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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 29, 1996
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)
<TABLE>
<S> <C>
Georgia 58-0460470
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(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)
</TABLE>
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
--------------------------------------------
(Title of Class)
Class B Common Stock, Par Value $1 Per Share
--------------------------------------------
(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 August 22, 1996: Class B Common Stock, $1 Par Value -
$7,268,537 based upon the average bid and ask price of such stock on August 21,
1996, 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 August 22, 1996:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Class A Common Stock, $1 Par Value 4,909,630
Class B Common Stock, $1 Par Value 1,630,366
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended June 29,
1996 are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting to
be held October 3, 1996, are incorporated by reference into Part III.
<PAGE> 3
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 47%, 39% and 14%, respectively, of fiscal 1996 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. These
products 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 $278 million in
fiscal 1996. Net sales per employee have increased from $76,057 in fiscal 1988
to $115,309 in fiscal 1996, which the Company believes is among the highest rate
in the textile industry.
Since fiscal 1986, the Company has invested over $163 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. On the Internet, the Company's home page may be reached at
http://www.thomastonmills.com.
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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
$115,309 in fiscal 1996, which the Company believes is among the highest rate
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 250-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 47% of net sales for fiscal 1996.
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
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products have a greater design sensitivity and fashion orientation and thus
generally command higher prices than 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 1996, sales of comforters and accessories
accounted for 27% 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 250-count products, 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 1996. 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 expanded 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
<PAGE> 6
chaps which are well-known to outdoor enthusiasts. Products marketed under the
RATTLERS(R) label are produced by the Company and others.
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 14% of net
sales for fiscal 1996. 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 79% 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 100%
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
<PAGE> 7
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 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, was completed in the
second quarter of fiscal year 1996 and has resulted in an increase of
approximately twenty percent in denim production capacity.
In the fourth quarter of fiscal year 1996, the Company began an
expansion of its comforter and bedding accessory manufacturing and distribution
facility plus the addition of a new Dye Range. This project will be financed
with $18,000,000 in Revenue Bonds issued through the Thomaston-Upson County
Industrial Development Authority.
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.
<PAGE> 8
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 1996. 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 1996, 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.
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 40 sales representatives
to approximately 2,300 active customers, with no one customer constituting over
10% of net sales in fiscal 1996. 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. In the fourth quarter of fiscal year
1996, the Company expanded its New York office at 111 West 40th Street in New
York City. This new sales and showroom facility provides displays of the
Company's products in an area more than triple the square footage as the former
New York location. International sales, which constituted 5% of net sales for
fiscal 1996, 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.
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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 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.
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BACKLOG
The Company's order backlog decreased 6.1% to $102.1 million as of June
29, 1996 as compared to $108.7 million as of July 1, 1995.
INVENTORIES
Inventories at June 29, 1996 and July 1, 1995 were $42,710,000 and
$39,666,000, respectively. The Company closely monitors inventory levels and,
through manufacturing capacity utilization, adjusts these levels in relation to
current and forecasted sales. Total inventory turns on an average annualized
rate were 5.9 times for fiscal year 1996 and 6.3 times for fiscal year 1995.
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 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.
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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 June 29, 1996, the Company had approximately 2,408 full-time
employees, all but 178 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.
<PAGE> 12
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........................... 55 President, Chief Executive Officer and Director
George H. Hightower, Jr..................... 47 Executive Vice President - Sales and Director
H. Stewart Davis............................ 53 Executive Vice President - Finishing and Director
John R. Carson.............................. 61 Vice President - Consumer Product Sales
Charles F. Eichelberger..................... 57 Vice President - Greige Manufacturing
James E. Franklin, Jr....................... 52 Vice President - Industrial Sales
James F. Haygood............................ 49 Vice President - Apparel Fabric Sales
W. Harrison Hightower, III.................. 60 Vice President - Administration
Jonathan O. Huff............................ 55 Vice President - Finishing
Rosser R. Raines............................ 58 Treasurer and Director
Daniel B. Tripp............................. 44 Vice President - Human Resources and
Public Relations
Robert E. Greer............................. 52 Vice President - Engineering
Ronald W. VanHouten......................... 48 Secretary
</TABLE>
The Board of Directors currently consists of eleven 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 31 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 22 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 32 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 34 years and has served as
Vice President - Consumer Product Sales since 1976.
Mr. Haygood has been with the Company 24 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 25 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 13 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 38 years
and has served as Vice President - Administration since 1976.
Mr. Huff has been with the Company for 22 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 34 years and has served as
Treasurer since 1976 and as a director since 1993.
Mr. Tripp has been with the Company for 18 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 24 years and has served as
Secretary since 1992. He served as Assistant Secretary from 1990 to 1992 and
Controller from 1987 to 1990.
Mr. Greer has been with the Company for 5 years and has served as Vice
President - Engineering since June 1996.
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
Thomaston, Georgia and 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.
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
Peerless Mill 524,000 Greige mill in which baled raw cotton
Thomaston, Georgia and polyester are converted in woven
cloth.
