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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 1, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from to
Commission File No. 0-1915
THOMASTON MILLS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-0460470
- ------------------------------ --------------------
State or other jurisdiction of (I.R.S. employer
Incorporation or organization) identification no.)
115 East Main Street
Thomaston, Georgia 30286
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (706) 647-7131
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $1 Per Share
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(Title of Class)
Class B Common Stock, Par Value $1 Per Share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section13 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 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 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. X
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of September 19, 1995: Class B Common Stock, $1 Par Value -
$9,177,982 based upon the average bid and ask price of such stock on September
18, 1995, excluding Class B Common Stock owned by officers and directors, some
of whom may be held not to be affiliates.
The number of shares outstanding (excluding treasury shares) of each of the
registrant's classes of common stock as of September 19, 1995:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Class A Common Stock, $1 Par Value 4,906,830
Class B Common Stock, $1 Par Value 1,630,366
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to
be held October 5, 1995, are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Thomaston Mills, Inc. ("Thomaston Mills" or the "Company") is a
diversified manufacturer and marketer of cotton, synthetic and blended textile
products for the home furnishings, apparel fabrics and industrial products
markets. The Company's home furnishings line includes coordinated sheets,
pillowcases, comforters and related accessories which are marketed under the
Thomaston (R) label primarily through value-based retailers, as well as fabrics
which are sold to other manufacturers of home furnishings. The Company's
apparel fabrics line includes dyed and finished woven fabrics, such as regular
and stretch denim, in a variety of colors and washes which are sold to apparel
manufacturers. The Company's industrial products line includes cotton and
blended yarn for athletic hosiery and other circular knit manufacturers, and
both yarn and fabric for manufacturers of industrial belting and hoses. The
Company's home furnishings, apparel fabrics and industrial products lines
accounted for 46%, 39% and 15%, respectively, of fiscal 1995 net sales.
Thomaston Mills has made significant capital investments to modernize
its manufacturing facilities and to position itself as a low cost provider of
textile products in selected markets. The Company has focused on textile
products which have high value-added manufacturing characteristics, allow the
Company to generate improved gross margins and are less labor intensive and
therefore less vulnerable to foreign competition. The Company has reduced its
historical emphasis on its industrial products line and increased its resource
allocation to products in the home furnishings and sales yarn markets. The
Company's investments in technologically advanced equipment have enabled it to
enhance the quality of its products and increase its manufacturing flexibility
and cost efficiency. The Company has maintained a strong equity base and a low
level of debt as compared to many of its competitors that has provided it with
the financial resources to support continued expansion of its business. The
Company's strategic positioning has resulted in significant revenue growth from
approximately $187 million in fiscal 1988 to approximately $276 million in
fiscal 1995. Net sales per employee have increased from $76,057 in fiscal 1988
to $114,205 in fiscal 1995, which the Company believes is among the highest
rates in the textile industry.
Since fiscal 1986, the Company has invested over $145 million, or
approximately 7% of annual net sales, to modernize its equipment. Management
believes that Thomaston Mills has become one of the most technologically
advanced textile manufacturers in the country. The Company intends to maintain
its aggressive capital expenditure policy for the foreseeable future.
The Company is a Georgia corporation which has been in the textile
business continually since 1899. Headquartered in Thomaston, Georgia, the
Company operates seven plants in or near Thomaston, with an aggregate area of
approximately 3 million square feet. The Company markets its products
domestically and internationally through sales offices in Thomaston, Georgia,
New York, New York, Los Angeles, California and through international sales
agents or distributors in Canada, Europe, the Middle East and Central and South
America. The Company's executive offices are located at 115 East Main Street,
P.O. Box 311, Thomaston, Georgia 30286 and its telephone number is (706)
647-7131.
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STRATEGY
Thomaston Mills intends to be the low cost producer in each of its
selected markets. In recent years, the Company has focused its product
development, marketing and manufacturing capabilities on producing value-added
textile products for a broad range of end uses while reducing its emphasis on
the production of labor-intensive products which are more vulnerable to foreign
competition. The Company has particularly focused its product development on
its home furnishings line in recognition of the growing fashion-consciousness
of the American consumer. In this regard, the Company is building on its
historical strength as a manufacturer of sheets and pillowcases by expanding
its home furnishings line with the addition of products such as comforters and
coordinated bedroom sets which have high value-added manufacturing
characteristics and provide favorable gross margins. The Company's apparel
fabrics line is benefiting from the increased fashion orientation of denim.
The Company balances this line by continuing to manufacture and finish other
less fashion sensitive bottomweight fabrics, such as twill, for casual and
career apparel. The Company has repositioned its industrial fabrics product
line to emphasize sales of cotton and blended yarn to athletic hosiery and
other circular knit manufacturers and to decrease its production of lower
margin industrial fabrics.
To become the low cost provider in its selected product lines, the
Company has made substantial capital investments to modernize its facilities.
Substantially all of these expenditures were invested in equipment designed to
improve efficiency in the Company's spinning, weaving, finishing and sewing
facilities. The capital expenditures have increased productivity
substantially, thereby lowering the Company's labor expense as a component of
total manufacturing costs and its vulnerability to import competition. The
Company's sales per employee have increased from $76,057 in fiscal 1988 to
$114,205 in fiscal 1995, which the Company believes is among the highest rates
in the textile industry. In addition, modernization of the Company's
facilities has improved the quality of the Company's yarns and fabrics, which
has expanded the markets for the Company's products and reduced the amount of
off-goods inventory which must be sold at lower margins.
The Company has implemented flexible "Just in Time" and "Quick
Response" manufacturing systems along with electronic data interchange (EDI)
and cost control systems, which permit both faster order turnaround for its
customers and better forecasting for the Company. The Company believes that
its long term commitment to capital improvements, maintained despite the weak
U.S. economy and adverse textile industry conditions which prevailed in the
late 1980's through mid-1991, has enabled it to become one of the most
technologically advanced and low cost manufacturers in the textile industry.
PRODUCTS AND MARKETS
HOME FURNISHINGS. Thomaston Mills offers a complete line of muslin,
percale and 200-count products for the bedroom, including fashion coordinated
bedding sets and comforters marketed under the Thomaston(R) label, as well as
home furnishings fabrics sold to other manufacturers of home furnishings. The
home furnishings line represented 46% of net sales for fiscal 1995.
The Company markets a coordinated line of products and accessories
which, for any given pattern, may include comforters, sheets and pillowcases,
pillow shams, bedskirts, duvets or comforter covers and window treatments. The
Company offers these products in a wide variety of styles and patterns, from
solid colors to fashion designs. These value-added products have a greater
design sensitivity and fashion orientation and thus generally command higher
prices than
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traditional white bedding products. The Company has enhanced its design
capabilities through the expansion of its own design staff and through the use
of licenses for proprietary designs. The Company has also expanded its product
offerings to include packaged sets consisting of flat and fitted sheets,
pillowcases and comforters with additional accessories available. These
packaged sets offer convenience to consumers while providing higher sales and
margins both to the Company and retailers. Packaged sets also help retailers
avoid markdowns on unsold accessories.
The Company believes that the comforter market represents an
attractive opportunity to expand its home furnishings line. The Company began
producing comforters in 1990, and, for fiscal 1995, sales of comforters and
accessories accounted for 24% of the Home Furnishings line. A new facility to
consolidate and expand the Company's comforter operations was completed and
began operations in March 1994. See "---Manufacturing."
As the Company has broadened and upgraded its line of muslin, percale
and 200-count goods, the Company's principal customers have expanded from
regional value-based retailers to include national value-based retailers. The
Company is not a major supplier of products to high-end department stores which
require significantly higher selling and administrative expenses per unit. The
quality and prices of the Company's products are intended to allow its targeted
retailers to achieve high margins while offering a significant value to
customers.
The markets for home furnishings fabrics have been affected by
changing demographics associated with the maturing of consumers born between
1946 and 1964. As this generation has matured, product trends have evolved
toward higher quality products with more diverse styling. The Company believes
that the outlook for printed fabrics is favorable because these fabrics provide
a high fashion appearance at affordable prices. Additionally, demand for U.S.
styled home furnishings products has increased in international markets.
APPAREL FABRICS. Thomaston Mills produces woven fabrics in a variety
of finishes and blends which are sold to apparel manufacturers. The Company's
apparel fabrics line represented 39% of net sales for fiscal 1995. The
Company's principal apparel fabric product is indigo denim, including rigid and
stretch varieties. Denims generally are dyed before the fabric is woven. The
result is a fabric with variations in color that give denim its distinctive
appearance. Fabric styling of denims, which the Company believes to be
critical to this market, involves the creation of a wide array of fabric
colors, shades and patterns in both traditional and innovative weaves. After
weaving, fabrics are processed further in finishing and "washing" operations
that produce different textures and other physical properties. The Company's
modern and flexible manufacturing process allows it to produce a wide variety
of denim styles and finishes, including stretch fabric and washed finishes.
The Company believes the quality of its denim products makes it less
susceptible to price competition from foreign competitors.
During fiscal 1995, an expansion was begun at the Company's Pike
Division which will expand denim capacity by approximately 20% when completed
in the second quarter of fiscal year 1996. See "---Manufacturing."
The Company also manufactures and markets a variety of hunting,
camping and outdoor recreational apparel products under the Company's
proprietary RATTLERS(R) label. The Company has developed an innovative
manufacturing process to produce snake-proof chaps which are well-known to
outdoor enthusiasts. Products marketed under the RATTLERS(R) label are
produced by the Company and others.
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The Company has directed the remainder of its apparel fabrics line
toward heavier "bottomweight" fabrics such as twill and other value-added
textiles that the Company believes are less susceptible to price pressure from
foreign competition. The Company dyes and finishes twill fabric for casual and
career apparel. The Company generally purchases fabric for these products from
other manufacturers.
