<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 0-1915
THOMASTON MILLS, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0460470
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
115 East Main Street
Thomaston, Georgia 30286
---------------------------- ---------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (706) 647-7131
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $1 Per Share
--------------------------------------------
(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 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 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
----
<PAGE> 2
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 7 thru 10 of the
definitive proxy statement for the Annual Meeting of Shareholders on October 2,
1997 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
2, 1997, 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 2, 1997, 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> 3
<TABLE>
<CAPTION>
<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 1997 Annual Report mailed to shareholders
incorporated herein by reference.
**13.0 Portions of the 1997 Annual Report mailed to shareholders.
21.0 Subsidiary of the Company.
23.0 Consent of Independent Auditors.
27.0 Financial Data Schedule (for SEC use 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.
**Filed herewith.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1997 - 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> 4
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 29, 1997 /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 29, 1997 Date: September 29, 1997
/s/ George H. Hightower, Jr. /s/ George H. Hightower
- -------------------------------------- ------------------------------
George H. Hightower, Jr. George H. Hightower
Executive Vice President and Director
Director Date: September 29, 1997
Date: September 29, 1997
/s/ William H. Hightower, Jr. /s/ C. Ronald Barfield
- -------------------------------------- ------------------------------
William H. Hightower, Jr. C. Ronald Barfield
Director Director
Date: September 29, 1997 Date: September 29, 1997
<PAGE> 1
EXHIBIT 13
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996
-------------------------------------
<S> <C> <C> <C>
Assets Current Assets:
Cash and cash equivalents $ 1,886 $ 2,077
Trade accounts receivable less allowance of
$500 in 1997 and $415 in 1996 50,140 50,408
Inventories 48,729 42,710
Deferred income taxes 1,754 1,524
Prepaid expenses and other current assets 343 329
Refundable income taxes 2,898 --
-------------------------------
Total Current Assets 105,750 97,048
Property, Plant and Equipment:
Land and improvements 5,616 5,501
Buildings and improvements 48,747 42,710
Machinery, equipment and fixtures 193,143 185,483
-------------------------------
247,506 233,694
Less allowances for depreciation
and amortization 158,133 143,071
-------------------------------
89,373 90,623
Other assets 2,574 1,788
-------------------------------
Total assets $197,697 $189,459
===============================
</TABLE>
12 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
<PAGE> 2
<TABLE>
<CAPTION>
June 28, 1997 JUNE 29, 1996
----------------------------------
<S> <C> <C>
Liabilities and
Shareholders' Equity Current Liabilities:
Trade accounts payable $ 16,060 $ 15,880
Salaries and wages 1,359 499
Withholding and payroll taxes 514 652
Federal and state income taxes -- 844
Local taxes 838 804
Accrued interest 331 199
Other current liabilities 5,873 4,134
Current portion of long-term debt 2,648 2,748
--------------------------
Total current liabilities 27,623 25,760
Long-term debt, less current portion 62,917 46,065
Capital lease obligations, less current portion 1,100 1,486
Deferred income taxes 5,757 6,874
Other liabilities 839 204
Shareholders' equity:
Class A Common Stock--$1 par; 30,000,000
shares authorized; 5,620,518 shares
outstanding including 710,888 treasury
shares in 1997 and 1996 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 1997 and 1996 1,873 1,873
Additional paid-in capital 8,904 8,904
Retained earnings 88,483 98,092
---------------------------
104,881 114,490
Less treasury stock--at cost 5,420 5,420
---------------------------
99,461 109,070
----------------------------
Total liabilities and shareholders'equity $197,697 $189,459
===========================
</TABLE>
See accompanying notes 13
<PAGE> 3
Consolidated Statements of Shareholders' Equity
(In thousands, except 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 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
Net loss for the year -- -- -- (7,647) -- (7,647)
Cash dividends on common stock,
$.30 per share -- -- -- (1,962) -- (1,962)
---------------------------------------------------------------------------------------
Balance June 28, 1997 $5,621 $1,873 $8,904 $88,483 $(5,420) $ 99,461
=======================================================================================
</TABLE>
See accompanying notes
14 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
<PAGE> 4
Consolidated Statements of Operations
(In thousands, except share data)
<TABLE>
<CAPTION>
Fifty-two Week Fifty-two Week Fifty-two Week
Period ended Period ended Period ended
June 28, 1997 June 29, 1996 July 1, 1995
--------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 285,958 $ 277,665 $ 276,491