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 83,000 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, 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 August 22, 1996 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 June 29, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Common Stock Market Prices and Dividends on page 33 of the annual
shareholders report for the year ended June 29, 1996 are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data on Pages 2 and 3 of the annual shareholders
report for the year ended June 29, 1996 are incorporated herein by reference.
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Results of Operations and
Financial Condition shown on pages 29 thru 31 of the annual shareholders report
for the year ended June 29, 1996 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the registrant and
its subsidiary, included in the annual shareholders report for the year ended
June 29, 1996, are incorporated herein by reference:
Consolidated Balance Sheets - June 29, 1996 and July 1, 1995 - Pages 16
and 17
Consolidated Statements of Shareholders' Equity - fiscal years ended
June 29, 1996, July 1, 1995 and July 2, 1994 - Page 18
Consolidated Statements of Income - fiscal years ended June 29, 1996,
July 1, 1995 and July 2, 1994 - Page 19
Consolidated Statements of Cash Flows - fiscal years ended June 29,
1996, July 1, 1995 and July 2, 1994 - Page 20
Notes to Consolidated Financial Statements - June 29, 1996 - Pages 21
thru 28
Quarterly Results of Operations on page 27 of the annual shareholders
report for the year ended June 29, 1996 are incorporated herein by reference.
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 3, 1996. 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.
<PAGE> 16
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 3,
1996 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.
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 3, 1996, 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 12 of the definitive proxy statement for
the Annual Meeting of Shareholders on October 3, 1996, is incorporated
herein by reference.
(b) C. Ronald Barfield, a director of the Company, is a partner in the law
firm Adams, Barfield, Dunaway & Hankinson, which provides legal
services to the Company.
(c) Dom H. Wyant, a director of the Company, 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").
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
*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.
11.0 Statement regarding computation of earnings per share.
13.0 Portions of the 1996 Annual Report mailed to shareholders
incorporated herein by reference.
21.0 Subsidiary of the Company.
23.0 Consent of Independent Auditors.
27.0 Financial Data Schedule (for financial security purposes only).
</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 1996 - 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.
<PAGE> 18
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.
Date: September 27, 1996 /s/ Neil H. Hightower
--------------------------------------
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.
/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 27, 1996 Date: September 27, 1996
/s/ George H. Hightower, Jr. /s/ George H. Hightower
- --------------------------------------- ------------------------------
George H. Hightower, Jr. George H. Hightower
Executive Vice President and Director
Director Date: September 27, 1996
Date: September 27, 1996
/s/ William H. Hightower, Jr. /s/ C. Ronald Barfield
- --------------------------------------- ------------------------------
William H. Hightower, Jr. C. Ronald Barfield
Director Director
Date: September 27, 1996 Date: September 27, 1996
<PAGE> 19
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 JUNE 29, 1996
THOMASTON MILLS, INC. AND SUBSIDIARY
Thomaston, Georgia
<PAGE> 20
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 statements and notes thereto of
Thomaston Mills, Inc. and subsidiary included in the annual report of the
registrant to its shareholders for the year ended June 29, 1996 are
incorporated by reference in Item 8:
Consolidated Balance Sheets - June 29, 1996 and July 1, 1995
Consolidated Statements of Shareholders' Equity - fiscal years ended
June 29, 1996, July 1, 1995 and July 2, 1994.
Consolidated Statements of Income - fiscal years ended June 29, 1996,
July 1, 1995 and July 2, 1994
Consolidated Statements of Cash Flows - fiscal years ended June 29,
1996, July 1, 1995 and July 2, 1994
Notes to Consolidated Financial Statements - June 29, 1996
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.
<PAGE> 21
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THOMASTON MILLS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B 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
PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Peiod ended June 29, 1996:
Allowance for doubtful accounts $ 415,000 $ 115,611 $ --- $ 115,611 $ 415,000
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
</TABLE>
Note: Amounts included in column D are accounts written off during the periods.
<PAGE> 1
EXHIBIT 11.0
COMPUTATION OF EARNINGS PER SHARE
THOMASTON MILLS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 29, 1996 JULY 01, 1995 JULY 02, 1994
------------- ------------- -------------
<S> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 6,537,238 6,532,817 6,540,326
Net effect of dilutive stock options - based on
the treasury stock method using average market price 11,517 0 36,359
----------- ----------- ------------
TOTAL 6,548,755 6,532,817 6,576,685
=========== =========== ============
NET INCOME $ 615,282 $ 3,373,496 $ 10,709,590
=========== =========== ============
NET INCOME PER SHARE $ 0.09 $ 0.52 $ 1.63
=========== =========== ============
</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
JUNE 29, 1996 JULY 01, 1995 JULY 02, 1994
------------- ------------- -------------
<S> <C> <C> <C>
FULLY DILUTED
Weighted average shares outstanding 6,537,238 6,532,817 6,540,326
Net effect of dilutive stock options - based on
the treasury stock method using year-end
market price, if higher than average market price 11,517 0 36,359
----------- ----------- ------------
TOTAL 6,548,755 6,532,817 6,576,685
=========== =========== ============
NET INCOME $ 615,282 $ 3,373,496 $ 10,709,590
=========== =========== ============
NET INCOME PER SHARE $ 0.09 $ 0.52 $ 1.63
=========== =========== ============
</TABLE>
<PAGE> 1
EXHIBIT 13.0
THOMASTON MILLS, INC. & SUBSIDIARY
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 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
FISCAL 1996
First Quarter $14.25 $12.50 $15.00 $12.25 $.0725 $.0725
Second Quarter $13.75 $12.00 $14.00 $12.00 $.0725 $.0725
Third Quarter $13.13 $10.81 $12.00 $10.25 $.0725 $.0725
Fourth Quarter $12.50 $10.50 $12.50 $ 9.50 $.0750 $.0750
</TABLE>
APPROXIMATE NUMBER OF SHAREHOLDERS OF RECORD
CLASS A COMMON STOCK 372
CLASS B COMMON STOCK 321
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.