INDUSTRIAL PRODUCTS. Thomaston Mills produces a variety of cotton and
blended yarns and fabrics which are sold to athletic hosiery and other circular
knit manufacturers for the production of apparel items such as athletic socks
and T-shirts. The Company's industrial products line represented 15% of net
sales for fiscal 1995. Historically, fabrics for industrial end uses were the
largest component of the Company's sales within this product line. As a result
of a substantial repositioning to focus on more profitable markets, sales yarns
now account for approximately 80% of the sales in the industrial products line
while the remainder consists of fabric and yarns for the manufacture of
industrial belts and hoses. Thomaston Mills believes its reputation for
quality gives it a competitive advantage in sales of cotton and blended yarn to
the athletic hosiery market.
MANUFACTURING
Thomaston Mills' seven plants are involved in virtually every major
component of the textile manufacturing process, from spinning and weaving to
dyeing, finishing and sewing. The Company's manufacturing strategy has been to
reduce lead times, minimize inventory levels and maximize flexibility to
respond to changing market conditions. The only major production function not
currently performed by the Company is the printing of fabrics for its home
furnishings line. The Company employs a number of outside printing sources to
enhance design flexibility and to eliminate the fixed costs attendant to
maintaining printing capability.
FACILITIES. The Company's spinning and weaving operations are
conducted at four of the Company's plants. At these facilities, raw material
(cotton, synthetic or blend) is spun into yarn. Through the Company's capital
expenditure program, the Company has installed advanced carding and open-end
spinning machinery which produces quality yarns at higher speeds and requires
fewer operators than ring spinning. The Company has phased out its use of ring
spinning and is fully reliant on open-end and air jet spinning. The Company
believes that it is among the leaders in the textile industry in the use of
modern spinning technology.
The Company's weaving operations are housed in three plants which
contain approximately 650 weaving machines. Through its capital expenditure
program, the Company has replaced its traditional shuttle looms such that 99%
of its weaving capacity currently consists of rapier, air-jet and projectile
weaving machines. These machines are less labor-intensive and weave fabric at
higher speeds with fewer defects than do older weaving methods. In addition,
these modern weaving machines have the capability to produce a variety of
widths and weaves.
Virtually all woven fabric made by the Company is either dyed,
finished or printed from its unfinished or "greige" state. Finishing fabric
involves applying special chemicals and/or resins to a fabric to give it
certain properties, such as soil release, wrinkle-resistant or wash and wear.
The Company's dyeing and finishing facilities include an indigo long-chain
dyeing machine, a continuous dye range and several finishing ranges for dipping
and heat-setting fabrics. While greige fabrics are woven by the Company based
on projected sales, the Company dyes its products or has them printed generally
according to specific customer purchase orders to allow the Company to respond
to market demand. The Company has achieved operating efficiencies and improved
inventory controls as a result. In addition, the Company purchases greige
fabrics
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and finishes fabrics on a commission basis to achieve higher capacity
utilization of its finishing facilities.
The Company's sewing strategy has been to modernize its facilities in
order to minimize production costs and cycle times while maximizing design
flexibility and improving quality. The Company's fully automated sewing and
computerized quilting machines offer several advantages over conventional
machines, including faster speed, greater design flexibility, higher quality
and lower production costs.
In March 1994, the Company completed construction of a 242,000 square
feet comforter and bedding accessory manufacturing and distribution facility
which has expanded and consolidated the Company's comforter and bedding
accessory product line. The new facility allows certain operations to be
consolidated in a single plant and has resulted in significantly increased
manufacturing and storage capacity. The Company expects that the automation of
certain warehousing and distribution functions at this facility will enable it
to improve physical control over inventories, reduce order fulfillment lead
times, allow for enhanced levels of service and require fewer employees
dedicated to handling and storage, resulting in cost savings to the Company.
During fiscal 1995, an expansion was begun at the Company's Pike
Division denim weaving facility. This expansion, consisting primarily of
additional state of the art air-jet weaving machines, is expected to be
completed by the second quarter of fiscal year 1996 and will result in an
increase of approximately twenty percent in denim production capacity.
QUALITY AND EFFICIENCY. Thomaston Mills believes that it is among
the industry leaders in quality, particularly in denim weaving. The Company
uses a number of methods to support its quality control, including classroom
training of employees, statistical process quality control, computer-aided
product testing from raw fiber to finished fabric and computer-aided
manufacturing control systems.
The Company also believes that it is an industry leader in customer
service. The Company maintains constant communication between its marketing
and manufacturing operations which allows it to be responsive to a customer's
individual needs. The Company's plants employ computer monitoring and bar code
scanning for product tracking. The Company also follows Just in Time
manufacturing techniques to reduce in-process inventories, floor space
requirements and order processing time. The Company emphasizes coordination
with its customers through the industry's Quick Response delivery program. The
Company also offers electronic data interchange (EDI) to its customers and
suppliers. In addition, the Company maintains a fleet of trucks and trailers
for rapid delivery to customers in the Southeast.
RAW MATERIALS. The Company's primary raw material is cotton. As a
commodity, cotton is traded on established markets and periodically experiences
price fluctuations. The Company monitors the cotton market and buys its cotton
from brokers. The Company has not had and does not anticipate any material
difficulty in obtaining cotton.
As a result of increased world demand, cotton prices have escalated
throughout fiscal year 1995. The Company has attempted to pass these increased
cotton prices along to its customers in the form of price increases for its
products to the extent market conditions have permitted. However, during
fiscal year 1995, raw material prices have increased faster than the prices
received for finished products.
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In order to assure a continuous supply of cotton, the Company enters
into cotton purchase contracts for several months in advance of delivery which
either provide for (1) fixed quantities to be purchased at a pre-determined
price, or (2) fixed quantities to be purchased at a price to be determined (at
a later date). When the Company sells its product to its customers, the cost
of cotton under existing cotton purchase contracts is taken into account in
calculating the price for the Company's product. The Company generally
attempts to match product sales contracts with fixed price cotton purchase
contracts and uses market price cotton contracts to anticipate future needs and
subsequent product sales contracts. Accordingly, fluctuations in the market
value of cotton do not generally affect the pricing or profitability of
existing sales contracts, but would affect subsequent sales contracts. To the
extent prices are sometimes fixed in advance of shipment, the Company may
benefit from its investment in cotton, to the extent prices thereafter rise, or
incur increased cost, to the extent prices thereafter fall.
The Company also purchases greige goods, synthetic fibers, dyes and
chemicals. These raw materials have normally been available in adequate
supplies through a number of suppliers.
SALES AND MARKETING
Thomaston Mills markets its products through 38 sales representatives
to approximately 2,250 active customers, with no one customer constituting over
7% of net sales in fiscal 1995. Domestic sales are made through the Company's
principal sales office in Thomaston, Georgia and branch offices in New York,
New York, and Los Angeles, California. International sales, which constituted
6% of net sales for fiscal 1995, are handled through the Thomaston office and
commissioned sales agents and distributors in Canada, Europe, the Middle East
and Central and South America.
The Company maintains strict credit standards and closely monitors the
financial condition of its customers. Since 1986, bad debt expense has
averaged .14% of annual net sales. As a result of these policies and its
market focus, the Company has not been adversely affected by the financial
difficulties of several major retailers in recent years.
COMPETITION
The domestic textile industry is highly competitive. No one firm
dominates the United States market and many companies compete in limited
segments of the textile market. In recent years, there has been a trend toward
consolidation, financial leverage and capacity reduction in the United States
textile industry. Textile competition is based in varying degrees on price,
product styling and differentiation, flexibility, delivery time, quality and
customer service. The importance of each of these factors depends upon the
needs of particular customers and the particular product. While Thomaston
Mills is one of the smaller companies in certain of its markets, the Company
believes it competes effectively on all levels in each of its selected markets.
Imports of foreign-make textile and apparel products are a significant
source of competition for many sectors of the domestic textile industry. In
December 1993, 117 countries reached an agreement under the General Agreement
on Tariffs and Trade that would cover new areas of trade, further cut tariffs
and strengthen multilateral free-trade rules by creating a World Trade
Organization (WTO) as its successor. This agreement was ratified by the United
States Congress and went into effect on July 1, 1995. As part of this new
agreement, the Multifiber Arrangement (MFA) under which textile and apparel
trade had been controlled, will be phased out along with its import quotas over
a 10-year period. Tariffs on textiles will be cut by 11.6% over 10
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years. A weighted average tariff for products sold by Thomaston Mills, if
imported, would be cut by 8.8%. Under the agreement, quotas on the least
sensitive import products will be phased out over the first five years and
quotas on the most sensitive import products will not be affected until the
latter part of the ten-year period.
The WTO agreement contains some provisions which may have a favorable
impact on the textile industry. An assembly rule of origin amendment makes it
illegal for a non-WTO member country to assemble garments from pieces cut in a
member country and then export the garments as originating in the country where
they were cut. Additionally, the agreement preserves the authority of the
President of the United States to control imports from non-WTO countries such
as Taiwan or China.
Although the WTO agreement may reduce the cost of certain imported
textiles, the Company believes that upgraded technology resulting in increased
productivity and lower costs will enable it to compete in a global market.
The North American Free Trade Agreement ("NAFTA") has been approved by
the United States, Canada and Mexico and became effective January 1, 1994.
Import duties on fibers, yarns, textiles and clothing produced in Canada,
Mexico or the United States and traded among those countries were either
eliminated immediately or phased out over a ten-year period. This duty
elimination applies only to textile and apparel goods made from yarn or fiber
produced in Mexico, Canada or the United States. No assurance can be given
regarding the ultimate effects of NAFTA; however the Company believes that
NAFTA will have a positive effect on the U.S. textile industry.
The Company has attempted to offset the negative impact of increased
imports and the decline in apparel export sales by focusing on product lines
and markets that are less vulnerable to import penetration. Capital
expenditures and systems improvements have centered on strengthening product
and market diversification strategies and on increasing productivity, lowering
costs and improving quality.
BACKLOG
The Company's order backlog increased 11.3% to $108.7 million as of
July 1, 1995 as compared to $97.7 million as of July 2, 1994.
INVENTORIES
Inventories at July 1, 1995 were $3,163,606 higher than at July 2,
1994. This increase, primarily in finished goods, was the result of fourth
quarter fiscal year 1995 sales being less than projected. Total inventory
turned 6.3 times on average in fiscal year 1995 as compared to 6.6 total
inventory turns on average in fiscal year 1994.