Cost of sales 273,058 254,055 249,691
--------------------------------------------------------
Gross profit 12,900 23,610 26,800
Selling, general and
administrative expenses 22,304 19,967 18,847
--------------------------------------------------------
Operating income (loss) (9,404) 3,643 7,953
Interest expense 3,453 3,226 3,044
Other income, net 453 515 424
--------------------------------------------------------
Income (loss) before income taxes (12,404) 932 5,333
Provision (benefit) for income taxes (4,757) 317 1,960
--------------------------------------------------------
Net income (loss) $ (7,647) $ 615 $ 3,373
--------------------------------------------------------
Average common shares outstanding 6,539,996 6,548,755 6,532,817
--------------------------------------------------------
Net income (loss) per common share $ (1.17) $ .09 $ .52
========================================================
</TABLE>
See accompanying notes
15
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fifty-two Week Fifty-two Week Fifty-two Week
Period ended Period ended Period ended
June 28, 1997 June 29, 1996 July 1, 1995
-------------------------------------------------------
<S> <C> <C> <C>
Operating Activities Net income (loss) $ (7,647) $ 615 $ 3,373
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 17,296 16,331 14,927
Gain on sale of property,
plant and equipment (7) (34) (40)
Deferred income tax
expense (benefit) (1,347) (1,093) 256
Changes in operating assets and
liabilities:
Accounts receivable 268 516 5,233
Inventories (6,019) (3,044) (3,163)
Prepaid expenses and other
assets (3,698) (920) (19)
Accounts payable 180 1,666 1,648
Accrued expenses 2,418 6 (744)
-------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,444 14,043 21,471
Investing Activities Purchases of property, plant and
equipment (16,049) (18,457) (19,630)
Less capital lease obligations incurred -- 557 --
-------------------------------------------------------
Cash for property, plant and equipment (16,049) (17,900) (19,630)
Use of (additions to) unexpended
construction funds -- 3,568 (3,568)
Proceeds from sales of property,
plant and equipment 11 171 109
-------------------------------------------------------
NET CASH USED IN INVESTING activities (16,038) (14,161) (23,089)
Financing Activities Proceeds from revolving lines of
credit and long-term debt 39,500 7,557 15,200
Less capital lease obligations incurred -- (557) --
-------------------------------------------------------
Cash proceeds from borrowings 39,500 7,000 15,200
Principal payments on revolving
lines of credit, long-term debt
and capital lease obligations (23,135) (4,529) (11,022)
Purchase of treasury stock -- -- (392)
Exercise of stock options -- 92 112
Cash dividends paid (1,962) (1,912) (1,846)
-------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,403 651 2,052
-------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (191) 533 434
Cash and cash equivalents at
beginning of period 2,077 1,544 1,110
-------------------------------------------------------
Cash and cash equivalents at end
of period $ 1,886 $ 2,077 $ 1,544
=======================================================
</TABLE>
See accompanying notes
16 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997
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
diversified industries. The Company performs periodic credit
evaluations of its customers' financial condition and generally does
not require collateral. Receivables generally are due within 45 days.
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.
COTTON PURCHASE CONTRACTS
The Company's primary raw material is cotton. As a commodity, cotton is
traded on established markets and periodically experiences price
fluctuations. In order to assure a continuous supply of cotton the
Company enters into cotton purchase contracts for several months in
advance of delivery that either provide for (1) fixed quantities to be
purchased at a predetermined price, or (2) fixed quantities to be
purchased at a price to be determined (at a later date). 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. Any benefit or additional costs incurred as a result
of these contracts are deferred and subsequently recognized in income
as cost of goods sold in the same period the products are sold to its
customers.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated on the basis of cost. The
Company provides depreciation for financial reporting over the
estimated useful lives of fixed assets principally using the
straight-line method. The range of useful lives of buildings,
improvements, and boilers are 15 - 39 years and production machinery
and equipment are 5 - 7 years.
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" (SFAS 121), was adopted on June 30, 1996. SFAS 121
standardized the accounting practices for the recognition and
measurement of impairment losses on certain long-lived assets. The
adoption of SFAS 121 was not material to the results of operations or
financial position.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128), was issued which the Company will
adopt during the quarter ending December 27, 1997. At that time the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. The impact of SFAS 128 on the
calculation of earnings per share is not expected to be material.
