Burke Mills, Inc.

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Burke Mills, Inc.

191 Sterling Street N.W.
Valdese, North Carolina 28690
U.S.A.
Telephone: (828) 874-6341
Fax: (828) 879-7188
Web site: http://www.burkemills.com

Public Company
Incorporated: 1948 as Burkyarns Inc.
Employees: 167
Sales: $24 million (2004)
Stock Exchanges: Over the Counter
Ticker Symbol: BMLS
NAIC: 313112 Yarn Texturing, Throwing, and Twisting Mills

Burke Mills, Inc., is an American manufacturer, processor, and dyer of yarns primarily for use in the home furnishings and automobile upholstery sectors. Two company facilities produce some 350,000 to 400,000 pounds of yarn a week, which is then marketed throughout the United States, the Caribbean Basin, Mexico, and Canada. Fytek, S.A. de C.V.—a 50 percent owned affiliate headquartered in Monterrey, Mexico—sells Burke Mills products in Central America and South America. The company also makes its product available on a commission basis.

Textile Town Origins

Burke Mills was established in Valdese, a town in North Carolina's Burke County, nestled in the shadows of the Blue Ridge Mountains. That town's origins as a manufacturing hub dated back to the late 1900s, when a group of immigrants left the valleys of Italy's Cottian Alps to settle on land located near the Catawba River, between the towns of Morganton and Hickory, North Carolina.

The Italian immigrants were Waldenses, pre-Reformation Christians whose religious ancestry dated back to at least the 12th century. Persecuted by the official churches and armies of both the Italian and the French governments, the Waldenses first sought refuge in the Alpine valleys of Northern Italy. When the Edict of 1848 granted them religious freedom, they remained secluded on their farms where they increased in number, and prospered so well that there was no longer enough land for farms to sustain the whole community. They migrated to various locations in Europe and the United States, including North Carolina. The area now known as Valdese eventually became the largest Waldensian colony in the world outside of Italy.

The Valdese settlers tried to eke out a living in Burke County, an inland location with poor farm-to-market transportation facilities and terrain broken by streams and mountains. The minimal amount of alluvial soil in the valleys did not allow them to create farms like those they had known in the lush Italian valleys, according to Edward W. Phifer, Jr., in his Burke: The History of a North Carolina County, 1777–1920. Unable to develop enough farms to sustain them in their increasing numbers, the Valdenses turned to manufacturing with the same spirit of survival and determination that had characterized their European ancestors—and prospered. It was due to their persevering efforts that the Valdese colony developed a thriving manufacturing economy.

In 1901, the Waldensian Hosiery Mills was established in Valdese. The mill thrived as a family-owned business and was later merged with Alba Hosiery Mills to become Alba-Waldensian, Inc. Valdese resident Leon Guigou was employed at Waldensian Hosiery until 1948 when the 43-year-old decided to strike out on his own. That year, he teamed with Frank Gaddy to perpetuate the entrepreneurial spirit of the area by founding Burkyarns Inc. The fledgling company was situated in a 1,200 square foot building west of Valdese. The weekly goal of the original eight-person work force was to produce 500 pounds of dyed yarn for the hosiery industry.

By 1950 the company had branched out to synthetics, establishing a sound reputation for its dyed rayon, polyester, and acetate wrap yarn. As these materials gained popularity in the 1960s and 1970s, Burkyarns continued to grow and profit.

New Leadership in the 1970s–80s

In 1978, Pakistani entrepreneur Humayun Shaikh—who held several interests in textile and insurance companies inLahore, Pakistan—invested in Burkyarns. He joined as a director at the company, and under his leadership, to reflect the widening range of products, the company's name was changed from Burkyarns to Burke Mills. Shaikh became president of the company in 1981 and chairman the following year.

In the early 1980s, Burke Mills management aimed at making the company a world-class manufacturing facility and resolved to upgrade everything to state-of-the-art status. Millions of dollars were spent on machinery, but it soon became obvious that the work force needed additional training in both technical and educational skills. Toward that end, the company formed a partnership with Western Piedmont Community College (WPCC) of Morganton, North Carolina, to train Burke Mills personnel for efficient use of computer-processing equipment and information systems. More than half of the employees volunteered for the training program, where they reportedly developed the skills needed for finding solutions to problems on the job and gained new levels of self-confidence.