The Company has used the LIFO inventory accounting method since 1941
as a means of recognizing the effects of inflation on cost of goods sold.
Through July 1, 1994 the Company accounted for the cotton, polyester, labor and
overhead components of raw materials, work in process and finished goods
inventories at the lower of cost, determined under the LIFO method of
accounting, or market. Purchased cloth and yarn and certain supplies
inventories were accounted for at the lower of cost, determined under the FIFO
method of accounting, or market. Effective with the first day of fiscal year
1995, the Company changed to the LIFO method of accounting for purchased cloth
and yarn. This change will result in better matching of revenues
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and expenses and will conform substantially all manufacturing inventories to
the LIFO method. The cumulative effect of this change is not determinable.
The effect of this change on fiscal year 1995 was to decrease net income by
approximately $550,000 ($.08 per share). In connection with this change, the
Company conformed the manner of applying the LIFO method for its cotton and
polyester inventories to the dollar value method. Management believes the
effect of the change to the dollar value method was not significant.
INTELLECTUAL PROPERTY
The Company owns a registered trademark containing the "Thomaston
Mills" name and spinning wheel design, which it uses as its primary trademark.
In addition, the Company holds various other trademarks and trade names,
including Thomaston(R), RATTLERS(R) and American Mood(R) used in connection
with its business and products, both domestically and internationally. License
fees paid by the Company for the use of designs for home furnishings and
apparel fabric products are insignificant in amount.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local
environmental laws and regulations, which limit the discharge, storage,
handling and disposal of a variety of substances, particularly the Clean Water
Act, the Safe Drinking Water Act, the Clean Air Act, the Resource Conservation
and Recovery Act of 1976 (including amendments relating to underground tanks),
the Emergency Planning and Community Right-to-Know Act of 1986, and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
all as amended. The Company cannot accurately predict at this time the impact
of future emission standards and enforcement practices under the 1990 Clean Air
Act Amendments or the new Stormwater Regulations under the Clean Water Act upon
its operations or capital expenditure requirements.
The Company's operations also are governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Administration Act and regulations thereunder which, among
other things, establish cotton dust, formaldehyde, asbestos and noise
standards, and regulate the use of hazardous chemicals in the workplace. The
Company uses resins containing formaldehyde in processing some of its products.
Although the Company does not use asbestos in the manufacture of its products,
certain of its facilities contain asbestos insulation.
The Company believes that it presently complies in all material
respects with applicable environmental, health and safety laws and regulations
and does not believe that future compliance with such existing laws or
regulations will have a material adverse effect on its results of operations or
financial condition.
EMPLOYEES
As of July 1, 1995, the Company had approximately 2,421 full-time
employees, all but 175 of whom are employed at the Company's manufacturing
facilities. None of the Company's employees is covered by a collective
bargaining agreement, and the Company considers its relations with its
employees to be good.
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EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Neil H. Hightower . . . . . . . . . . . . . 54 President, Chief Executive Officer and Director
George H. Hightower, Jr. . . . . . . . . . 46 Executive Vice President - Sales and Director
H. Stewart Davis . . . . . . . . . . . . . 52 Executive Vice President - Finishing and Director
John R. Carson . . . . . . . . . . . . . . 60 Vice President - Consumer Product Sales
Charles F. Eichelberger . . . . . . . . . . 56 Vice President - Greige Manufacturing
James E. Franklin, Jr. . . . . . . . . . . 51 Vice President - Industrial Sales
James F. Haygood . . . . . . . . . . . . . 48 Vice President - Apparel Fabric Sales
W. Harrison Hightower, III . . . . . . . . 59 Vice President - Administration
Jonathan O. Huff . . . . . . . . . . . . . 54 Vice President - Finishing
Rosser R. Raines . . . . . . . . . . . . . 57 Treasurer and Director
Daniel B. Tripp . . . . . . . . . . . . . . 43 Vice President - Human Resources and
Public Relations
Ronald W. VanHouten . . . . . . . . . . . . 47 Secretary
</TABLE>
The Board of Directors currently consists of twelve members. All of
the directors hold their positions until the next succeeding annual meeting or
until their successors are duly elected and qualified. Executive officers of
the Company are elected annually by the Board of Directors and serve at the
Board's discretion. The Company has an Executive Committee which acts on
behalf of the Company's Board of Directors during the intervals between the
meetings of the full Board of Directors in accordance with the policies of the
Company, its Articles of Incorporation and Bylaws and applicable law. Messrs.
George H. Hightower, Neil H. Hightower and William H. Hightower, Jr. together
comprise the Executive Committee.
Mr. Neil H. Hightower has been with the Company for 30 years and has
served as President and Chief Operating Officer since 1984, as President and
Chief Executive Officer since 1986 and as a director since 1980.
Mr. George Hightower, Jr. has been with the Company for 21 years and
has served as Executive Vice President - Sales since 1986 and as a director
since 1981. He is also a director of Thomaston Federal Savings Bank,
Thomaston, Georgia.
Mr. Davis has been with the Company for 31 years and has served as
Executive Vice President - Finishing since 1986 and as a director since 1981.
Mr. Carson has been with the Company for 33 years and has served as
Vice President - Consumer Product Sales since 1976.
Mr. Haygood has been with the Company 23 years and has served as Vice
President - Apparel Fabrics Sales since June, 1995. He served as Manager -
Apparel Fabric Sales from 1990 to 1995.
Mr. Franklin has been with the Company 24 years and has served as Vice
President - Industrial Sales since 1989. He served as Manager - Industrial
Sales from 1984 to 1989.
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Mr. Eichelberger has been with the Company for 12 years and has served
as Vice President - Greige Manufacturing since 1989. He served as Manager -
Thomaston Division from 1983 to 1989.
Mr. W. Harrison Hightower, III has been with the Company for 37 years
and has served as Vice President - Administration since 1976.
Mr. Huff has been with the Company for 21 years and has served as Vice
President - Finishing since 1990. He served as Manager - Finishing Division
from 1984 to 1990.
Mr. Raines has been with the Company 33 years and has served as
Treasurer since 1976 and as a director since 1993.
Mr. Tripp has been with the Company for 17 years and has served as
Vice President - Human Resources and Public Relations since 1991. He served as
an Industrial Sales Representative from 1987 to 1991 and as Personnel Manager
from 1978 to 1987.
Mr. VanHouten has been with the Company for 23 years and has served as
Secretary since 1992. He served as Assistant Secretary from 1990 to
1992 and Controller from 1987 to 1990.
Members of the Hightower family have been involved with the Company
since its founding in 1899. The family relationships existing among the
current executive officers and directors are as follows: William H. Hightower,
Jr. and George H. Hightower are brothers; Neil H. Hightower and W. Harrison
Hightower, III, are the sons of William H. Hightower, Jr.; George H.
Hightower, Jr. is the son of George H. Hightower; H. Stewart Davis is the
nephew of William H. Hightower, Jr. and George H. Hightower.
ITEM 2. PROPERTIES
Thomaston Mills owns seven manufacturing facilities located in or near
Thomaston, Georgia with an aggregate area of approximately 3.0 million square
feet. In addition, the Company owns buildings used for its executive offices
and 1,300 acres of undeveloped property which is available for use by the
Company. Management believes the properties are in generally good condition
and suitable for the Company's purposes. All of the Company's manufacturing
facilities have appropriate safety features such as sprinkler fire protection.
The following table summarizes certain information regarding the Company's
production facilities.
<TABLE>
<CAPTION>
NAME AND APPROXIMATE
LOCATION SQUARE FEET USE
-------- ----------- ---
<S> <C> <C>
Thomaston Mill 831,000 Greige mill in which baled raw cotton and
Thomaston, Georgia polyester are converted into spun yarn
and woven cloth.
Finishing Plant 793,000 Finishing plant for bleaching and dyeing
Thomaston, Georgia cloth and for sewing and warehousing.
Peerless Mill 524,000 Greige mill in which baled raw cotton and
Thomaston, Georgia polyester are converted in woven cloth.
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C>
Northside Plant 61,000 Sewing plant for fabricating cloth into
Thomaston, Georgia household and recreation products.
Griffin Mill 382,000 Yarn mill in which baled raw cotton and
Griffin, Georgia polyester are converted into yarn.
Pike Plant 65,000 Weaving plant for fabricating into woven
Zebulon, Georgia cloth.
Lakeside Plant 242,000 Sewing plant for fabricating cloth into
Thomaston, Georgia household products.
</TABLE>
The Company also leases sales offices in New York and Los Angeles,
California and operates a retail outlet on property which it owns in Thomaston,
Georgia.
ITEM 3. LEGAL PROCEEDINGS
As of September 18, 1995 there were no material pending legal proceedings,
other than routine litigation incidental to its business, to which the Company
was a party or to which any property of the Company was subject. Such routine
legal proceedings are not believed to be material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the quarter ended July 1, 1995.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The high and low sales prices and cash dividends per share were as follows:
<TABLE>
<CAPTION>
COMMON STOCK PRICES CASH DIVIDENDS PER SHARE
Class A Class B Class A Class B
High Low High Low
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1994
First Quarter $21.50 $18.25 $21.00 $18.50 $.065 $.065
Second Quarter $20.00 $18.00 $20.50 $18.50 $.065 $.065
Third Quarter $19.25 $15.00 $19.50 $15.00 $.065 $.065
Fourth Quarter $20.50 $15.75 $19.00 $16.00 $.070 $.070
FISCAL 1995
First Quarter $18.00 $15.50 $19.25 $15.50 $.0700 $.0700
Second Quarter $17.00 $13.75 $16.50 $13.00 $.0700 $.0700
Third Quarter $15.75 $12.00 $13.50 $12.00 $.0700 $.0700
Fourth Quarter $14.25 $12.25 $15.00 $12.00 $.0725 $.0725
</TABLE>
APPROXIMATE NUMBER OF SHAREHOLDERS OF RECORD
- --------------------------------------------
Class A Common Stock 402
Class B Common Stock 357
Thomaston Mills Common Stock, Class A and Class B, is traded on the NASDAQ
National Market System under ticker symbols TMST-A and TMST-B.
