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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 28, 1996 Commission File No. 0-1915
THOMASTON MILLS, INC.
- -------------------------------------------------------------------------------
GEORGIA 58-0460470
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
115 East Main Street, P.O. Box 311, Thomaston, Georgia 30286
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (706) 647-7131.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the close of the period covered by this report.
Class A Common Stock $1 Par Value - 5,620,518 Shares including
710,888 Treasury Shares
Class B Common Stock $1 Par Value - 1,873,506 Shares including
243,140 Treasury Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing for the past 90 days.
Yes X No
--- ---
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INDEX
THOMASTON MILLS, INC. AND SUBSIDIARY
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<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 28, 1996
and June 29, 1996.
Condensed consolidated statements of operations -- three months
ended September 28, 1996 and three months ended September 30, 1995.
Condensed consolidated statements of changes in cash flows --
three months ended September 28, 1996 and three months ended
September 30, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
SIGNATURES
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PART 1 - FINANCIAL INFORMATION
THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Sept. 28, 1996 June 29, 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 1,438 $ 2,077
Accounts receivable, less allowance of
$415 at both dates 48,865 50,408
Inventories--Note B 47,781 42,710
Other current assets 2,248 1,853
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TOTAL CURRENT ASSETS 100,332 97,048
PROPERTY, PLANT AND EQUIPMENT 234,304 233,694
Less allowances for depreciation 147,264 143,071
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87,040 90,623
OTHER ASSETS 1,859 1,788
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$ 189,231 $ 189,459
============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,919 $ 15,880
Accrued liabilities 7,752 6,288
Federal and State income taxes 0 844
Current portion of long-term debt
and capital lease obligations 3,024 2,748
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TOTAL CURRENT LIABILITIES 26,695 25,760
OBLIGATIONS UNDER CAPITAL LEASE -
LESS CURRENT PORTION 1,383 1,486
LONG-TERM DEBT 46,669 46,065
DEFERRED INCOME TAXES 6,874 6,874
OTHER LIABILITIES 221 204
SHAREHOLDERS' EQUITY
Class A Common Stock--5,620,518 shares
outstanding including 710,888 treasury shares at
September 28, 1996 and 719,688 at June 29, 1996 5,621 5,621
Class B Common Stock--1,873,506 shares
outstanding including 243,140 treasury shares 1,873 1,873
Additional paid-in capital 8,904 8,904
Retained earnings 96,411 98,092
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112,809 114,490
Less treasury stock - at cost 5,420 5,420
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107,389 109,070
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$ 189,231 $ 189,459
============= ===============
</TABLE>
NOTE: The Balance Sheet at June 29, 1996 has been derived from the Audited
Financial Statements at that date. See Note to Condensed Financial Statements.