17
<PAGE> 7
STOCK-BASED COMPENSATION PLANS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options and
adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. l23, "Accounting for Stock Based Compensation"
(SFAS l23). The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of
the shares at the date of grant and, accordingly, recognizes no
compensation expense for the stock option grants.
REVENUE RECOGNITION
In general, the Company recognizes revenue on product sales when the
units are shipped.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of
shares of common stock outstanding during each year and the potentially
dilutive effect of the exercise of stock options.
NOTE 2 INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
----------------------
<S> <C> <C>
Raw Materieals and supplies $ 9,197 $ 9,978
Work in process 32,012 21,776
Finished goods 22,742 24,037
LIFO reserve (15,222) (13,081)
----------------------
$ 48,729 $ 42,710
======================
</TABLE>
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 l997, 1996 and 1995 been
applied to changes in operations resulting therefrom; and had no
other assumptions been made as to changes in operations, net income
(loss) would have been approximately $(6,326,000) or ($.97) per share
in 1997, $901,000 or $.14 per share in l996, and $4,834,000 or $.74
per share in 1995.
NOTE 3 LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
--------------------------
<S> <C> <C>
Revolving credit agreement $ 27,000 $ 25,500
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% 13,333 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 2,931 3,713
Industrial revenue bonds payable in annual
principal payments of $201 in 1998;
$201 in 1999; $5,025 in 2000; $1,500 in 2001;
$1,500 in 2002 and $13,874 thereafter with
floating interest rates ranging up
to 65% of the prime interest rate, collateralized 22,301 4,600
--------------------------
65,565 48,813
Less amounts due within one year 2,648 2,748
--------------------------
$ 62,917 $ 46,065
==========================
</TABLE>
18 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
<PAGE> 8
In June 1997, 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 $39,000,000. The borrowings
available under the agreement are based on the amount of eligible trade
accounts receivable, inventory and net fixed assets. At June 28, 1997
the Company had the ability to borrow up to an additional $12,000,000
under the agreement. The interest rate on borrowings under this line is
based on the prime interest rate or the London interbank offered rate
(LIBOR). At June 28, 1997 the weighted average interest rate on amounts
outstanding under this facility was 6.4%. The Company pays facility
fees on the unused portions of the committed credit line. On June 27,
2002 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 or LIBOR. 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 $22,559,000 at
June 28, 1997. The debt agreements contain various restrictions
relating to, among other things, net working capital and debt to equity
ratios.
Maturities of long-term debt during the next five years, excluding
the revolving credit notes are $2,648,000 in 1998; $2,648,000 in 1999;
$7,472,000 in 2000; $3,752,000 in 2001 and $3,167,000 in 2002.
Cash payments for interest were $3,775,000, $3,377,000 and $2,983,000
in 1997, 1996 and 1995, respectively. Interest capitalized was
$453,000, $36,000 and $38,000 in 1997,1996 and 1995, 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 28, 1997.
COMMON STOCK
The Class A Common Stock does not have voting rights except to the
extent provided 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.
The Company applies APB 25 and related interpretations in accounting
for its employee stock options. In contrast to the intrinsic value
based method employed by APB 25, SFAS 123 utilizes a fair value based
method. SFAS 123 requires the use of option valuation models for
estimating the fair value of options granted. Adoption of the cost
recognition requirements of SFAS 123 is optional; however, the pro
forma disclosures as if the Standard was adopted in 1996 are required.
The fair value for these options, in accordance with SFAS 123, was
estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions for 1997 and
1996: risk-free interest rates of 6.25%; a dividend yield of 2.50%;
volatility factors of the expected market price of the Company's Class
A and Class B Common Stock of 0.35; and a weighted average expected
life of the options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and which are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
19
<PAGE> 9
If compensation cost for the Company's 1997 and 1996 grants for
stock-based compensation plans had been determined on a basis
consistent with SFAS 123, the Company's net income (loss) and net
income (loss) per share for 1997 and 1996 would approximate the
proforma amounts below
(in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA
--------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(7,647) $(7,921) $ 615 $ 378
Net income (loss)
per share $ (1.17) $ (1.21) $0.09 $0.06
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure may
not be indicative of future results. SFAS 123 does not apply to awards
prior to fiscal 1996 and additional awards in future years are
anticipated.