The Class A Common Stock is entitled to dividends equal to dividends on the
Class B Common Stock.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENTAGE
1995 1994 CHANGE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Sales $276,490,994 $279,479,091 (1.07)%
Net Income 3,373,496 10,709,590 (68.50)
Net Income as a % of Sales 1.22% 3.83% --
Dividends 1,845,764 1,733,361 6.48
Capital Expenditures 19,630,589 21,998,709 (10.76)
Depreciation and amortization 14,926,793 12,551,490 18.92
Sales Per Employee 114,205 113,887 0.28
- ------------------------------------------------------------------------------------------------------------
YEAR-END STATUS
Working Capital 70,734,349 72,264,569 (2.12)
Property, Plant and Equipment-Net 88,634,344 83,999,761 5.52
Long-Term Debt 44,813,075 39,494,775 13.47
Long-Term Capital Lease
Obligations 1,297,340 1,751,962 (25.95)
Current Ratio 4.1 4.2 --
Shareholders' Equity 110,275,351 109,028,125 1.14
Number of Shareholders 402 401 .25
Number of Employees 2,421 2,454 (1.34)
- ------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK
Net Income .52 1.63 (68.10)
Dividends .2825 .265 6.60
Shareholders' Equity 16.88 16.58 1.81
Weighted Average Shares Outstanding 6,532,817 6,576,685 (.67)
</TABLE>
ELEVEN-YEAR STATISTICAL SUMMARY
Thomaston Mills, Inc. and Subsidiary
<TABLE>
<CAPTION>
Fiscal Years 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Thousands of Dollars -- for the years ended
Net Sales $276,491 $279,479 $277,876
Income (Loss) before Income Taxes, Extraordinary Item
and Cumulative Effect of Change in Accounting 5,333 17,437 25,668
Income Taxes (Benefit) 1,960 6,727 10,093
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting 3,373 10,710 15,575
Net Income (Loss) 3,373 10,710 15,575
Net Income (Loss) as Percentage of Net Sales 1.22% 3.83% 5.61%
Cash Dividends 1,846 1,733 1,566
Depreciation and Amortization 14,927 12,551 10,911
Capital Expenditures 19,631 21,999 20,348
- -------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK*
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting $ .52 $ 1.63 $ 2.37
Net Income (Loss) .52 1.63 2.37
Cash Dividends .2825 .265 .245
Working Capital 10.83 10.99 9.58
Shareholders' Equity 16.88 16.58 15.24
- -------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
Thousands of Dollars -- at End of Year
Total Assets $186,323 $179,332 $155,591
Inventories at Replacement Cost 52,294 46,825 44,195
Less LIFO Reserve (12,628) (10,323) (10,072)
Inventories at LIFO cost** 39,666 36,502 34,123
Property, Plant and Equipment -- Net 88,634 84,000 72,596
Working Capital 70,734 72,265 62,820
Long-Term Debt and Capital Lease Obligations 46,110 41,247 30,520
Shareholders' Equity 110,275 109,028 99,947
=================================================================================================
<CAPTION>
1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Thousands of Dollars -- for the years ended
Net Sales $257,442 $201,538 $199,830 $184,658
Income (Loss) before Income Taxes, Extraordinary Item
and Cumulative Effect of Change in Accounting 22,191 15 9,826 4,353
Income Taxes (Benefit) 8,296 6 3,822 1,665
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting 13,895 9 6,004 2,688
Net Income (Loss) 13,895 9 6,004 3,653
Net Income (Loss) as Percentage of Net Sales 5.40% .00% 3.01% 1.98%
Cash Dividends 1,403 1,373 1,350 1,255
Depreciation and Amortization 9,805 9,315 9,454 9,453
Capital Expenditures 16,384 12,386 15,167 15,012
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK*
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting $ 2.17 $ .00 $ .94 $ .42
Net Income (Loss) 2.17 .00 .94 .57
Cash Dividends .225 .22 .215 .20
Working Capital 8.69 6.78 6.46 6.84
Shareholders' Equity 13.07 11.25 11.37 10.89
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
Thousands of Dollars -- at End of Year
Total Assets $140,411 $115,088 $108,431 $101,276
Inventories at Replacement Cost 39,696 31,355 36,858 30,760
Less LIFO Reserve (10,181) (11,840) (11,833) (10,036)
Inventories at LIFO cost** 29,515 19,515 25,025 20,724
Property, Plant and Equipment -- Net 62,931 55,691 52,272 46,335
Working Capital 55,657 42,887 41,503 42,893
Long-Term Debt and Capital Lease Obligations 30,725 24,252 17,711 18,120
Shareholders' Equity 83,719 71,118 73,010 68,326
===============================================================================================================
<CAPTION>
1988 1987 1986 1985
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Thousands of Dollars -- for the years ended
Net Sales $187,405 $171,384 $139,063 $132,495
Income (Loss) before Income Taxes, Extraordinary Item
and Cumulative Effect of Change in Accounting 16,853 22,294 (1,047) (1,565)
Income Taxes (Benefit) 6,262 11,035 -- (1,403)
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting 10,591 11,259 (1,047) (162)
Net Income (Loss) 10,591 12,542 (1,047) (162)
Net Income (Loss) as Percentage of Net Sales 5.65% 7.32% (.75)% (.12)%
Cash Dividends 1,031 863 821 821
Depreciation and Amortization 8,568 7,624 7,238 6,713
Capital Expenditures 14,489 9,451 9,062 9,056
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK*
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting $ 1.66 $ 1.72 $ (.16) $ (.03)
Net Income (Loss) 1.66 1.91 (.16) (.03)
Cash Dividends .16 .13 .125 .125
Working Capital 6.30 5.30 4.83 5.73
Shareholders' Equity 10.51 8.86 7.08 7.37
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
Thousands of Dollars -- at End of Year
Total Assets $ 90,068 $ 83,105 $ 74,773 $ 76,735
Inventories at Replacement Cost 31,823 25,098 27,417 32,174
Less LIFO Reserve (11,071) (8,476) (10,104) (10,232)
Inventories at LIFO cost** 20,752 16,622 17,313 21,942
Property, Plant and Equipment -- Net 40,759 33,936 32,195 30,491
Working Capital 39,472 34,830 31,746 37,631
Long-Term Debt and Capital Lease Obligations 10,796 7,175 17,132 19,491
Shareholders' Equity 65,928 58,200 46,521 48,389
======================================================================================================================
</TABLE>
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------------------------------------------------
FISCAL YEAR 1995 COMPARED TO 1994 Sales of $276,490,994 for
fiscal year 1995 were down 1.1% as compared to fiscal year
1994 sales of $279,479,091. Fewer units sold in the Company's
Industrial Products area contributed to this sales decline.
Although the product mix average sales value per unit of
Industrial Products shipped increased 2.3%, this increase was
offset by a 12.2% decline in units shipped. Overall units sold
during fiscal year 1995 were 2.1% less than fiscal year 1994
while the product mix average sales value per unit only
increased 1.1%.
Cost of goods sold increased to 90.3% of sales for 1995 as
compared to 86.7% of sales in 1994. Cost of sales increased as
a result of raw material price increases of 17.1% principally
consisting of increases in the cost of cotton, a general wage
increase implemented during first quarter fiscal year 1995 and
lower capacity utilization due to lower overall units sold.
Increased cost of goods sold resulted in gross profit of 9.7%
of sales for 1995 as compared to gross profit of 13.3% of
sales for 1994.
Selling, general and administrative expenses were $18,847,382
or 6.8% of sales in fiscal year 1995 and $18,338,717 or 6.6%
of sales in fiscal year 1994. The increase of $508,665 can be
attributed to the general wage increase granted during first
quarter and to increased fiscal year 1995 costs incurred in
designing and advertising the Company's products.
Other income remained relatively constant in fiscal years 1995
and 1994 at $424,320 and $428,209 respectively.
Interest expense for 1995 increased $1,158,488 from $1,885,870
in fiscal 1994 to $3,044,358 in fiscal year 1995. This 61.4%
increase is a result of interest costs that were capitalized
in fiscal year 1994 associated with the new Lakeside comforter
and accessory plant and increased borrowing in fiscal year
1995 under the Company's revolving credit agreement.
Income tax expense for fiscal year 1995 was 36.7% of taxable
income compared to 38.6% of 1994 taxable income. This decrease
can be attributed primarily to a lower tax rate on the
graduated federal tax schedule. These percentages approximate
the statutory income tax rate.
Net income for 1995 decreased 68.5% to $3,373,496 as compared
to $10,709,590 for fiscal year 1994.
FISCAL YEAR 1994 COMPARED TO 1993 The Company's sales in the
first three quarters of fiscal year 1994 were lower than sales
in the first three quarters of fiscal year 1993; however,
sales for fourth quarter 1994 were 20% ahead of fourth quarter
1993. This sales increase during the fourth quarter was the
result of improved business conditions in the Company's
various markets. For fiscal year 1994 (52 weeks), sales were
$279,479,091, representing an increase of .6% over fiscal year
1993 (53 weeks) sales of $277,875,811. Overall units sold for
the first three quarters of fiscal year 1994 were down 8.2%
from units sold for the first three quarters of fiscal year
1993. Units sold in fourth quarter of fiscal year 1994 were
11.4% ahead of units sold in fourth quarter of fiscal year
1993.
Cost of goods sold was 86.7% of sales in 1994 as compared to
83.8% of sales in 1993. This increase in cost of goods sold
can be attributed to higher raw material costs and lower
capacity utilization. Reduced production schedules were
implemented during the first nine months of the year in order
to match sales levels.
Selling, general and administrative expenses as a percentage
of sales were 6.6% in fiscal year 1994 and 6.4% in fiscal year
1993.
Other income remained relatively constant in fiscal years 1994
at $428,209 and $493,161 for 1993. Interest expense decreased
13.6% to $1,885,870 in fiscal year 1994 as compared to
$2,182,432 in fiscal year 1993. Capitalized interest costs
associated with the new Lakeside comforter and accessory plant
accounted for virtually all of this decrease.