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME THOMASTON MILLS, INC. & SUBSIDIARY
(In thousands, except per share data)
<TABLE>
<CAPTION>
FIFTY-TWO WEEK FIFTY-TWO WEEK FIFTY-TWO WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
----------------------------------------------------
<S> <C> <C> <C>
Net sales $ 277,665 $ 276,491 $ 279,479
Cost of sales 254,055 249,691 242,246
----------------------------------------------------
Gross profit 23,610 26,800 37,233
Selling, general and
administrative expenses 19,967 18,847 18,339
----------------------------------------------------
Operating income 3,643 7,953 18,894
Interest expense 3,226 3,044 1,886
Other income, net 515 424 429
----------------------------------------------------
Income before income taxes 932 5,333 17,437
Income taxes -- Note 5 317 1,960 6,727
----------------------------------------------------
Net income $ 615 $ 3,373 $ 10,710
====================================================
Average common shares outstanding 6,548,755 6,532,817 6,576,685
====================================================
Net income per common share $ .09 $ .52 $ 1.63
====================================================
</TABLE>
See accompanying notes
<PAGE> 3
CONSOLIDATED BALANCE SHEETS THOMASTON MILLS, INC. & SUBSIDIARY
(In thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995
-----------------------------------------
<S> <C> <C>
ASSETS Current Assets:
Cash and cash equivalents $ 2,077 $ 1,544
Trade accounts receivable less allowance of
$415 in 1996 and 1995 50,408 50,924
Inventories -- Note 2 42,710 39,666
Deferred income taxes -- Note 5 1,524 790
Prepaid expenses and other current assets 329 401
------------------------------------
Total Current Assets 97,048 93,325
Property, Plant and Equipment -- Note 3:
Land and improvements 5,501 5,856
Buildings and improvements 42,710 36,867
Machinery, equipment and fixtures 185,483 182,630
------------------------------------
233,694 225,353
Less allowances for depreciation 143,071 136,719
------------------------------------
90,623 88,634
Unexpended Construction Funds -- 3,568
Other Assets 1,788 796
------------------------------------
Total Assets $189,459 $186,323
====================================
</TABLE>
16
<PAGE> 4
THOMASTON MILLS, INC. & SUBSIDIARY
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995
-----------------------------------------
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY Current Liabilities:
Trade accounts payable $ 15,880 $ 14,214
Salaries and wages 499 435
Withholding and payroll taxes 652 629
Federal and state income taxes 844 1,131
Local taxes 804 699
Accrued interest 199 314
Other current liabilities 4,134 4,087
Current portion of long-term debt 2,748 1,082
------------------------------------
Total Current Liabilities 25,760 22,591
Long-Term Debt, less current portion -- Note 3 46,065 44,813
Capital Lease Obligations, less current portion 1,486 1,297
Deferred Income Taxes -- Note 5 6,874 7,233
Other Liabilities 204 114
Shareholders' Equity -- Notes 3 and 4:
Class A Common Stock -- $1 par; 30,000,000
shares authorized; 5,620,518 shares
outstanding including 710,888 treasury
shares in 1996 and 719,688 in 1995 5,621 5,621
Class B Common Stock -- $1 par; 10,000,000
shares authorized; 1,873,506 shares
outstanding including 243,140 treasury
shares in 1996 and 1995 1,873 1,873
Additional paid-in capital 8,904 8,863
Retained earnings 98,092 99,389
------------------------------------
114,490 115,746
Less treasury stock -- at cost 5,420 5,471
------------------------------------
109,070 110,275
------------------------------------
Total Liabilities and Shareholders' Equity $189,459 $186,323
====================================
</TABLE>
See accompanying notes.