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THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands except Share and Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
Sept. 28, 1996 Sept. 30, 1995
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<S> <C> <C>
Net sales $ 68,913 $ 68,596
Cost of sales 64,849 62,002
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4,064 6,594
Selling, general
and administrative expenses 5,219 5,083
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(1,155) 1,511
Other income 63 200
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(1,092) 1,711
Interest expense 829 775
------------ ------------
Income (loss) before
income taxes (1,921) 936
Provision for income taxes
(benefit) (730) 356
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Net income (loss) $ (1,191) $ 580
============ ============
AVERAGE NUMBER OF SHARES 6,545,863 6,536,009
Data Per Share:
Net income (loss) $ (0.18) $ 0.09
Dividends paid $ 0.0750 $ 0.0725
</TABLE>
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THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Three Months Ended
SEPTEMBER 28, 1996 September 30, 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,191) $ 580
Adjustments to reconcile net income (loss) to
to net cash provided by operating activities:
Depreciation and amortization 4,522 4,180
Changes in operating assets and
liabilities:
Accounts receivable 1,543 3,173
Inventories (5,071) (853)
Other assets (318) (131)
Accounts payable and accrued expenses 905 (1,704)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 390 5,245
INVESTING ACTIVITIES
Purchases of property, plant and equipment (938) (3,653)
Decrease in unexpended construction funds 0 2,217
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NET CASH USED IN INVESTING
ACTIVITIES (938) (1,436)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 20,000 0
Principal payments on revolving lines of credit,
long term debt and capital lease obligations (19,600) (3,605)
Exercise of stock options 0 54
Cash dividends paid (491) (474)
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NET CASH USED IN
FINANCING ACTIVITIES (91) (4,025)
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (639) (216)
Cash and cash equivalents at beginning
of period 2,077 1,544
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Cash and cash equivalents at end
of period $ 1,438 $ 1,328
============= =============
</TABLE>
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THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended September 28, 1996 are not necessarily indicative of the results
that may be expected for the year ending June 28, 1997. Certain Fiscal 1996
balances have been reclassified to conform with the Fiscal 1997
classifications. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report for
the year ended June 29, 1996.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
SEPTEMBER 28, 1996 June 29, 1996
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<S> <C> <C>
Raw materials $ 10,138 $ 9,978
Work in process 28,756 21,776
Finished products 21,968 24,037
LIFO reserve (13,081) (13,081)
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$ 47,781 $ 42,710
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</TABLE>
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THOMASTON MILLS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
For the first fiscal quarter ended September 28, 1996, sales were $68,913,000
reflecting less than a 1% increase over sales of $68,596,000 for the first
quarter last year. Slow markets in the Company's consumer products area
resulted in a decline in both units shipped and average sales value per unit.
The Company's sales yarn area experienced an increase in units shipped;
however, depressed market conditions resulted in a decline in average product
mix sales value per unit. Sales of the Company's apparel products remained
steady or increased slightly.
Cost of goods sold increased to 94.1% of sales for first quarter 1997 as
compared to 90.4% of sales in first quarter 1996. Increases in cotton prices
were the primary cause of the increase in cost of goods sold. The Company
anticipates the 1996-97 cotton crop may bring lower cotton prices due to
projected increased worldwide availability.
The reduction in average sales price and increased cost of goods sold resulted
in gross profit of $4,064,000 or 5.9% of sales for first quarter 1997 as
compared to gross profit of $6,594,000 or 9.6% of sales for first quarter 1996.
Selling, general and administrative expenses were $5,219,000 or 7.6% of sales
in first quarter 1997 and $5,083,000 or 7.4% of sales in first quarter 1996.
During first quarter 1997, the Company continued its investments in design,
marketing and advertising expenses necessitated by the planned upgrading of the
Company's consumer products line.
Other income decreased from $200,000 in first quarter 1996 to $63,000 in first
quarter 1997. Other income consists primarily of interest earned and sales of
miscellaneous obsolete equipment.
Interest expense increased $54,000 from $775,000 in first quarter 1996 to
$829,000 in first quarter 1997. This 7.0% increase is the result of higher
average borrowings.
Income tax expense (benefit) for the first quarter of both 1996 and 1997 was
38.0% of taxable income, which approximates the statutory income tax rate for
the tax jurisdictions in which the Company operates.
Net income for first quarter 1996 was $580,000 or $.09 per share compared to a
net loss for first quarter 1997 of $1,191,000 or $.18 per share. Management
believes this loss is the result of increased raw material prices and decreased
gross margins resulting from poor market conditions.
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LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position. At September
28, 1996, working capital was $73,637,000 as compared to $70,013,000 at
September 30, 1995. The ratio of current assets to current liabilities was
3.8:1 at September 28, 1996 and 4.4:1 at September 30, 1995.
Cash provided by operating activities amounted to $390,000 for first quarter
1997, and was the principal source of funds for the quarter.
The Company's primary use of funds during first quarter 1997 was $938,000 in
purchases of property, plant and equipment and $91,000 in principal payments on
revolving lines of credit, long-term debt and capital lease obligations.