16
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
Income tax expense for fiscal year 1994 was 38.6% of taxable
income compared to 39.3% of 1993 taxable income. Each of these
percentages approximate the statutory income tax rate.
Net income for 1994 decreased 31.2% to $10,709,590 as compared
to $15,574,986 for fiscal year 1993.
LIQUIDITY AND CAPITAL RESOURCES
---------------------------------------------------------------
The Company continues to maintain a strong financial position.
At July 1, 1995, working capital was $70,734,349 as compared
to $72,264,569 at July 2, 1994. The ratio of current assets to
current liabilities was 4.1:1 at July 1, 1995 and 4.2:1 at
July 2, 1994.
Cash provided by operating activities was the principal source
of funds for 1995. Cash provided by operating activities
amounted to $21,471,335 for the fiscal year ended July 1,
1995.
The Company's primary use of funds during fiscal year 1995 was
$19,630,589 in purchases of property, plant and equipment.
During fiscal year 1994, the Company invested $21,998,709 in
purchases of property, plant and equipment. Orders have been
placed for additional equipment to increase denim production
by approximately twenty percent by the second quarter of
fiscal year 1996. To finance the expansion of the denim
production, the Company on April 5, 1995 entered into an
agreement with the Development Authority of Pike County,
Georgia to issue $3,700,000 in Tax-Exempt Adjustable Mode
Industrial Development Revenue Bonds. Interest on these bonds
will be paid quarterly beginning July 1, 1995. The maturity
date of the bond issue is April 2005. At July 1, 1995, the
Company had $3,567,859 in unexpended construction funds
related to this bond issue.
During the second quarter of this fiscal year, the Company
revised and expanded its revolving credit agreement which
provides for unsecured borrowings of up to $24,000,000. At
July 1, 1995, an additional $2,500,000 was available under
this agreement.
The Company had capital expenditure commitments at July 1,
1995 for $7,844,000, primarily for machinery and equipment.
The level of capital expenditures for fiscal year 1996 is
expected to be comparable to fiscal year 1995. Management
believes that cash provided by operating activities and the
revolving credit agreement will be sufficient to finance
capital requirements and operating needs of the Company for
fiscal year 1996.
INVENTORIES
---------------------------------------------------------------
Inventories at July 1, 1995 were $3,163,606 higher than at
July 2, 1994. This increase, primarily in finished goods, was
the result of fourth quarter fiscal year 1995 sales being less
than projected. Total inventory turned 6.3 times on average
in fiscal year 1995 as compared to 6.6 total inventory turns
on average in fiscal year 1994.
Through July 1, 1994 the Company accounted for the cotton,
polyester, labor and overhead components of raw materials,
work in process and finished goods inventories at the lower of
cost, determined under the LIFO method of accounting, or
market. Purchased cloth and yarn and certain supplies
inventories were accounted for at the lower of cost,
determined under the FIFO method of accounting, or market.
Effective with the first day of fiscal year 1995, the Company
changed to the LIFO method of accounting for purchased cloth
and yarn. This change will result in better matching of
revenues and expenses and will conform substantially all
manufacturing inventories to the LIFO method. The cumulative
effect of this change is not determinable. The effect of this
change on fiscal year 1995 was to decrease net income by
approximately $550,000 ($.08 per share). In connection with
this change, the Company conformed the manner of applying the
LIFO method for its cotton and polyester inventories to the
dollar value method. Management believes the effect of the
change to the dollar value method was not significant.
17
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
RAW MATERIALS
---------------------------------------------------------------
The Company's primary raw material is cotton. As a commodity,
cotton is traded on established markets and periodically
experiences price fluctuations. The Company monitors the
cotton market and buys its cotton from brokers. The Company
has not had and does not anticipate any material difficulty in
obtaining cotton.
As a result of increased world demand, cotton prices have
escalated throughout fiscal year 1995. The Company has
attempted to pass these increased cotton prices along to its
customers in the form of price increases for its products to
the extent market conditions have permitted. However, during
fiscal year 1995, raw material prices have increased faster
than the prices received for finished products.
In order to assure a continuous supply of cotton, the Company
enters into cotton purchase contracts for several months in
advance of delivery which either provide for (1) fixed
quantities to be purchased at a pre-determined price, or (2)
fixed quantities to be purchased at a price to be determined
(at a later date). When the Company sells its product to its
customers, the cost of cotton under existing cotton purchase
contracts is taken into account in calculating the price for
the Company's product. The Company generally attempts to
match product sales contracts with fixed price cotton
purchase contracts and uses market price cotton contracts to
anticipate future needs and subsequent product sales
contracts. Accordingly, fluctuations in the market value of
cotton do not generally affect the pricing or profitability
of existing sales contracts, but would affect subsequent
sales contracts. To the extent prices are sometimes fixed in
advance of shipment, the Company may benefit from its
investment in cotton, to the extent prices thereafter rise,
or incur increased cost, to the extent prices thereafter fall.
GATT
---------------------------------------------------------------
In December 1993, 117 countries reached an agreement under the
General Agreement on Tariffs and Trade that would cover new
areas of trade, further cut tariffs and strengthen
multilateral free-trade rules by creating a World Trade
Organization (WTO) as its successor. This agreement was
ratified by the United States Congress and went into effect on
July 1, 1995. As part of this new agreement, the Multifiber
Arrangement (MFA) under which textile and apparel trade had
been controlled, will be phased out along with its import
quotas over a 10-year period. Tariffs on textiles will be cut
by 11.6% over 10 years. A weighted average tariff for products
sold by Thomaston Mills, if imported, would be cut by 8.8%.
Under the agreement, quotas on the least sensitive import
products will be phased out over the first five years and
quotas on the most sensitive import products will not be
affected until the latter part of the ten-year period.
The WTO agreement contains some provisions which may have a
favorable impact on the textile industry. An assembly rule of
origin amendment makes it illegal for a non-WTO member country
to assemble garments from pieces cut in a member country and
then export the garments as originating in the country where
they were cut. Additionally, the agreement preserves the
authority of the President of the United States to control
imports from non-WTO countries such as Taiwan or China.
Although the WTO agreement may reduce the cost of certain
imported textiles, the Company believes that upgraded
technology resulting in increased productivity and lower costs
will enable it to compete in a global market.
BACKLOG
---------------------------------------------------------------
The Company's order backlog at July 1, 1995 was $108.7 million
which represents an increase of 11.3% when compared to the
backlog of $97.7 million at July 2, 1994.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 1, 1995 JULY 2, 1994
------------ ------------
<S> <C> <C> <C>
ASSETS Current Assets:
Cash and cash equivalents $ 1,543,579 $ 1,109,975
Trade accounts receivable less allowance of
$415,000 in 1995 and 1994 50,924,234 56,157,445
Inventories -- Note 2 39,665,948 36,502,342
Deferred income taxes -- Note 5 790,345 384,676
Prepaid expenses and other current assets 400,896 528,369
------------ ------------
Total Current Assets 93,325,002 94,682,807
Property, Plant and Equipment -- Note 3:
Land and improvements 5,855,924 5,390,734
Buildings and improvements 36,866,661 36,139,916
Machinery and equipment 172,555,857 155,070,662
Furniture and fixtures 8,509,831 8,534,482
Autos, trucks and tractors 1,564,316 1,496,200
------------ ------------
225,352,589 206,631,994
Less allowances for depreciation 136,718,245 122,632,233
------------ ------------
88,634,344 83,999,761
Unexpended Construction Funds -- Note 8 3,567,859 --
Other Assets 795,886 649,774
------------ ------------
Total Assets $186,323,091 $179,332,342
============ ============
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
JULY 1, 1995 JULY 2, 1994
<S> <C> <C> <C>
LIABILITIES AND Current Liabilities:
SHAREHOLDERS' EQUITY
Trade accounts payable $ 14,214,081 $ 12,566,571
Salaries and wages 435,015 456,883
Withholding and payroll taxes 629,133 671,208
Federal and state income taxes 1,130,997 1,760,307
Local taxes 699,409 717,912
Accrued interest 313,747 214,192
Other current liabilities 4,086,571 4,224,465
Current portion of long-term debt 1,081,700 1,806,700
------------ ------------
Total Current Liabilities 22,590,653 22,418,238
Long-Term Debt, less current portion -- Note 3 44,813,075 39,494,775
Capital Lease Obligations, less current portion 1,297,340 1,751,962
Deferred Income Taxes -- Note 5 7,233,107 6,571,130
Other Liabilities 113,565 68,112
Shareholders' Equity -- Notes 3 and 4:
Class A Common Stock -- $1 par; 30,000,000
shares authorized; 5,620,518 shares
outstanding including 719,688 treasury
shares in 1995 and 728,688 in 1994 5,620,518 5,620,518
Class B Common Stock -- $1 par; 10,000,000
shares authorized; 1,873,506 shares
outstanding including 243,143 treasury
shares in 1995 and 222,140 in 1994 1,873,506 1,873,506
Additional paid-in capital 8,862,557 8,807,047
Retained earnings 99,389,286 97,861,554
------------ ------------
115,745,867 114,162,625
Less treasury stock -- at cost 5,470,516 5,134,500
------------ ------------
110,275,351 109,028,125
Commitments -- Note 8
Total Liabilities and Shareholders'
------------ ------------
Equity $186,323,091 $179,332,342
------------ ------------
</TABLE>
See accompanying notes.