17
<PAGE> 5
THOMASTON MILLS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
<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 JULY 3, 1993 $ 5,621 $ 1,873 $ 8,738 $ 88,885 $ (5,171) $ 99,946
Net income for the year -- -- -- 10,710 -- 10,710
Cash dividends on common stock,
$.2650 per share -- -- -- (1,733) -- (1,733)
Exercise of stock options, including
tax effects -- -- 69 -- 36 105
----------------------------------------------------------------------------------
BALANCE JULY 2, 1994 5,621 1,873 8,807 97,862 (5,135) 109,028
Net income for the year -- -- -- 3,373 -- 3,373
Cash dividends on common stock,
$.2825 per share -- -- -- (1,846) -- (1,846)
Purchase of Class B common stock -- -- -- -- (392) (392)
Exercise of stock options, including
tax effects -- -- 56 -- 56 112
----------------------------------------------------------------------------------
BALANCE JULY 1, 1995 5,621 1,873 8,863 99,389 (5,471) 110,275
Net income for the year -- -- -- 615 -- 615
Cash dividends on common stock,
$.2925 per share -- -- -- (1,912) -- (1,912)
Exercise of stock options, including
tax effects -- -- 41 -- 51 92
----------------------------------------------------------------------------------
BALANCE JUNE 29, 1996 $ 5,621 $ 1,873 $ 8,904 $ 98,092 $ (5,420) $109,070
==================================================================================
</TABLE>
See accompanying notes
18
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS THOMASTON MILLS, INC. & SUBSIDIARY
(In thousands)
<TABLE>
<CAPTION>
FIFTY-TWO WEEK FIFTY-TWO WEEK FIFTY-TWO WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
-------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES Net income $ 615 $ 3,373 $ 10,710
Adjustments to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation and amortization 16,331 14,927 12,551
Gain on sale of property,
plant and equipment (34) (40) (125)
Deferred income tax
(benefit) expense (1,093) 256 766
Changes in operating assets and
liabilities:
Accounts receivable 516 5,233 (10,191)
Inventories (3,044) (3,163) (2,379)
Prepaid expenses and other
assets (920) (19) 126
Accounts payable 1,666 1,648 2,103
Accrued expenses 6 (744) 910
--------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 14,043 21,471 14,471
INVESTING ACTIVITIES Purchases of property, plant and
equipment (18,457) (19,630) (23,961)
Less capital lease obligations incurred 557 -- 1,962
--------------------------------------------------------
Cash for property, plant and equipment (17,900) (19,630) (21,999)
Use of (additions to) unexpended
construction funds 3,568 (3,568) --
Proceeds from sales of property,
plant and equipment 171 109 130
--------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (14,161) (23,089) (21,869)
FINANCING ACTIVITIES Proceeds from revolving lines of
credit and long-term debt 7,557 15,200 14,962
Less capital lease obligations incurred (557) -- (1,962)
--------------------------------------------------------
Cash proceeds from borrowings 7,000 15,200 13,000
Principal payments on revolving
lines of credit, long-term debt
and capital lease obligations (4,529) (11,022) (4,234)
Purchase of treasury stock -- (392) --
Exercise of stock options 92 112 105
Cash dividends paid (1,912) (1,846) (1,733)
--------------------------------------------------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 651 2,052 7,138
--------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 533 434 (260)
Cash and cash equivalents at
beginning of period 1,544 1,110 1,370
--------------------------------------------------------
Cash and cash equivalents at end
of period $ 2,077 $ 1,544 $ 1,110
========================================================
</TABLE>
See accompanying notes
20
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THOMASTON MILLS, INC. & SUBSIDIARY
JUNE 29, 1996
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. These products
are marketed both domestically and internationally.
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
diversifed 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 LIFO inventories 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.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" has been issued by the Financial Accounting
Standards Board and must be adopted by the Company in fiscal year
1997. This Standard requires that impairment losses be recognized
when the carrying value of an asset may not be recoverable. The
Company regularly assesses all of its long-lived assets for
impairment, and therefore, does not believe the adoption of this
Standard will have a material effect on its financial position or
results of operations.
During fiscal year 1997, the Company will also be required to
adopt Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." This Standard
encourages, but does not require, recognition of compensation
expense based on the fair value of equity instruments granted to
employees. The Company does not plan to record compensation
expense for equity instruments granted to employees, and
therefore, the adoption of this Standard will have no impact on its
financial position or results of operations.
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 stock options.
RECLASSIFICATION
Certain 1995 balances have been reclassified to conform with the
1996 classification.
<PAGE> 8
THOMASTON MILLS, INC. & SUBSIDIARY
NOTE 2 INVENTORIES
- --------------------------------------------------------------------------------
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
------------------------
<S> <C> <C>
Raw materials and supplies $ 9,978 $ 10,087
Work in progress 21,776 21,008
Finished goods 24,037 21,198
LIFO reserve (13,081) (12,627)
------------------------
$ 42,710 $ 39,666
========================
</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, 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.
Some 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 1996, 1995 and 1994 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 $901,000 ($.14
per share) in 1996; $4,834,000 ($.74 per share) in 1995; and $10,864,000 ($1.65
per share) in 1994.
