competes; such as, changes in currency exchange rates, interest and inflation rates, recession and other economic and political factors over which the Company has no control.
ITEM 7A.
ITEM 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. The Company had no long-term debt for the fiscal year ended December 30, 2006.
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BURKE MILLS INC. PART II
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Burke Mills, Inc.
We have audited the accompanying balance sheets of Burke Mills, Inc. (the "Company") as of December 30, 2006 and December 31, 2005 and the related statements of operations, changes in shareholders’ equity, and cash flows for each of the two 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 and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burke Mills, Inc. at December 30, 2006 and December 31, 2005, and the results of its operations and its cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Scott McElveen, L.L.P.
Columbia, South Carolina
March 13,
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BURKE MILLS INC. PART II
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Burke Mills, Inc.
We have audited the accompanying statements of operations, shareholders’ equity, and cash flows of Burke Mills, Inc. for the year ended January 1, 2005. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 results of operations of Burke Mills, Inc. and its cash flows for the year ended January 1, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ BDO SEIDMAN, LLP
High Point, North Carolina
February 4, 2005
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BURKE MILLS, INC.
BALANCE SHEETS
ASSETS
December
December 31
Current Assets
Cash and cash equivalents
$
55,816
$
425,812
Accounts receivable, net
2,727,461
2,568,838
Inventories
1,543,272
1,684,132
Prepaid expenses and other current assets
30,371
49,413
Total Current Assets
4,356,920
4,728,195
Property, plant & equipment - at cost
28,041,676
28,085,778
Less: accumulated depreciation
24,741,391
23,326,789
Property, Plant and Equipment- Net
3,300,285
4,758,989
Other Assets
Other
16,575
16,575
Total Assets
$
7,673,780
$
9,503,759
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable
$
1,218,199
$
1,434,169
Line of credit
258,274
Accrued salaries and wages
67,317
69,272
Other liabilities and accrued expenses
132,778
126,303
Total Liabilities
$
1,676,568
$
1,629,744
Commitments and contingencies
Shareholders' Equity
Common stock, no par value
(stated value, $.66)
Authorized - 5,000,000 shares
Issued and outstanding -
2,741,168 shares
1,809,171
1,809,171
Paid-in capital
3,111,349
3,111,349
Retained earnings
1,076,692
2,953,495
Total Shareholders' Equity
5,997,212
7,874,015
$
7,673,780
$
9,503,759
The accompanying notes are an integral part of these financial statements.
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BURKE MILLS, INC.
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements.
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BURKE MILLS, INC.
STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 30, 2006
Shares
Issued
Common
Stock
Paid-In
Capital
Retained
Earnings
Total
Shareholders
Equity
Balance at Jan. 3, 2004
2,741,168
$ 1,809,171
$ 3,111,349
$ 6,582,839
$ 11,503,359
Net Loss for the year ended Jan. 1, 2005
-
-
-
(1,707,143
)
(1,707,143 )
Balance at Jan. 1, 2005
2,741,168
$ 1,809,171
$ 3,111,349
$ 4,875,696
$ 9,796,216
Net Loss for the year ended Dec. 31, 2005
-
-
-
(1,922,201
)
(1,922,201 )
Balance at Dec. 31, 2005
2,741,168
$ 1,809,171
$ 3,111,349
$ 2,953,495
$ 7,874,015
Net Loss for the year ended Dec. 30, 2006
-
-
-
$
(1,876,803
)
$
(1,876,803
)
Balance at Dec. 30, 2006
2,741,168
$
1,809,171
$
3,111,349
$
1,076,692
$
5,997,212
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BURKE MILLS, INC.
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - 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 2004, 2005, and 2006 ended on January 1, December 31, and December 30 respectively. The three fiscal years consisted of 52 weeks.
Revenue Recognition. Revenues from sales are recognized at the time shipments are made to the customer. Sales terms are FOB Burke Mills, Inc. unless otherwise specified. Related shipping and handling costs are included in cost of sales.
Cost of Sales. All manufacturing, quality control, inbound freight, receiving, inspection, purchasing, planning, warehousing of raw, in-process and finished inventory, outbound freight and internal transfer costs are included in the cost of sales.
Selling, general and administrative. Includes cost related to the selling process, accounting, information services, and corporate offices.
Cash and Cash Equivalents. 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. At December 30, 2006, the company had cash deposits in excess of federally insured limits in the approximate amount of $200,000.