During this time, Burke Mills's most important raw materials were unprocessed yarn, dyes, and chemicals. Like all textile plants, the company would dispose of by-products at a landfill. However, environmental concerns over the dumping of yarn, cardboard, plastic tubes, and, perhaps most importantly, cleaning fluid, prompted Burke Mills to find an alternative to the landfill. By recycling its by-products, Burke Mills earned the 1989 North Carolina Small Business Recycling Award.

The healthy economy of the early 1990s favored the purchase of Burke Mills products. Focusing on efficient and cost-effective maintenance of its existing products and markets, Burke Mills enjoyed success. Its business consisted of twisting, texturing, winding, dyeing, processing and selling filament as well as novelty and spun yarn. These yarns were dyed and processed on a commission basis. The company marketed its products throughout the United States, primarily in the East. For fiscal 1993 and 1994, sales to Mexico and Canada amounted to less than one percent of total sales.

Increased demand for package dyed yarns and a continuing strong economy during 1994, coupled with Burke Mills's marketing efforts focused on the home and automotive upholstery markets, brought 1994 sales to $36.2 million and created a backlog of $3.9 million for that fiscal year. Sales to Chatham Manufacturing Company and to Milliken Textile Company exceeded 10 percent of the company's revenue. By 1995, Burke Mills was employing a work force of 356. According to John W. McCurry in the January 1, 1996, issue of Textile World, the company boosted its capacity with the introduction of additional automated systems and "found itself in a situation perhaps unique to the United States textiles industry in the 1990s: a dwindling labor supply. Burke County had an unemployment rate which hovered at 2–3 percent, one of the lowest in the United States and a figure labor analysts equated to full employment."

Challenges in the Mid-1990s and Beyond

Challenges in the mid-1990s included significant price increases for the raw materials Burke Mills relied on. To bolster its production capacity, in 1997 the company formed a partnership with Fytek, S.A. de C.V., a yarn company headquartered in Monterrey, Mexico. Fytek provided twisted filament yarns to Burke Mills and to Mexican, Central American, and South American markets; it also distributed Burke Mills yarns to these markets. As a result of the deal, Burke Mills owned 49.8 percent of the stock and 50 percent of the voting control of Fytek.

Burke Mills focused on keeping abreast of technology in 1999, bringing in a new fully integrated system to replace older manufacturing and accounting software.

In the production realm, the company installed newer equipment for dyeing and drying, as well as automated load/unload machines, which reduced labor costs. The manufacture of dyed yarns had undergone dramatic changes over the years. Dye-stuffs that had originally been measured by hand became part of a robotics dispensing system that measured and mixed colors to repeatedly and consistently produce any number of shades of the same color. Such automated systems in the dyehouse provided better quality control and more consistent results.

The first step in manufacturing dyed yarn was color matching. Burke Mills labs were equipped with the latest model of color-computer programs. Lab technicians analyzed color samples mailed by clients who wanted colors that matched the exact shade of the samples. The matching process (similar to DNA testing) consisted in breaking down a color into its chemical components. With the help of specialized testing equipment, technicians could produce the exact shade of color that a client wanted. Burke Mills's automated system loaded dyestuff into a mixing container, mixed the solution, and sent it directly into the chosen dye machine. The company's horizontal dyeing system made it the largest fully automated dyehouse in North America; a computerized system controlled the dye mixtures, the times for drying, and for loading and unloading the yarn as a package.

Company Perspectives:

We at Burke Mills have committed ourselves to the future with major, ongoing capital investments in the latest and most advanced technologies, to satisfy the ever more varied and sophisticated demands of our customers. Our yarns are used in many applications from automotive fabrics, office furnishings and wall coverings, home furnishings, men's and women's clothing, to labels, ribbons and shoestrings.