A summary of the Company's stock option activity and related
information follows:
<TABLE>
<CAPTION>
FIFTY TWO WEEK FIFTY-TWO WEEK FIFTY-TWO WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
-----------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stock options
outstanding-
beginning of year 580,120 $15.25 394,920 $ 16.29 84,920 $10.82
Options granted 39,000 10.50 218,000 13.31 320,000 17.49
Options exercised -- -- (8,800) 9.24 (10,000) 7.90
Options forfeited (8,500) 13.09 (24,000) 16.83 -- --
-----------------------------------------------------------------
Stock options
outstanding-
end of year 610,620 $14.98 580,120 $ 15.25 394,920 $16.29
=================================================================
Exercisable at end
of year 332,220 $15.11 220,120 14.93 129,320 $13.96
=================================================================
Weighted-average
fair value of options
granted during the year $ 3.39 $ 4.29
====== ======
</TABLE>
The following table summarizes information about stock options at June
28, 1997:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
----------------------------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF REMAINING WEIGHTED-AVERAGE AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.25 4,000 0.75 years $ 6.25 4,000 $ 6.25
$ 9.00 to $ 9.63 38,120 2.25 years $ 9.16 38,120 $ 9.16
$ 16.00 16,000 5.17 years $16.00 16,000 $16.00
$ 17.25 to $17.88 304,000 7.17 years $17.50 182,400 $17.50
$ 13.25 to $13.63 210,000 8.25 years $13.31 84,000 $13.31
$10.50 38,500 9.92 years $10.50 7,700 $10.50
</TABLE>
20 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
<PAGE> 10
NOTE 5 INCOME TAXES
Income tax expense (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Federal $(2,903) $1,185 $ 1,620
State (507) 225 84
Deferred (1,347) (1,093) 256
--------------------------------
$(4,757) $ 317 $ 1,960
================================
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets were as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $6,437 $ 7,193
Inventory 446 446
-------------------
6,883 7,639
Deferred tax assets:
Employee and retiree benefit accruals 884 755
Alternative minimum tax 1,147 1,147
Inventory 475 220
Bad debt allowances 195 162
Other 179 5
-------------------
2,880 2,289
-------------------
Net deferred tax liability $4,003 $ 5,350
===================
</TABLE>
The reasons for the differences between total tax expense (benefit)
and the amount computed by applying the statutory Federal income tax
rate to income (loss) before income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Tax at statutory rates $(4,217) $ 317 $ 1,813
State income taxes, net of
Federal tax benefit (491) 38 112
Adjustment of estimated
liabilities for prior years - (55) -
Other items (49) 17 35
-------------------------------
$(4,757) $ 317 S 1,960
================================
</TABLE>
Cash payments for income taxes were $330,000, $1,690,000 and
$2,310,000 in 1997, 1996 and 1995, respectively
NOTE 6 PENSION PLANS
Thomaston Mills, Inc. has noncontributory defined benefit pension
plans covering substantially all employees. Benefits are based on the
employee's average earnings for the last five full calendar years of
employment for Pension Plan No. 1 For Pension Plan No. 2, benefits are
based on years of service. 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.
21
<PAGE> 11
A summary of the components of net periodic pension cost is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 793 $ 829 $ 739
Interest cost on projected benefit obligation 2,496 2,432 2,401
Actual gain on plan assets (5,339) (4,340) (3,766)
Net amortization and deferral 2,745 2,091 1,686
----------------------------------------
Total pension expense $ 695 $ 1,012 $ 1,060
========================================
</TABLE>
Assumptions used in determining the pension benefit obligation were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Weighted-average discount rates 8.0% 8.0% 7.5%
Rates of increase in compensation levels 5.0% 5.5% 5.0%
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 28, JUNE 29,
Pension Plan No. 1 (in thousands): 1997 1996
---------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $16,093 $ 15,041
===========================
Accumulated benefit obligation $17,524 $ 16,517
===========================
Projected benefit obligation $21,989 $ 21,514
Plan assets at fair value 23,941 21,521
---------------------------
Funded status- projected benefit
obligation less than plan assets $ 1,952 $ 7
===========================
Comprised of:
Accrued pension cost $(1,947) $ (1,796)
Unrecognized net gain 5,445 3,504
Unrecognized net transition obligation (419) (495)
Unrecognized prior service cost (1,127) (1,206)
---------------------------
Pension Plan No. 2 (in thousands): $ 1,952 $ 7
===========================
Actuarial present value of benefit obligations:
Vested benefit obligation $ 9,425 $ 9,373
===========================
Accumulated benefit obligation $ 9,894 $ 9,789
===========================
Projected benefit obligation $ 9,894 $ 9,789
Plan assets at fair value 12,424 10,691
---------------------------
Funded status - projected benefit
obligation less then plan assets $ 2,530 $ 902
===========================
Comprised of:
Prepaid pension cost $ 1,672 $ 1,331
Unrecognized net gain (loss) 1,055 (214)
Unrecognized prior service cost (593) (691)
Unrecognized net asset 396 476
---------------------------
$ 2,530 $ 902
===========================
</TABLE>
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
$1,025,000 and $1,250,000 of Thomaston Mills, Inc. Class A Common
Stock and Class B Common Stock at June 28, 1997 end June 29, 1996,
respectively. The plans held 120,166 shares of Thomaston Mills, Inc.