NOTE 3 LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------------------
<S> <C> <C>
Revolving credit agreement $25,500 $21,500
Long-term senior note payable in nine annual
principal payments of $1,667 beginning
December 16, 1996 with interest payments
due semi-annually at a rate of 7.94% 15,000 15,000
Long-term note payable in quarterly principal
payments of $195 through March 2001
with interest payments due quarterly at a
rate of 9.6%, collateralized 3,713 4,495
Industrial revenue bonds payable in annual
principal payments of $300 in 1997;
$3,900 in 1998; and $200 in 1999
and 2000 with floating interest rates
ranging up to 65% of the prime
interest rate, collateralized 4,600 4,900
--------------------
48,813 45,895
Less amounts due within one year 2,748 1,082
--------------------
$46,065 $44,813
====================
</TABLE>
<PAGE> 9
THOMASTON MILLS, INC. & SUBSIDIARY
In April 1996, 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 $27,000,000. The interest rate of borrowings under this
line is based on the prime interest rate, the London interbank offered rate
(LIBOR) or the secondary certificate of deposit (CD) rate. At June 29, 1996,
the weighted average interest rate on amounts outstanding under this facility
was 6.0%. The Company pays facility fees on the unused portions of the
committed credit line. On April 19, 2001 or before, at the Company's option,
this revolving credit note may be converted to a five-year note, payable in
quarterly installments with interest based on the prime interest rate, LIBOR or
the secondary CD rate. The quarterly installments require 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 $4,402,000 at June 29,
1996. The 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 $2,748,000 in 1997; $6,348,000 in 1998; $2,648,000
in 1999; $2,648,000 in 2000 and $2,253,000 in 2001.
Cash payments for interest were $3,377,000, $2,983,000 and $2,327,000 in
1996, 1995 and 1994, respectively. Interest capitalized was $36,000, $38,000,
and $541,000 in 1996, 1995 and 1994, 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 June 29, 1996.
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 that 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.
Further information relating to the options is as 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 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
Granted 185,000 $ 17 33,000 $ 18
Exercised (8,800) $ 6 - 9 -- --
Canceled (24,000) $16 - 17 -- --
---------------------------------------------------------------
OUTSTANDING AT JUNE 29, 1996 416,400 $ 6 - 17 163,720 $ 6 - 18
===============================================================
EXERCISABLE AT JUNE 29, 1996 154,800 $ 6 - 17 65,320 $ 6 - 18
===============================================================
</TABLE>
<PAGE> 10
THOMASTON MILLS, INC. & SUBSIDIARY
NOTE 5 INCOME TAXES
- --------------------------------------------------------------------------------
Income tax expense (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Federal $ 1,185 $ 1,620 $ 5,166
State 225 84 795
Deferred (1,093) 256 766
-------------------------------------
$ 317 $ 1,960 $ 6,727
=====================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets were
as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 7,193 $ 7,460
Inventory 446 446
---------------------
7,639 7,906
Deferred tax assets:
Employee and retiree benefit accruals 755 598
Alternative minimum tax 1,147 511
Inventory 220 185
Bad debt allowances 162 162
Other 5 7
---------------------
2,289 1,463
---------------------
Net deferred tax liability $ 5,350 $ 6,443
=====================
</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 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Tax at statutory rates $ 317 $ 1,813 $ 6,103
State income taxes, net of
Federal tax benefit 38 112 673
Adjustment of estimated
liabilities for prior years (55) -- --
Other items 17 35 (49)
------------------------------
$ 317 $ 1,960 $ 6,727
==============================
</TABLE>
Cash payments for income taxes were $1,690,000, $2,310,000 and $5,445,000 in
1996, 1995 and 1994, respectively. Refunds were $1,000, $-0- and $5,000 in
1996, 1995 and 1994, respectively.
NOTE 6 PENSION PLANS
- --------------------------------------------------------------------------------
Thomaston Mills, Inc. has noncontributory defined benefit pension plans covering
substantially all salaried and hourly employees. 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 benefits expected to be
earned in the future.
<PAGE> 11
THOMASTON MILLS, INC. & SUBSIDIARY
A summary of the components of net periodic pension cost is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 829 $ 739 $ 791
Interest cost on projected
benefit obligation 2,432 2,401 2,212
Actual loss (gain) on
plan assets (4,340) (3,766) 31
Net amortization and deferral 2,091 1,686 (2,107)
-------------------------------------
Total pension expense $ 1,012 $ 1,060 $ 927
=====================================
</TABLE>
Assumptions used in determining the pension benefit obligation were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Weighted-average discount rates 8.0% 7.5% 8.5%
Rates of increase in compensation levels 5.5% 5.0% 6.5%
Expected long-term rates 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:
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
-----------------------
<S> <C> <C>
PENSION PLAN NO. 1 (in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $15,041 $15,088
=======================
Accumulated benefit obligation $16,517 $16,603
=======================
Projected benefit obligation $21,514 $20,919
Plan assets at fair value 21,521 19,271
-----------------------
Funded status - projected benefit
obligation less than (in excess of) plan assets $ 7 $(1,648)
=======================
Comprised of:
Accrued pension cost $(1,796) $(1,770)
Unrecognized net gain 3,504 1,693
Unrecognized net transition obligation (495) (573)
Unrecognized prior service cost (1,206) (998)
-----------------------
$ 7 $(1,648)
=======================
PENSION PLAN NO. 2 (in thousands):
Actuarial present value of benefit obligations:
Vested benefit obligation $ 9,373 $10,499
=======================
Accumulated benefit obligation $ 9,789 $10,981
=======================
Projected benefit obligation $ 9,789 $10,981
Plan assets at fair value 10,691 10,716
-----------------------
Funded status - projected benefit
obligation less than (in excess of) plan assets $ 902 $ (265)
=======================
Comprised of:
Prepaid pension cost $ 1,331 $ 1,483
Unrecognized net loss (214) (1,623)
Unrecognized prior service cost (691) (680)
Unrecognized net asset 476 555
-----------------------
$ 902 $ (265)
=======================
</TABLE>
25
<PAGE> 12
THOMASTON MILLS, INC. & SUBSIDIARY
Substantially all of the plans' assets are invested in corporate and
governmental bonds, common stocks, commingled trust investment funds and
temporary investments. Assets of the plans included approximately $1,250,000
and $1,500,000 of Thomaston Mills, Inc. Class A Common Stock and Class B Common
Stock at June 29, 1996 and July 1, 1995, 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 plan's funded status reconciled with amounts
recognized in the Company's balance sheets.