Accounts Receivable. Substantially all of the Company’s accounts receivable are due from manufacturers in the furniture, contract, automotive upholstery and apparel industries. The Company grants credit to 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 statements, 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:
Accounting for Possible Impairment of Long-lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for Possible Impairment of Long-lived Assets (continued)
In 2004, the Company wrote off equipment with net book values of $198,000. With the decrease in sales volume and no anticipated business increase in products that will run on the machinery, the machinery was written off as a non-performing asset. No salvage value was assigned to the machinery, as the Company had no potential buyer.
Earnings Per Share. Earnings per share is based on the net income divided by the weighted average number of common shares outstanding during the respective periods.
Use of Estimates in Preparing Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates are the liability for self-funded health claims, inventory markdowns, allowance for doubtful accounts receivable, 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.
Financial Instruments. The Company’s financial instruments consist primarily of receivables, accounts payable, short-term debt and accrued expenses. The carrying amounts of receivables, accounts payable, short-term debt and accrued expenses approximate their fair value because of the short-term maturity of such instruments.
Recent Accounting Pronouncements. In February 2006, the FASB issued FAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB statements No. 133 and 140” (FAS No. 155). This Standard resolves and clarifies the accounting and reporting for certain financial instruments, including hybrid financial instruments with embedded derivatives, interest-only strips, and securitized financial instruments. FAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will be required to adopt this Standard on January 1, 2007, and does not expect adoption of this Standard to have a material effect on its financial statements.
In March 2006, the FASB issued FAS No. 156. “Accounting for Servicing of Financial Assets, an amendment of FAS No. 140”. This Standard amends the accounting treatment with respect to separately recognized servicing assets and servicing liabilities, and is effective for fiscal years beginning after September 15, 2006. The Company does not expect adoption of this Standard to have a material effect on its financial statements.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FAS No. 109” (FIN 48). This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company will adopt FIN 48 as of January 1, 2007, as required.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
The Company will be required to apply the provisions of FIN 48 to all tax positions upon initial adoption with any cumulative effect adjustment to be recognized as an adjustment to retained earnings. The Company is currently evaluating the effect FIN 48 will have on its financial statements.
In September 2006, the FASB issued FAS No.157, “Fair Value Measurements” (FAS No. 157). FAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the Standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of FAS No. 157 to have a material effect on its financial statements.
In September 2006, the FASB issued FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (FAS No.158). FAS No. 158 requires recognition of all obligations related to defined benefit pensions and other postretirement benefits. The Company does not currently have a defined benefit pension plan or other postretirement plan and does not believe FAS No. 158 will have a material effect on its financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that companies should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The adoption of SAB 108 did not have a material effect on the Company’s financial statements.
NOTE - SEGMENTS OF BUSINESS ENTERPRISE
The Company is engaged in texturing, twisting, winding, dyeing, processing and selling of cotton, polyester, rayon, nylon, and other specialty yarns and in the dyeing and processing of these yarns for others on a commission basis.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - SEGMENTS OF BUSINESS ENTERPRISE (continued)
With respect to its operations, the Company's products and its services for others on a commission basis are sold and/or performed for customers primarily located in the territorial limits of the United States.
The Company had foreign sales as a percentage of total sales as follows:
Other than sales as shown above, the Company had no other sales in foreign markets during the three year period ended December 30, 2006. For the three year period ended December 30, 2006, the Company has operated within a single industry segment with classes of similar products. The principal markets served by the Company are apparel, upholstery, home furnishings, and industrial uses through the knitting and weaving industry.
In connection with sales to major customers, there was no customer that exceeded 10% of the Company's sales during the year ended December 30, 2006. Two customers did exceed 10% of the Company's sales during each of the two years ended December 31, 2005, and January 1, 2005. For the purpose of this determination, sales to groups of companies under common control have been combined.
Customer:
A
B
December 30, 2006
--
--
December 31, 2005
15.9%
11.8%
January 1, 2005
20.7%
11.8%
The Company had equipment located in Mexico that was leased to its joint venture Fytek in 2003 and 2004. The Company sold the equipment in 2005.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - ACCOUNTS RECEIVABLE
Accounts receivable comprise the following:
NOTE - INVENTORIES
Inventories are summarized as follows:
NOTE - PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment are as follows:
NOTE - LINE OF CREDIT
The Company has entered into an Accounts Receivable Inventory Financing Agreement (the “Financing Agreement”) with The CIT Group/ Commercial Services, Inc. (“CIT”). In addition, the Company signed a Letter of Credit Agreement (the “LOC Agreement”) with CIT. Under the terms of the Financing Agreement, CIT may, at its sole discretion, advance up to $5,000,000 to the Company as follows: (a) revolving credit advances in amounts up to 85 percent of the net amount of eligible accounts receivable; (b) revolving credit advances in amounts up to percent of the value of eligible inventory. Advances against eligible inventory will not exceed the lesser of $2,000,000 and the advances made by CIT against accounts receivable.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - LINE OF CREDIT (continued)
With regard to the LOC Agreement, the Financing Agreement provides that CIT will assist the Company in opening letters of credit or guarantee the payment and performance of such letters of credit up to an aggregate face amount not exceeding $500,000 outstanding letters of credit.