Class A Common Stock and Class B Common Stock at June 28, 1997. These
shares earned approximately $36,000 in dividends during the year.
22 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
<PAGE> 12
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.
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
Accumulated postretirement benefit obligation (in thousands): 1997 1996
------------------------
<S> <C> <C>
Retirees $ 168 $ 152
Fully eligible active plan participants 283 214
Other active plan participants 1,588 1,179
------------------------
Accumulated postretirement benefit obligation 2,039 1,545
Unrecognized net gain 1,008 1,343
Unrecognized transition asset (2,134) (2,276)
------------------------
Accrued postretirement benefit cost $ 913 $ 612
========================
</TABLE>
Net periodic postretirement benefit cost includes the following
components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Service cost attributed to
service during the year $ 131 $ 107 $ 93
Amortization of accumulated
postretirement benefit obligation 142 142 142
Interest cost on accumulated
postretirement benefit obligation 155 116 157
Net amortization and deferral (54) (77) (78)
--------------------------------------
Net periodic postretirement
benefit cost $ 374 $ 288 $ 314
======================================
</TABLE>
Actuarial assumptions used in determining the accumulated
postretirement benefit obligation include a discount rate of 8.0%,8.0%,
and 7.5% for 1997, 1996 and 1995, respectively.
The health care cost trend rate assumption for 1997 is 5.0%, 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 28, 1997 by approximately
$210,000 and the aggregate service and interest cost components of net
periodic postretirement benefit cost for 1997 by approximately $31,000.
NOTE 8 COMMITMENTS
At June 28, 1997, the Company had commitments for the purchase
of machinery and equipment amounting to approximately $4,317,000.
The Company leases building facilities under an operating lease.
At June 28, 1997, future minimum lease payments for the operating lease
are $640,000 in 1998; $734,000 in 1999; $756,000 in 2000; $793,000 in
2001; $830,000 in 2002 and $7,372,000 thereafter.
23
<PAGE> 13
NOTE 9 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited quarterly results of operations for the years
ended June 28, 1997 and June 29, 1996 are as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
JUNE 28, MARCH 29, DECEMBER 28, SEPTEMBER 28,
1997 1997 1996 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $78,143 $70,730 $68,172 $68,913
Gross profit 897 3,285 4,654 4,064
Net loss (3,909) (1,855) (692) (1,191)
Net loss per share (0.60) (0.28) (0.11) (0.18)
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 (loss) 1,529 (592) (902) 580
Net income (loss) per share .23 (.09) (.14) .09
</TABLE>
Adjustments made in the fourth quarter of 1997 decreased the net loss
by approximately $489,000 ($.07 per share) and in the fourth quarter
of 1996 decreased net income by approximately $132,000 ($.02 per
share). The 1997 adjustments related primarily to differences between
actual and estimated depreciation expense calculations and to LIFO
inventory quantities at year end being different from original
projections. The 1996 adjustments related primarily to differences
between actual and estimated depreciation expense calculations during
the year.
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
THOMASTON MILLS, INC.
We have audited the accompanying consolidated balance sheets of
Thomaston Mills, Inc. and subsidiary as of June 28, 1997 and June
29, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
period ended June 28, 1997. 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 28, 1997 and
June 29, 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended June
28, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
August 11, 1997
24 THOMASTON MILLS, INC. & SUBSIDIARY FINANCIAL REVIEW