20
<PAGE> 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
---------- ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 28, 1992 $5,620,518 $1,873,506 $6,087,811 $74,876,180 $(4,739,239) $ 83,718,776
Net income for
the year -- -- -- 15,574,986 -- 15,574,986
Cash dividends on
common stock,
$.2450 per share -- -- -- (1,565,841) -- (1,565,841)
Exercise of stock
options, including
tax effects -- -- 2,650,529 -- (431,554) 2,218,975
---------- ---------- ---------- ----------- ------------ ------------
Balance July 3, 1993 5,620,518 1,873,506 8,738,340 88,885,325 (5,170,793) 99,946,896
Net income for
the year -- -- -- 10,709,590 -- 10,709,590
Cash dividends on
common stock,
$.2650 per share -- -- -- (1,733,361) -- (1,733,361)
Exercise of stock
options, including
tax effects -- -- 68,707 -- 36,293 105,000
---------- ---------- ---------- ----------- ------------ ------------
Balance July 2, 1994 5,620,518 1,873,506 8,807,047 97,861,554 (5,134,500) 109,028,125
Net income for
the year -- -- -- 3,373,496 -- 3,373,496
Cash dividends on
common stock,
$.2825 per share -- -- -- (1,845,764) -- (1,845,764)
Purchase of Class B
common stock -- -- -- -- (391,875) (391,875)
Exercise of stock
options, including
tax effects -- -- 55,510 -- 55,859 111,369
---------- ---------- ---------- ----------- ------------ ------------
Balance July 1, 1995 $5,620,518 $1,873,506 $8,862,557 $99,389,286 $ (5,470,516) $110,275,351
========== ========== ========== =========== ============ ============
</TABLE>
See accompanying notes.
21
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FIFTY-TWO WEEK FIFTY-TWO WEEK FIFTY-THREE WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JULY 1, 1995 JULY 2, 1994 JULY 3, 1993
-------------- -------------- ----------------
<S> <C> <C> <C>
Net sales $276,490,994 $279,479,091 $277,875,811
Cost of sales 249,690,536 242,245,990 232,783,675
------------ ------------ ------------
Gross profit 26,800,458 37,233,101 45,092,136
Selling, administrative and
general expenses 18,847,382 18,338,717 17,734,879
------------ ------------ ------------
Operating income 7,953,076 18,894,384 27,357,257
Interest expense 3,044,358 1,885,870 2,182,432
Other income, net 424,320 428,209 493,161
------------ ------------ ------------
Income before income taxes 5,333,038 17,436,723 25,667,986
Income taxes -- Note 5 1,959,542 6,727,133 10,093,000
------------ ------------ ------------
Net income $ 3,373,496 $ 10,709,590 $ 15,574,986
============ ============ ============
Net income per common share $ .52 $ 1.63 $ 2.37
============ ============ ============
</TABLE>
See accompanying notes.
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIFTY-TWO WEEK FIFTY-TWO WEEK FIFTY-THREE WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JULY 1, 1995 JULY 2, 1994 JULY 3, 1993
-------------- -------------- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES Net income $ 3,373,496 $10,709,590 $15,574,986
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 14,926,793 12,551,490 10,910,519
Gain on sale of property,
plant and equipment (40,023) (124,366) (17,987)
Provision for deferred income
taxes 256,308 766,167 771,571
Changes in operating assets and
liabilities:
Accounts receivable 5,233,211 (10,191,189) (505,261)
Inventories (3,163,606) (2,379,179) (4,608,403)
Prepaid expenses and other
assets (18,639) 126,033 (267,539)
Accounts payable 1,647,510 2,103,012 (1,473,739)
Accrued expenses (743,715) 909,844 (503,375)
------------ ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 21,471,335 14,471,402 19,880,772
INVESTING ACTIVITIES Purchases of property, plant and
equipment (19,630,589) (23,960,535) (20,578,270)
Less capital lease obligations incurred -- 1,961,826 230,307
------------ ----------- -----------
Cash for property, plant and equipment (19,630,589) (21,998,709) (20,347,963)
Additions to unexpended construction
funds (3,567,859) -- --
Proceeds from sales of property,
plant and equipment 109,236 130,050 20,000
------------ ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (23,089,212) (21,868,659) (20,327,963)
FINANCING ACTIVITIES Proceeds from revolving lines of
credit and long-term debt 15,200,000 14,961,826 22,230,307
Less capital lease obligations incurred -- (1,961,826) (230,307)
------------ ----------- -----------
Cash proceeds from borrowings 15,200,000 13,000,000 22,000,000
Principal payments on revolving
lines of credit, long-term debt
and capital lease obligations (11,022,249) (4,233,952) (22,241,565)
Purchase of treasury stock (391,875) -- --
Exercise of stock options 111,369 105,000 2,218,975
Cash dividends paid (1,845,764) (1,733,361) (1,565,841)
------------ ----------- -----------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 2,051,481 7,137,687 411,569
------------ ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 433,604 (259,570) (35,622)
Cash and cash equivalents at
beginning of period 1,109,975 1,369,545 1,405,167
------------ ----------- -----------
Cash and cash equivalents at end
of period $ 1,543,579 $ 1,109,975 $ 1,369,545
============ =========== ===========
</TABLE>
See accompanying notes
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 1995
NOTE 1 ACCOUNTING POLICIES
---------------------------------------------------------------
INDUSTRY SEGMENT
The Company is a diversified manufacturer and marketer of
cotton, synthetic and blended textile products for the home
furnishings, apparel fabrics and industrial products markets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its subsidiary. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company defines cash equivalents as all highly liquid
investments with a maturity of three months or less when
purchased.
ACCOUNTS RECEIVABLE
The Company manufactures and sells textile products to
companies in diversified industries. The Company performs
periodic credit evaluations of its customers' financial
condition and generally does not require collateral.
Receivables generally are due within 45 days. Credit losses
have been within management's expectations.
INVENTORIES
Inventories are stated at the lower of cost or market. With
the exception of certain supplies, which are valued at the
first-in, first-out (FIFO) method, inventory cost is
determined using the last-in, first-out (LIFO) method. As
discussed in Note 2, the Company changed its method of
accounting for LIFOinventories in 1995.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated on the basis of cost.
Depreciation of property, plant and equipment is calculated
over the estimated useful lives of the related assets
principally using the straight-line method.
REVENUE RECOGNITION
In general, the Company recognizes revenue on product sales
when the units are shipped.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average
number of shares of common stock outstanding during each year
and the potentially dilutive effect of the exercise of stock
options. The number of shares used in computing net income per
common share was 6,532,817 in 1995, 6,576,685 in 1994 and,
6,557,978 in 1993.
RECLASSIFICATION
Certain 1994 balances have been reclassified to conform with
the 1995 classification.
NOTE 2 INVENTORIES
---------------------------------------------------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 10,087,236 $ 9,579,814
Work in process 21,008,342 21,945,409
Finished goods 21,198,049 15,300,583
LIFO reserve (12,627,679) (10,323,464)
------------ ------------
$ 39,665,948 $ 36,502,342
============ ============
</TABLE>
Through July 2, 1994 the Company accounted for the cotton,
polyester, labor and overhead components of raw materials,
work in process and finished goods at the lower of cost,
24
<PAGE> 25
determined under the LIFO method of accounting, or market.
Purchased cloth and yarn and certain supplies inventories were
accounted for at the lower of cost, determined under the
FIFO method of accounting, or market. Effective July 3, 1994,
the Company changed to the LIFO method of accounting for
purchased cloth and yarn. This change will result in better
matching of revenues and expenses and will conform
substantially all manufacturing inventories to the LIFO method.
The cumulative effect of this change is not determinable. The
effect of this change was to decrease net income for 1995 by
approximately $550,000 ($.08 per share). In connection with
this change, the Company conformed the manner of applying the
LIFO method for its cotton and polyester inventories to the
dollar value method. Management believes the effect of this
change was not significant.
A number of the Company's competitors use the FIFO
method of inventory valuation. Had the Company reported its
LIFO inventories at values approximating current cost, as would
have resulted from using the FIFO method; and had applicable
tax rates in 1995, 1994 and 1993 been applied to changes in
operations resulting therefrom; and had no other assumptions
been made as to changes in operations, net income would have
been approximately $4,834,000 ($.74 per share) in 1995;
$10,864,000 ($1.65 per share) in 1994; and $15,509,000 ($2.36
per share) in 1993.
NOTE 3 LONG-TERM DEBT
---------------------------------------------------------------
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
----------- -----------
<S> <C> <C>
Revolving credit agreement $21,500,000 $19,000,000
Long-term senior note payable in nine annual
principal payments of $1,666,667 beginning
December 16, 1996 with interest payments
due semi-annually at a rate of 7.94% 15,000,000 15,000,000
Long-term note payable in quarterly principal
payments of $195,425 through March 2001
with interest payments due quarterly at a
rate of 9.6%, collateralized 4,494,775 5,276,475
Industrial revenue bonds payable in annual
principal payments of $300,000 in 1996
and 1997; $3,900,000 in 1998; and
$200,000 in 1999 and 2000 with floating
interest rates ranging up to 65% of the prime
interest rate, collateralized 4,900,000 2,025,000
----------- -----------
45,894,775 41,301,475
Less amounts due within one year 1,081,700 1,806,700
----------- -----------
$44,813,075 $39,494,775
=========== ===========
</TABLE>
In October 1994, the Company amended its existing revolving
credit agreement with a group of banks. The amended revolving
credit agreement provides for unsecured borrowings of up to
$24,000,000. At the Company's option, interest is payable
quarterly at the prime interest rate, the London interbank
offered rate (LIBOR) or the secondary certificate of deposit
(CD) rate plus an applicable margin ranging from .4375% to
.6875% above the
25
<PAGE> 26
LIBOR or secondary CD rate. The agreement also provides for a
quarterly payment of an annual commitment fee ranging from
.25% to .4375% of the average daily unused amount of the
commitment. On October 31, 1998 or before, at the Company's
option, these revolving credit notes may be converted to
five-year notes, payable in quarterly installments with
interest at the prime interest rate, LIBOR or the secondary CD
rate plus an applicable margin ranging from .6874% to 1.1875%
above the LIBOR or secondary CD rate. The quarterly
installments call for principal payments on the basis of
ten-year amortization with the balance due at the end of five
years.
The industrial revenue bonds are collateralized by
property, plant and equipment with a net carrying value of
approximately $5,890,000 at July 1, 1995. The various debt
agreements contain various restrictions relating to, among
other things, net working capital, debt to equity ratios, and
maintenance of net worth of at least $50,000,000.
Maturities of long-term debt during the next five years,
excluding the revolving credit notes are $1,082,000 in 1996;
$2,748,000 in 1997; $6,348,000 in 1998; $2,648,000 in 1999;
and $2,648,000 in 2000.
Cash payments for interest were $2,983,000, $2,327,000,
and $2,532,000 in 1995, 1994 and 1993, respectively. Interest
capitalized was $38,000, $541,000 and $68,000 in 1995, 1994
and 1993, respectively.