The Company has granted to CIT a security interest in its accounts receivable; monies, securities and other property held in transit to CIT; present and future deposits held by CIT; all rights of the Company in future accounts receivable; the Company’s inventory; the Company’s equipment (defined to be all machinery, equipment, rolling stock, furnishings and fixtures and all additions, substitutions or employments thereof); all proceeds and products of any defined collateral; and other customary definitions of collateral related to accounts receivable, inventory and equipment.
The Company is obligated to pay interest to CIT on the average of net balances owed monthly at one percent above the prime rate announced by JP Morgan Chase Bank in New York, NY. Interest is calculated on a 360 day year. In addition, the Company paid CIT an initial facility fee of $25,000 and will pay CIT $1,000 per month as a “collateral management fee.”
The Company had $258,000 of debt under its line of credit, and approximately $2,745,000 net available at December 30, 2006.
NOTE - OTHER LIABILITIES AND ACCRUED EXPENSES
Other liabilities and accrued expenses consist of the following:
December
December
Employee insurance
$
50,000
$
55,000
Payroll taxes payable
38,000
47,000
Other
45,000
24,000
Total
$
133,000
$
126,000
NOTE - 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.
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE - INCOME TAXES (continued)
The items that comprise deferred tax assets and liabilities are as follows:
Dec.
Dec.
Deferred tax assets:
Alternative minimum taxes paid
$
349,000
$
349,000
Net operating loss carryover
1,701,000
1,284,000
Charitable contributions carryover
1,000
13,000
State tax credits
41,000
41,000
Bad debts
12,000
1,000
Inventory
5,000
14,000
Total gross deferred tax assets
$
2,109,000
$
1,702,000
Valuation Allowance
(1,751,000
)
(1,020,000
)
Net deferred tax assets
$
358,000
$
682,000
Deferred tax liabilities:
Accelerated depreciation for tax purposes
358,000
682,000
Net deferred tax liability
$
$
At December 30, 2006, the Company had a net operating loss carry forward of approximately $4,196,000, which expires in various amounts starting 2022-2025.
The provision for income taxes on historical income differs from the amounts computed by applying the applicable Federal statutory rates, due to the following:
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
The benefit for taxes on income consists of the following:
NOTE - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
The Company and its joint venture partner, Akra, voted on March 26, 2004 to close their joint venture, Fytek. The joint venture operated on a scaled down basis through mid-August 2004. In 2005 and 2006, the Company and its joint venture partner continued liquidation of Fytek. The Company received approximately $325,000 cash distribution through year end 2005. In the fourth quarter of 2006, the Company sold its shares in Fytek to Akra for $15,000. Akra will maintain the financial records of Fytek for five years, as required by Mexican tax laws.
Financial information for Fytek is as follows:
Statements of Operations
(In thousands of U.S. Dollars)
Balance Sheets
(In thousands of U.S. Dollars)
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NOTE 9 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS (continued)
The Company paid its Chairman and Chief Executive Officer, who is also the Company’s majority shareholder, a base salary of $210,000 for the years ended December 30, 2006 and December 31, 2005. The Company also reimbursed this officer for a portion of his office and travel expense. These payments totaled approximately $83,000, and $116,000, for the years ended December 30, 2006 and December 31, 2005 respectively.
NOTE 10 - STATEMENTS OF CASH FLOWS
Cash paid for interest was $16,000 in 2006, $400 in 2005, and $1,300 in 2004. The Company had cash payments for state franchise taxes of $5,000 in 2006, $5,000 in 2005, and $6,000 in 2004. The Company received a state tax refund of $6,000 in 2004.
NOTE 11 - RENTAL EXPENSES AND LEASE COMMITMENTS
The Company leases forklift trucks and office equipment with varying interest rates, monthly payments and maturity dates. Rental expenses under all lease commitments for the three fiscal years ended December 30, 2006, aggregated $64,000, $62,000, and $57,000 respectively.