During first quarter 1997, the Company completed the financing for an expansion
of the Lakeside Comforter Plant and an addition of a new Dye Range. This
project was begun in the fourth quarter 1996. Financing is provided with
$18,000,000 in taxable Industrial Revenue Bonds issued through the
Thomaston-Upson County Industrial Development Authority. These bonds will be
retired over a fifteen year period with interest only payable for the first
three years. Proceeds from the sale of the bonds were applied to the Company's
revolving credit facility until needed for the project.
During the fourth quarter of fiscal year 1996, the Company revised and expanded
its revolving credit agreement which provides for unsecured borrowings of up to
$27,000,000. At September 28, 1996, an additional $18,500,000 was available
under this agreement.
INVENTORIES
Inventories at September 28, 1996 and September 30, 1995 were $47,781,000 and
$40,519,000 respectively. Total inventory turns on an average annualized rate
were 5.4 times for first quarter 1997 and 6.1 times for first quarter 1996.
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
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the extent prices thereafter rise, or may incur increased costs 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 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As of September 28, 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.
(b) Not applicable
ITEM 2. CHANGE IN SECURITIES
(a) (b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) (b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) (b) (c) (d) Not applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.0 Financial Data Schedule (for SEC purposes only)
99.1 Quarterly Report to Shareholders dated
September 28, 1996
(b) The Company did not file any reports on Form 8-K during
the three months ended September 28, 1996.
<PAGE> 11
SIGNATURES
Pursuant to the requirements 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.
Neil H. Hightower
-----------------------------
Neil H. Hightower
President and Chief
Date: November 12, 1996 Executive Officer
Rosser R. Raines
-----------------------------
Rosser R. Raines
Treasurer-Principal Financial
Date: November 12, 1996 Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,438
<SECURITIES> 0
<RECEIVABLES> 49,280
<ALLOWANCES> 415
<INVENTORY> 47,781
<CURRENT-ASSETS> 100,332
<PP&E> 234,304
<DEPRECIATION> 147,264
<TOTAL-ASSETS> 189,231
<CURRENT-LIABILITIES> 26,695
<BONDS> 38,169
0
0
<COMMON> 7,494
<OTHER-SE> 99,895
<TOTAL-LIABILITY-AND-EQUITY> 189,231
<SALES> 68,913
<TOTAL-REVENUES> 68,976
<CGS> 64,849
<TOTAL-COSTS> 64,849
<OTHER-EXPENSES> 5,219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 829
<INCOME-PRETAX> (1,921)
<INCOME-TAX> (730)
<INCOME-CONTINUING> (1,191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,191)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
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[LOGO] THOMASTON NEWS
FABRICS RELEASE
FIRST QUARTER REPORT
1997
TO THE SHAREHOLDERS:
The new fiscal year for Thomaston Mills, Inc. began on a slow note. Sales for
the first quarter ended September 28, 1996 were $68,913,000, up $317,000 from
the same quarter last year. The Company had a net after tax loss of
$1,191,000 or $.18 per share.
During the quarter, the Company processed higher priced cotton from the old crop
and retail demand for consumer products was soft. Pricing in the consumer
products and sales yarn areas of the business was low, and these two areas of
the business were not profitable during the quarter.
We are in a transition period here at Thomaston Mills. We are very consciously
moving the business toward more value added and less import prone products.
This change has not been easy and will be slow, but we know we are on the right
track.
We are continuing to operate in an austerity mode and will work to further
reduce cost and improve the distribution and pricing of our products. New crop
cotton will bring lower raw material prices, and capacity utilization should
improve when our intensified marketing efforts deliver increased sales volume.
Sincerely,
/s/ Neil H. Hightower
Neil H. Hightower
President and CEO
October 22, 1996
THOMASTON MILLS, INC.
Post Office Box 311
THOMASTON, GEORGIA 30286