Accumulated postretirement benefit obligation (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------------------
<S> <C> <C>
Retirees $ 152 $ 222
Fully eligible active plan participants 214 215
Other active plan participants 1,179 1,054
---------------------
Accumulated postretirement benefit obligation 1,545 1,491
Unrecognized net gain 1,343 1,378
Unrecognized transition asset (2,276) (2,418)
---------------------
Accrued postretirement benefit cost $ 612 $ 451
=====================
</TABLE>
Net periodic postretirement benefit cost for 1996, 1995 and 1994 includes the
following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Service cost attributed to
service during the year $107 $ 93 $127
Amortization of accumulated
postretirement benefit obligation 142 142 142
Interest cost on accumulated
postretirement benefit obligation 116 157 186
Net amortization and deferral (77) (78) (31)
--------------------------------
Net periodic postretirement
benefit cost $288 $314 $424
================================
</TABLE>
Actuarial assumptions used in determining the accumulated postretirement benefit
obligation include discount rates of 8.0%, 7.5% and 8.5% for 1996, 1995 and
1994, respectively.
The health care cost trend rate assumption for 1996 is 6%, decreasing to
5% 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
June 29, 1996 by approximately $160,000 and the aggregate service and interest
cost components of net periodic postretirement benefit cost for 1996 by
approximately $25,000.
26
<PAGE> 13
THOMASTON MILLS, INC. & SUBSIDIARY
NOTE 8 COMMITMENTS
- --------------------------------------------------------------------------------
At June 29, 1996, the Company had commitments for the purchase of machinery and
equipment amounting to approximately $3,705,000.
NOTE 9 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
The Company's unaudited quarterly results of operations for the years ended June
29, 1996 and July 1, 1995 were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
JUNE 29, MARCH 30, DECEMBER 30, SEPTEMBER 30,
1996 1996 1995 1995
---------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $81,534 $66,150 $61,385 $68,596
Gross profit 8,337 4,538 4,141 6,594
Net income 1,529 (592) (902) 580
Net income per share .23 (.09) (.14) .09
<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
</TABLE>
Adjustments made in the fourth quarter of 1996 increased net income by
approximately $132,000 ($.02 per share) and in the fourth quarter of 1995
decreased net income by approximately $212,000 ($.03 per share). The 1996
adjustments related primarily to differences between actual and estimated
depreciation expense calculations during the year. The 1995 adjustments related
primarily to differences between actual and standard cost used in determining
inventory relief and cost of sales during the year.
27
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS THOMASTON MILLS, INC. & SUBSIDIARY
BOARD OF DIRECTORS
THOMASTON MILLS, INC.
We have audited the accompanying consolidated balance sheets of Thomaston
Mills, Inc. and subsidiary as of June 29, 1996 and July 1, 1995, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended June 29, 1996.
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 June 29, 1996 and July 1, 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 29, 1996, 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.
/S/ ERNST & YOUNG LLP
Atlanta, Georgia
August 9, 1996
<PAGE> 15
STATISTICAL SUMMARY
ELEVEN YEAR SUMMARY
Thomaston Mills, Inc. and Subsidiary
<TABLE>
<CAPTION>
FISCAL YEARS 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Thousands of Dollars - for the years ended
Net Sales $277,665 $276,491 $279,4??
Income (Loss) before Income Taxes, Extraordinary Item
and Cumulative Effect of Change in Accounting 932 5,333 17,437
Income Taxes 317 1,960 6,727
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting 615 3,373 10,710
Net Income (Loss) 615 3,373 10,710
Net Income (Loss) as Percentage of Net Sales .22% 1.22% 3.83%
Cash Dividends 1,912 1,846 1,733
Depreciation and Amortization 16,331 14,927 12,5??