As the 20th century came to an end, despite the improvements made in its mills, Burke Mills found itself in a continually weakening market. Higher costs for labor and raw materials, combined with orders for smaller quantities of yarn per order, pressured the company to increase sales by reducing the prices of its products, thereby lowering gross margins. Because of the special colors specified by its customers, Burke Mills produced on a made-to-order basis. The decline of pounds per order put a strain on the capacity of the older, smaller dye machines while the newer, more efficient larger machines stood idly by, under-utilized and increasing the manufacturing cost per pound of small orders for yarns in a variety of shades and colors. The order mix increased the company's manufacturing cost per pound. Seeking to offset the losses, Burke Mills negotiated with vendors of raw materials for the reduction of prices and adjusted the costs of its overhead structure.

Yet, during 2000, the price of raw yarn continued to rise, and sales continued to decline. Since Burke Mills operated in a very competitive market, very little of the cost increases could be recovered from sales. Although the company reduced costs, it had to meet expenses of $875,000 for severances, bad debts, recruiting fees, and inventory markdowns that year. Moreover, one of its distributors went out of business, and the entire textile economy continued to falter. In 2001, because Burke Mills failed to meet the NASDAQ minimum bid-price requirements of $1 a share, the exchange delisted the company and moved its stock to the OTC Bulletin Board.

Although Burke Mills had invested heavily in newer and costly, more efficient technology and equipment, it could not stem the flow of lower-priced Asian exports to the United States. It wasn't alone. In 2001, at least 100 U.S. textile mills went out of business and some 60,000 to 75,000 textile workers lost their jobs.

During 2002, the company faced an exceedingly competitive market, a shrinking customer base, erosion in the quality of customer credit, major increases in the cost of natural gas, fuel oil, and insurance, and heavy competition from Asian imports. Sales dropped 20 percent to $29.99 million. While it did not lose any major customers, the weak economy and competition from low-priced imports led Burke Mills customers to downsize their orders. Nevertheless, major improvements were made in efficiencies; labor and overhead costs were reduced, and on-time deliveries improved. There was a major decrease in inventory, costs for labor, and overhead.

Net sales for the first three quarters of 2003 dropped by 21.4 percent to $18,986,000 compared to $24,165,000 in 2002 for the same period. Pounds shipped decreased by 20.5 percent, while the average price of sales decreased by 1.2 percent in a very competitive business environment. The company did not lose any major customers, but textile imports had a negative impact on sales to customers. In other words, in 2003 Burke Mills in particular and the domestic textile industry in general, continued to face very difficult economic times, according to the American Textile Manufacturers Institute (ATMI) Year-End Economic Report of January 12, 2004. "The crisis that afflicted the industry since the rise in Asian currency manipulation in the late 1990s continued throughout 2003 … as the second-worst performance for the industry in the last century," according to ATMI.

ATMI noted that "a huge increase in shipments from China, imports of yarn, fabric, and made-ups jumped 9 percent in 2003, following a huge 26 percent surge [of imports] during 2002.… Large Asian exporters, such as India and South Korea, added to the flood of low-cost textiles that entered the United States market." However, "as the dollar weakened against non-Asian currencies, total United States exports of yarn, fabric, and made-ups managed a very modest one percent gain [in 2003]. Although exports to most major destinations—such as Canada, Mexico, and the European Union were down—export growth to the Caribbean Basin countries helped offset the declines to other destinations."

ATMI President James W. Chesnutt, of the National Spinning Co., expressed guarded optimism. While the U.S. textile industry remained one of the nation's largest manufacturing employers, it was, according to Chesnutt, "in a fight for its survival.… This will be a tough fight, but the industry, for the first time in many years is organized, energized and united."

Burke Mills continued to operate as well as it could during fiscal 2003; had withstood the strains and pressures brought on by the invasions of foreign products, updated plans for 2004 and still had the creative flexibility and state-of-the art equipment needed to survive the recreation of its industry.

Principal Subsidiaries

Feytek, S.A. de C.C. (50%; Mexico).

Principal Competitors

National Textiles, L.L.C.; Parkdale Mills, Inc; Unifi, Inc.

Key Dates:

1948:: Burkyarns Inc. is founded.
1979:: Burkyarns becomes Burke Mills, Inc.
1989:: Burke Mills earns the North Carolina award for recycling of waste items.
1996:: Burke Mills automatizes the dying process.
2001:: Burke Mills is delisted from NASDAQ and begins trading over the counter.
2003:: Burke Mills' net sales drop to an all-time low; the company plans survival.