Minimum commitments under terms of all non-cancelable leases, which consist only of leased equipment, are as follows as of December 30, 2006:
$
46,000
$
13,000
$
12,000
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BURKE MILLS, INC. PART II
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(1)
In the first quarter of 2005, the Company recorded a gain of $101,000 on the sale of a portion of its machinery located at its joint venture.
(2)
In the fourth quarter of 2005, the Company recorded a gain of $105,000 on the sale of the remaining machinery located at its joint venture.
NOTE 13 - 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 an 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 2006, 2005, or 2004.
NOTE 14 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of occasional temporary cash investments and accounts receivable. At year-end 2006, two customers represented approximately 25% of total accounts receivable compared to 27% in 2005.
NOTE 15 - OTHER COMMITMENTS
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
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BURKE MILLS, INC. PART II
Comprehensive Site Assessment that has been completed. The Company's outside engineering firm conducted testing and prepared a Corrective Action Plan that was submitted to DENR. The Company has identified remediation issues and continues to move toward a solution of natural attenuation. The cost of monitoring is approximately $11,000 per year.
SELF-INSURANCE - The Company provides health benefits to its employees under a self-insured health plan. Claims are paid by the Company up to an individual and an aggregated limit of $55,000 and approximately $959,000, respectively. Claims in excess of these limits are covered by a third-party insurance contract. Expense is recorded on a monthly basis for actual claims experience.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the fiscal year ending December 30, 2006, there are no changes or disagreements with accountants.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
As of the fiscal year ended December 30, 2006, the Company, with the participation of the Company’s chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in SEC Rule 13a-15(e)). Based upon that evaluation, the chief executive officer and the chief financial officer of the Company have concluded that such disclosure controls and procedures were effective in timely alerting them to material information relating to the Company required to be included in the reports filed with the SEC by the Company.
During the quarter ended December 30, 2006, there have been no changes in the Company’s internal controls or in other factors that could significantly affect such internal controls. Subsequent to the date of the evaluation, there have been no changes or corrective actions with regard to the material weakness.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
No disclosure required.
BURKE MILLS, INC. PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECTUIVE OFFICERS AND CORPORATE GOVERNANCE
The information required for Item 10 of Form 10-K is incorporated by reference from the information contained in the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual meeting of shareholders scheduled for May 15, 2007, which is expected to be filed not later than 120 days after the end of the fiscal year covered by this report.
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BURKE MILLS, INC. PART III
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required for Item 11 of Form 10-K is incorporated by reference from the information contained in the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual meeting of shareholders scheduled for May 15, 2007, which is expected to be filed not later than 120 days after the end of the fiscal year covered by this report.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required for Item 12 of Form 10-K is incorporated by reference from the information contained in the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual meeting of shareholders scheduled for May 15, 2007, which is expected to be filed not later than 120 days after the end of the fiscal year covered by this report.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for Item 13 of Form 10-K is incorporated by reference from the information contained in the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual meeting of shareholders scheduled for May 15, 2007, which is expected to be filed not later than 120 days after the end of the fiscal year covered by this report.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required for Item 14 of Form 10-K is incorporated by reference from the information contained in the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual meeting of shareholders scheduled for May 15, 2007, which is expected to be filed not later than 120 days after the end of the fiscal year covered by this report.
BURKE MILLS, INC. PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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BURKE MILLS, INC. PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
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BURKE MILLS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BURKE MILLS, INC.
Date: April 12, 2007
By:
/s/ Humayun N. Shaikh
Humayun N. Shaikh
Chairman of the Board
(Principal Executive Officer)
Date: April 12, 2007
By:
/s/ Thomas I. Nail
Thomas I. Nail
President and COO
(Principal Financial Officer)
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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 12, 2007
By: /s/Humayun N. Shaikh
Humayun N. Shaikh, Director
Date: April 12, 2007
By: /s/Thomas I. Nail
Thomas I. Nail, Director
Date: April 12, 2007
By: /s/Richard F. Byers
Richard F. Byers, Director
Date: April 12, 2007
By: /s/Robert P. Huntley
Robert P. Huntley, Director
Date: April 12, 2007
By: /s/William T. Dunn
William T. Dunn, Director
Date: April 12, 2007
By: /s/Robert T. King
Robert T. King, Director
Date: April 12, 2007
By: /s/Aehsun Shaikh
Aehsun Shaikh, Director
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EXHIBIT TABLE
(3)(i)
Articles of Incorporation - Incorporated by reference
(ii)
Bylaws - Incorporated by reference
(14)
Code of Ethics
(31)(1)
Rule 13a - 14(a)/15d - 14(a) Certifications
(32)
Section 1350 Certifications
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