Capital Expenditures 17,900 19,631 21,999
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK*
Income (Loss) before Extraordinary Item and Cumulative
Effect of Change in Accounting $ .09 $ .52 $ 1.63
Net Income (Loss) .09 .52 1.63
Cash Dividends .2925 .2825 .265
Working Capital 10.89 10.83 10.99
Shareholders' Equity 16.66 16.88 16.58
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
Thousands of Dollars - at End of Year
Total Assets $189,459 $186,323 $179,332
Inventories at Replacement Cost 55,791 52,293 46,825
Less LIFO Reserve (13,081) (12,627) (10,323)
Inventories at LIFO cost** 42,710 39,666 36,502
Property, Plant and Equipment - Net 90,623 88,634 84,000
Working Capital 71,288 70,734 72,265
Long-Term Debt and Capital Lease Obligations 47,551 46,110 41,247
Shareholders' Equity 109,070 110,275 109,028
==========================================================================================================================
</TABLE>
*Per share data for years prior to 1992 have been restated to reflect the 2 for
1 stock split effective May 15, 1992 and the 3 for 1 stock split effective June
2, 1988.
**In 1995, the Company changed to the LIFO method of accounting for purchased
cloth and yarn - See Note 2 to the Consolidated Financial Statements.
In December 1987, the Financial Accounting Standards Board issued Statement No.
96, "Accounting for Income Taxes." The Company adopted the provisions of the
Statement in its 1989 financial statements resulting in a cumulative effect
adjustment that increased 1989 net income by $964,900. In 1993, the Company
adopted SFAS 109, Accounting for Income Taxes. The effect of the adoption of
SFAS 109 was not material to the net results of operations of the Company.
2
<PAGE> 16
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$277,876 $257,442 $201,538 $199,830 $184,658 $187,405 $171,384 $139,063
25,668 22,191 15 9,826 4,353 16,853 22,294 (1,047)
10,093 8,296 6 3,822 1,665 6,262 11,035 --
15,575 13,895 9 6,004 2,688 10,591 11,259 (1,047)
15,575 13,895 9 6,004 3,653 10,591 12,542 (1,047)
5.61% 5.40% .00% 3.01% 1.98% 5.65% 7.32% (.75)%
1,566 1,403 1,373 1,350 1,255 1,031 863 821
10,911 9,805 9,315 9,454 9,453 8,568 7,624 7,238
20,348 16,384 12,386 15,167 15,012 14,489 9,451 9,062
- ------------------------------------------------------------------------------------------------------------
$ 2.37 $ 2.17 $ .00 $ .94 $ .42 $ 1.66 $ 1.72 $ (.16)
2.37 2.17 .00 .94 .57 1.66 1.91 (.16)
.245 .225 .22 .215 .20 .16 .13 .125
9.58 8.69 6.78 .46 6.84 6.30 5.30 4.83
15.24 13.07 11.25 .37 10.89 10.51 8.86 7.08
- ------------------------------------------------------------------------------------------------------------
$155,591 $140,411 $115,088 $108,431 $101,276 $ 90,068 $ 83,105 $ 74,773
44,195 39,696 31,355 36,858 30,760 31,823 25,098 27,417
(10,072) (10,181) (11,840) (11,833) (10,036) (11,071) (8,476) (10,104)
34,123 29,515 19,515 25,025 20,724 20,752 16,622 17,313
72,596 62,931 55,691 52,272 46,335 40,759 33,936 32,195
62,820 55,657 42,887 41,503 42,893 39,472 34,830 31,746
30,520 30,725 24,252 17,711 18,120 10,796 7,175 17,132
99,947 83,719 71,118 73,010 68,326 65,928 58,200 46,521
============================================================================================================
</TABLE>
3
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THOMASTON MILLS, INC. & SUBSIDIARY
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO 1995
Fiscal year 1996 sales of $277,665,000 were slightly ahead of fiscal year 1995
sales of $276,491,000. This .4% increase in sales was the result of a .7%
increase in average sales price being offset by a .3% decline in the number of
units shipped.
Increases in raw material cost, primarily cotton, averaged 15.7% for
fiscal year 1996 as compared to fiscal year 1995. These increased raw material
costs in conjunction with decreased manufacturing capacity utilization as a
result of less units shipped resulted in cost of goods sold increasing to 91.5%
of sales for fiscal year 1996. For fiscal year 1995, cost of goods sold were
90.3% of sales. The Company also granted a general wage increase in the first
quarter of fiscal year 1996.
As a result of the increased raw material costs, lower manufacturing
capacity utilization and the fiscal year 1996 general wage increase, the
Company's gross profit for fiscal year 1996 declined to 8.5% of sales from a
gross profit of 9.7% of sales for fiscal year 1995.
Selling, general and administrative expenses increased to $19,967,000
or 7.2% of sales for fiscal year 1996 as compared to $18,847,000 or 6.8% of
sales for fiscal year 1995. During fiscal year 1996, the Company added sales
and marketing personnel in New York and Chicago. These personnel additions,
along with expenses associated with the broadening of our Consumer Products
customer base, accounted for the bulk of the increase in selling, general and
administrative expenses.
Other income for fiscal year 1996 was $515,000 and $424,000 for fiscal
year 1995. This $91,000 increase is primarily the result of higher interest
earned on the Company's short-term investments of cash.