The fair value of the Company's long-term debt is
estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar
types of borrowing arrangements. Based on these analyses, the
fair value of the Company's long-term debt does not
significantly differ from its carrying value.
NOTE 4 SHAREHOLDERS' EQUITY
---------------------------------------------------------------
PREFERRED STOCK
There are 600,000 authorized shares of Preferred Stock ($100
par value), none of which were outstanding at July 1, 1995.
COMMON STOCK
The Class A Common Stock does not have voting rights except to
the extent required by law. The Class B Common Stock has full
voting rights. Each share of Class A Common Stock is entitled
to dividends at least equal to the per share dividends
declared on the Class B Common Stock.
STOCK OPTIONS
The Company currently has four stock option plans which
provide for the issuance of options to acquire 862,000 shares
of Class A Common Stock and 396,600 shares of Class B Common
Stock. Options awarded under these plans are granted at the
market value at the date of grant and vest at a rate of 20%
per year.
26
<PAGE> 27
Further information relating to the option follows:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
----------------------- ----------------------
PRICE RANGE PRICE RANGE
SHARES PER SHARE SHARES PER SHARE
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Outstanding at June 28, 1992 354,314 $ 6 - 10 141,600 $ 6 - 10
Granted 24,000 $ 16 -- --
Exercised (296,114) $ 6 - 9 (128,880) $ 6 - 10
-------- --------- -------- ----------
Outstanding at July 3, 1993 82,200 $ 6 - 16 12,720 $ 6 - 10
Exercised (9,000) $ 6 - 10 (1,000) $ 6
-------- --------- -------- ----------
Outstanding at July 2, 1994 73,200 $ 6 - 16 11,720 $ 6 - 10
Granted 200,000 $ 17 120,000 $ 18
Exercised (9,000) $ 6 - 10 (1,000) $ 6
-------- --------- -------- ----------
Outstanding at July 1, 1995 264,200 $ 6 - 17 130,720 $ 6 - 18
======== ========= ======== ==========
Exercisable at July 1, 1995 94,600 $ 6 - 17 34,720 $ 6 - 18
======== ========= ======== ==========
</TABLE>
NOTE 5 INCOME TAXES
---------------------------------------------------------------
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Federal $1,619,490 $5,165,708 $ 8,207,000
State 83,744 795,258 1,114,000
Deferred 256,308 766,167 772,000
---------- ---------- -----------
$1,959,542 $6,727,133 $10,093,000
========== ========== ===========
</TABLE>
Significant components of the Company's deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
---------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and
equipment $7,460,578 $ 6,729,444
Inventory 445,770 445,770
---------- -----------
7,906,348 7,175,214
Deferred tax assets:
Employee and retiree
benefit accruals 597,652 466,142
Alternative minimum tax 511,643 --
Inventory 185,298 349,486
Bad debt allowances 161,850 161,850
Other 7,143 11,282
1,463,586 988,760
---------- -----------
Net deferred tax liability $6,442,762 $ 6,186,454
========== ===========
</TABLE>
The reasons for the differences between total tax expense and
the amount computed by applying the statutory Federal income
tax rate to income before income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Tax at statutory rates $1,813,233 $6,102,852 $ 8,727,000
State income taxes, net of
Federal tax benefit 111,600 673,444 807,000
Other items 34,709 (49,163) 559,000
---------- ---------- -----------
$1,959,542 $6,727,133 $10,093,000
========== ========== ===========
</TABLE>
Cash payments for income taxes were $2,310,000, $5,445,000
and $7,814,000 in 1995, 1994
27
<PAGE> 28
and 1993, respectively. Refunds received were $-0-, $5,000 and
$321,000 in 1995, 1994 and 1993, respectively.
NOTE 6 PENSION PLANS
---------------------------------------------------------------
Thomaston Mills, Inc. has noncontributory defined benefit
pension plans covering substantially all salaried and hourly
employees. The benefits are based on years of service for the
hourly plan and the employee's average earnings for the last
five calendar years of employment for the salaried plan. The
Company's funding policy is to contribute annually such
amounts as are necessary to provide assets sufficient to meet
the benefits to be paid to the plans' members and to keep the
plans actuarially sound. Contributions are intended to provide
not only for benefits attributed to service to date, but also
for those expected to be earned in the future.
A summary of the components of net periodic pension cost
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Service cost -- benefits
earned during the period $ 739,000 $ 791,000 $ 698,000
Interest cost on projected
benefit obligation 2,401,000 2,212,000 2,070,000
Actual loss (gain) on
plan assets (3,766,000) 31,000 (3,276,000)
Net amortization and deferral 1,686,000 (2,107,000) 1,422,000
----------- ----------- ----------
Total pension expense $ 1,060,000 $ 927,000 $ 914,000
=========== =========== ==========
</TABLE>
Assumptions used in the accounting for the defined benefit
plans were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rates 7.5% 8.5% 7.5%
Rates of increase in
compensation levels 5.0% 6.5% 5.5%
Expected long-term rate of return
on assets 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets for the
Company's defined benefit pension plans:
PENSION PLAN NO. 1:
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $15,088,000 $11,124,000
=========== ===========
Accumulated benefit obligation $16,603,000 $12,305,000
=========== ===========
Projected benefit obligation $20,919,000 $17,530,000
Plan assets at fair value 19,271,000 17,356,000
----------- -----------
Funded status - projected benefit
obligation in excess of plan assets $(1,648,000) $ (174,000)
=========== ===========
Comprised of:
Accrued pension cost $(1,770,000) $(1,524,000)
Unrecognized net gain 1,693,000 1,414,000
Unrecognized net transition obligation (573,000) (650,000)
Unrecognized prior service cost (998,000) 586,000
----------- -----------
$(1,648,000) $ (174,000)
=========== ===========
</TABLE>
28
<PAGE> 29
PENSION PLAN NO. 2:
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $10,499,000 $10,235,000
=========== ===========
Accumulated benefit obligation $10,981,000 $10,740,000
=========== ===========
Projected benefit obligation $10,981,000 $10,740,000
Plan assets at fair value 10,716,000 9,698,000
----------- -----------
Funded status - projected benefit
obligation in excess of plan assets $ (265,000) $(1,042,000)
=========== ===========
Comprised of:
Prepaid pension cost 1,483,000 $ 1,469,000
Unrecognized net loss (1,623,000) (731,000)
Unrecognized prior service cost (680,000) (2,415,000)
Unrecognized net asset 555,000 635,000
----------- -----------
$ (265,000) $(1,042,000)
=========== ===========
</TABLE>
Substantially all of the plans' assets at July 1, 1995 are
invested in corporate and governmental bonds, common stocks,
commingled trust investment funds and temporary investments.
Assets of the plans included approximately $1,500,000 and
$2,090,000 of Thomaston Mills, Inc. Class A Common Stock and
Class B Common Stock at July 1, 1995 and July 2, 1994,
respectively.
NOTE 7 OTHER POSTRETIREMENT BENEFITS
---------------------------------------------------------------
The Company offers a limited number of postretirement
benefits, primarily health care, to early retirees, who have
satisfied certain minimum service requirements. Statement of
Financial Accounting Standards No. 106, which requires accrual
accounting for postretirement benefits, was adopted in 1993,
and the Company has elected to recognize the transition
obligation of such adoption over a period of twenty years.
The following table presents the plans' funded status
reconciled with amounts recognized in the Company's balance
sheet.
Accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
----------- -----------
<S> <C> <C>
Retirees $ 725,000 $ 740,000
Fully eligible active plan participants 233,000 488,000
Other active plan participants 1,016,000 1,289,000
----------- -----------
Accumulated postretirement benefit obligation 1,974,000 2,517,000
Unrecognized net gain 895,000 420,000
Unrecognized transition asset (2,418,000) (2,560,000)
----------- -----------
Accrued postretirement benefit cost $ 451,000 $ 377,000
=========== ===========
</TABLE>
29
<PAGE> 30
Net periodic postretirement benefit cost for 1995, 1994 and
1993 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost attributed to
service during the year $ 93,000 $127,000 $189,000
Amortization of accumulated
postretirement benefit obligation 142,000 142,000 142,000
Interest cost on accumulated
postretirement benefit obligation 157,000 186,000 245,000
Net amortization and deferral (78,000) (31,000) --
-------- -------- --------
Net periodic postretirement
benefit cost $314,000 $424,000 $576,000
======== ======== ========
</TABLE>
Actuarial assumptions used in determining the accumulated
postretirement benefit obligation include a discount rate of
7.5%, 8.5% and 7.5% for 1995, 1994 and 1993, respectively.
The health care cost trend rate assumption for 1996 is 7%,
decreasing to 6% in 1997 and remaining at that level
thereafter. These trend rates reflect the Company's prior
experience and management's expectation of future rates.
Changing the assumed health care cost trend rates by one
percentage point in each year would change the accumulated
postretirement benefit obligation as of July 1, 1995 by
approximately $151,000 and the aggregate service and interest
cost components of net periodic postretirement benefit cost
for 1995 by approximately $24,000.
NOTE 8 COMMITMENTS
---------------------------------------------------------------
At July 1, 1995, the Company had commitments for the purchase
of machinery and equipment amounting to approximately
$7,844,000.
The Company received $3,700,000 from industrial revenue bonds
to finance the construction of property. At July 1, 1995,
$3,568,000 of the funds had not been expended.
NOTE 9 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
---------------------------------------------------------------
The Company's unaudited quarterly results of operations for
the years ended July 1, 1995 and July 2, 1994 are as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
JULY 1, APRIL 1, DECEMBER 31, OCTOBER 1,
1995 1995 1994 1994
------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales $74,594 $66,290 $67,051 $68,556
Gross profit 7,921 7,449 5,423 6,007
Net income 1,713 1,110 98 452
Net income per share .26 .17 .02 .07
QUARTER ENDED
-------------------------------------------------------------
JULY 2, APRIL 2, JANUARY 1, OCTOBER 2,
1994 1994 1994 1993
------- ------- ---------- ----------
Net sales $85,421 $66,780 $61,675 $65,603
Gross profit 12,009 7,917 8,159 9,148
Net income 4,309 1,775 2,105 2,521
Net income per share .66 .27 .32 .38
</TABLE>
Adjustments made in the fourth quarter of 1995 decreased net
income by approximately $212,000 ($.03 per share) and in the
fourth quarter of 1994 increased net income by approximately
$971,000 ($.15 per share). These adjustments related primarily
to differences between actual and standard cost used in
determining inventory relief and cost of sales during the
year.