Interest expense increased $182,000 from $3,044,000 in fiscal year 1995
to $3,226,000 in fiscal year 1996. This 6.0% increase was the result of
slightly higher interest in conjunction with the Company's increased borrowings
under its revolving credit agreement.
The Company's effective income tax rate for fiscal year 1996 was 34.0%
compared to 36.7% for 1995. This decrease can be attributed primarily to
favorable results of income tax examinations completed in fiscal year 1996 for
tax years through fiscal year 1995.
Net income for 1996 was $615,000 or $.09 per common share as compared
to $3,373,000 or $.52 per common share for fiscal year 1995.
FISCAL YEAR 1995 COMPARED TO 1994
Sales of $276,491,000 for fiscal year 1995 were down 1.1% as compared to fiscal
year 1994 sales of $279,479,000. 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%.
Costs 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 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 $18,847,000 or 6.8%
of sales in fiscal year 1995 and $18,339,000 or 6.6% of sales in fiscal year
1994. The increase of $508,000 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 $424,000 and $428,000 respectively.
<PAGE> 18
THOMASTON MILLS, INC. & SUBSIDIARY
Interest expense for 1995 increased $1,158,000 from $1,886,000 in
fiscal 1994 to $3,044,000 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.
The effective income tax rate for fiscal year 1995 was 36.7% compared
to 38.6% in 1994. 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 $3,373,000 as compared to
$10,710,000 for fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company continues to maintain a strong financial position. At June 29,
1996, working capital was $71,288,000 as compared to $70,734,000 at July 1,
1995. The ratio of current assets to current liabilities was 3.8:1 at June 29,
1996 and 4.1:1 at July 1, 1995.
The Company's principal sources of liquidity have been its operating
cash flow, capital resources available under the revolving credit agreement and
project financing. Cash provided by operating activities was $14,043,000 for
fiscal year 1996. The primary use of funds was $17,900,000 in purchases of
property, plant and equipment.
During the second quarter of fiscal year 1995, the Company revised and
expanded its revolving credit agreement to provide for unsecured borrowings up
to $24,000,000. In April 1996, the Company executed a second amendment which
expanded and redated this revolving credit agreement to provide for unsecured
borrowings up to $27,000,000. On April 19, 2001 or before, at the Company's
option, this revolving credit agreement may be converted to a five-year note.
In the latter part of fiscal year 1995, the Company placed orders for
additional equipment which increased denim production capacity by approximately
twenty percent. 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 Industrial Revenue
Bonds. The maturity date of the bond issue is April 2005.
In the fourth quarter of fiscal year 1996, the Company began an
expansion of the Lakeside Comforter Plant plus the addition of a new Dye Range.
This project will be financed with $18,000,000 in Revenue Bonds issued through
the Thomaston-Upson County Industrial Development Authority. The Company has
obtained a commitment from a group of banks to purchase these Revenue Bonds.
The Bond closing is expected to take place in the latter part of August 1996.
The Company had capital expenditure commitments at June 29, 1996 for
approximately $3,705,000, primarily for machinery and equipment. Management
believes that cash provided by operating activities, the revolving credit
agreement and the $18,000,000 Revenue Bond Issue will be sufficient to finance
capital requirements and operating needs of the Company for fiscal year 1997.
INVENTORIES
- --------------------------------------------------------------------------------
Inventories at June 29, 1996 and July 1, 1995 were $42,710,000 and $39,666,000,
respectively. The Company closely monitors inventory levels and, through
manufacturing capacity utilization, adjusts these levels in relation to
current and forecasted sales. Total inventory turns on an average annualized
rate were 5.9 times for fiscal year 1996 and 6.3 times for fiscal year 1995.
Through July 2, 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
<PAGE> 19
THOMASTON MILLS, INC. & SUBSIDIARY
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.
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.
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. To the extent prices are sometimes fixed
in advance of shipment, the Company may benefit from its cotton purchase
contracts 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 an average of 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 10-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 June 29, 1996 was $102.1 million which
represents a decrease of 6.1% when compared to the backlog of $108.7 million at
July 1, 1995.
<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 23.0
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 9, 1996,
included in the 1996 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,
present 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 9, 1996,
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 June 29, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
September 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THOMASTON MILLS, INC. FOR THE PERIOD ENDED JUNE 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JUN-29-1996
<CASH> 2,077
<SECURITIES> 0
<RECEIVABLES> 50,823
<ALLOWANCES> 415
<INVENTORY> 42,710
<CURRENT-ASSETS> 97,048
<PP&E> 233,694
<DEPRECIATION> 143,071
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<CURRENT-LIABILITIES> 25,760
<BONDS> 32,731
0
0
<COMMON> 7,494
<OTHER-SE> 101,576
<TOTAL-LIABILITY-AND-EQUITY> 189,459
<SALES> 277,665
<TOTAL-REVENUES> 278,180
<CGS> 254,055
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<OTHER-EXPENSES> 19,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,226
<INCOME-PRETAX> 932
<INCOME-TAX> 317
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<NET-INCOME> 615
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