30
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
---------------------------------------------------------------
We have audited the accompanying consolidated balance sheets
of Thomaston Mills, Inc. and subsidiary as of July 1, 1995 and
July 2, 1994, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the
three years in the period ended July 1, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Thomaston Mills, Inc. and
subsidiary at July 1, 1995 and July 2, 1994, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended July 1, 1995,
in conformity with generally accepted accounting principles.
As discussed in the notes to the financial
statements, effective July 3, 1994, the Company changed its
method of accounting for certain inventories from FIFO to
LIFO.
ERNST & YOUNG LLP
Atlanta, Georgia
August 11, 1995
31
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company and compliance with
Section 16 of the Securities Exchange Act of 1934 is incorporated by reference
to pages 5 thru 7 of the registrant's definitive proxy statement for the Annual
Meeting of Shareholders on October 5, 1995. See also Part I above with respect
to information regarding executive officers of the registrant. Such
incorporation by reference shall not be deemed to specifically incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 8 thru 11 of the
definitive proxy statement for the Annual Meeting of Shareholders on October 5,
1995 is incorporated herein by reference. Such incorporation by reference
shall not be deemed to specifically incorporate by reference the information
referred to in Item 402(a)(8) of Regulation S-K.
32
<PAGE> 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding beneficial ownership shown on pages 2 thru 6 of
the definitive proxy statement for the Annual Meeting of Shareholders on
October 5, 1995, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Information regarding transactions between the Company and directors,
officers and owners on page 13 of the definitive proxy statement for the
Annual Meeting of Shareholders on October 5, 1995, is incorporated herein
by reference.
(b) Director, C. Ronald Barfield, is a partner in the law firm Adams, Barfield,
Dunaway & Hankinson, which provides legal services to the Company.
(c) Director, Dom H. Wyant, is of counsel to the law firm Jones, Day, Reavis
and Pogue, which provides legal services to the Company.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON
FORM 8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
<S> <C>
3.0 Articles of Incorporation, incorporated by reference to Exhibit 3.0 of Registrant's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991 (the "1991 10-K").
3.1 Bylaws Incorporated by reference to Exhibit 3.2 of Registrant's Annual Report on Form
10-K for the year ended July 3, 1993 (the "1993 10-K").
*10.0 Thomaston Mills, Inc. 1988 Stock Option Plan, incorporated by reference to Exhibit 10.1
of the 1991 10-K.
*10.1 Thomaston Mills, Inc. Amended and Restated 1989 Stock Option Plan, incorporated by
reference to Exhibit 10.2 of the 1991 10-K.
*10.3 Thomaston Mills, Inc. Retirement Plan No. 1 effective as of July 1, 1987, incorporated
by reference to Exhibit 10.5 of the 1992 Registrant's Annual Report on Form 10-K for the
year ended June 27, 1992 (the "1992 10-K").
*10.4 Thomaston Mills, Inc. Retirement Plan No. 2 effective as of July 1, 1987, incorporated
by reference to Exhibit 10.6 of the 1992 10-K.
*10.5 Thomaston Mills, Inc. 1992 Stock Option Plan, incorporated by reference to Exhibit 10.7
of the 1992 10-K.
*10.7 Thomaston Mills, Inc. 1994 Stock Option Plan, incorporated by reference to Exhibit 10.7
of Registrant's Annual Report on Form 10-K for the fiscal year ended July 2, 1994 (the
"1994 10-K").
*10.8 Thomaston Mills, Inc. Executive Compensation Continuation Agreement, incorporated by
reference to Exhibit 10.8 of the 1994 10-K.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
11.0 Statement regarding computation of earnings per share.
21.0 Subsidiary of the Company.
23.0 Consent of Independent Auditors.
----
</TABLE>
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit hereto pursuant to Item
14(e) of Form 10-K.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1995 - none.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedule - The response to this portion of Item 14 is
submitted as a separate section of this report.
34
<PAGE> 35
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.
THOMASTON MILLS, INC.
/s/ Neil H. Hightower
Date: September 28, 1995 --------------------------------------
Neil H. Hightower
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Rosser R. Raines /s/ H. Stewart Davis
- --------------------------------------- ---------------------------------
Rosser R. Raines H. Stewart Davis
Treasurer, Principal Financial Officer, Executive Vice President and
Chief Accounting Officer, and Director Director
Date: September 28, 1995 Date: September 28, 1995
/s/ George H. Hightower, Jr. /s/ George H. Hightower
- --------------------------------------- ---------------------------------
George H. Hightower, Jr. George H. Hightower
Executive Vice President and Director
Director Date: September 28, 1995
Date: September 28, 1995
/s/ William H. Hightower, Jr. /s/ C. Ronald Barfield
- ---------------------------------------- ---------------------------------
William H. Hightower, Jr. C. Ronald Barfield
Director Director
Date: September 28, 1995 Date: September 28, 1995
</TABLE>
35
<PAGE> 36
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1), (2) AND (d)
AND
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED JULY 1, 1995
THOMASTON MILLS, INC. AND SUBSIDIARY
THOMASTON, GEORGIA
36
<PAGE> 37
FORM 10-K - ITEM 14(a)(1) AND (2)
THOMASTON MILLS, INC. AND SUBSIDIARY
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial staements and notes thereto of
Thomaston Mills, Inc. and subsidiary are included in Item 8:
Consolidated Balance Sheets - July 1, 1995 and July 2, 1994
Consolidated Statements of Shareholders' Equity - fiscal years ended July
1, 1995, July 2, 1994 and July 3, 1993.
Consolidated Statements of Income - fiscal years ended July 1, 1995, July
2, 1994 and July 3, 1993.
Consolidated Statements of Cash Flows - fiscal years ended July 1, 1995,
July 2, 1994 and July 3, 1993.
Notes to Consolidated Financial Statements - July 1, 1995.
Report of Independent Auditors.
The following consolidated financial schedule of Thomaston Mills, Inc. and
subsidiary is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
37
<PAGE> 38
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THOMASTON MILLS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------
ADDITIONS
- -------------------------------------------------------------------------------------------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period ended July 1, 1995:
Allowance for doubtful accounts $415,000 $ 28,586 $ -- $ 28,586 $415,000
Period ended July 2, 1994:
Allowance for doubtful accounts $490,000 $298,813 $ -- $373,813 $415,000
Period ended July 3, 1993:
Allowance for doubtful accounts $320,000 $580,061 $ -- $410,061 $490,000
</TABLE>
Note: Amounts included in column D are accounts written off during the
periods.
38
<PAGE> 1
EXHIBIT 11.0
COMPUTATION OF EARNINGS PER SHARE
THOMASTON MILLS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JULY 01, 1995 JULY 02, 1994 JULY 03, 1993
------------- ------------- -------------
<S> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 6,532,817 6,540,326 6,339,387
Net effect of dilutive stock options - based on
the treasury stock method using average
market price 0 36,359 218,591
---------- ----------- -----------
TOTAL 6,532,817 6,576,685 6,557,978
========== =========== ===========
NET INCOME $3,373,496 $10,709,590 $15,574,986
========== =========== ===========
NET INCOME PER SHARE $ 0.52 $ 1.63 $ 2.37
========== =========== ===========
</TABLE>
<PAGE> 2
EXHIBIT 11.0
COMPUTATION OF EARNINGS PER SHARE - CONTINUED
THOMASTON MILLS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JULY 01, 1995 JULY 02, 1994 JULY 03, 1993
------------- ------------- -------------
<S> <C> <C> <C>
FULLY DILUTED
Weighted average shares outstanding 6,532,817 6,540,326 6,339,387
Net effect of dilutive stock options - based on
the treasury stock method using the year-end
market price, if higher than average market
price 0 36,359 233,503
---------- ----------- -----------
TOTAL 6,532,817 6,576,685 6,572,890
========== =========== ===========
NET INCOME $3,373,496 $10,709,590 $15,574,986
========== =========== ===========
NET INCOME PER SHARE $ 0.52 $ 1.63 $ 2.37
========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.0
SUBSIDIARY OF THE COMPANY
The Company has one subsidiary, Thomaston Mills, FSC Inc., incorporated under
the laws of the U.S. Virgin Islands.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Thomaston Mills, Inc. of our report dated August 11, 1995, included in
the 1995 Annual Report to Shareholders of Thomaston Mills, Inc.
Our audits also included the financial statement schedule of Thomaston
Mills, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the 1994 Stock Option Plan, the 1992 Stock
Option Plan, the Amended and Restated 1989 Stock Option Plan, and the 1988
Stock Option Plan of Thomaston Mills, Inc. of our report dated August 11, 1995,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K)
for the year ended July 1, 1995.
Atlanta, Georgia
September 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-START> JUL-03-1994
<PERIOD-END> JUL-01-1995
<EXCHANGE-RATE> 1
<CASH> 1,543
<SECURITIES> 0
<RECEIVABLES> 51,339
<ALLOWANCES> 415
<INVENTORY> 39,666
<CURRENT-ASSETS> 93,325
<PP&E> 225,353
<DEPRECIATION> 136,718
<TOTAL-ASSETS> 186,323
<CURRENT-LIABILITIES> 22,591
<BONDS> 23,313
<COMMON> 7,494
0
0
<OTHER-SE> 102,781
<TOTAL-LIABILITY-AND-EQUITY> 186,323
<SALES> 276,491
<TOTAL-REVENUES> 276,915
<CGS> 249,691
<TOTAL-COSTS> 249,691
<OTHER-EXPENSES> 18,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,044
<INCOME-PRETAX> 5,333
<INCOME-TAX> 1,960
<INCOME-CONTINUING> 3,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,373
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
