<PAGE> 1
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 27, 1997 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
------- --------
<PAGE> 2
INDEX
THOMASTON MILLS, INC. AND SUBSIDIARY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 27, 1997
and June 28, 1997
Condensed consolidated statements of operations -- three months
ended September 27, 1997 and three months ended September 28, 1996.
Condensed consolidated statements of cash flows -- three months
ended September 27, 1997 and three months ended September 28, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Sept. 27,1997 June 28, 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 696 $ 1,886
Accounts receivable, less allowance of
$500 50,922 50,140
Inventories--Note C 51,710 48,729
Refundable income taxes 4,605 2,878
Other current assets 2,620 2,097
-------- --------
TOTAL CURRENT ASSETS 110,553 105,750
PROPERTY, PLANT AND EQUIPMENT 251,041 247,506
Less allowances for depreciation 162,354 158,133
-------- --------
88,687 89,373
OTHER ASSETS 2,303 2,574
-------- --------
$201,543 $197,697
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 18,385 $ 16,060
Accrued liabilities 9,635 8,529
Current portion of long-term debt
and capital lease obligations 3,035 3,034
-------- --------
TOTAL CURRENT LIABILITIES 31,055 27,623
OBLIGATIONS UNDER CAPITAL LEASE -
LESS CURRENT PORTION 1,037 1,100
LONG-TERM DEBT 66,521 62,917
DEFERRED INCOME TAXES 5,758 5,757
OTHER LIABILITIES 973 839
SHAREHOLDERS' EQUITY
Class A Common Stock--5,620,518 shares
outstanding including 710,888 treasury shares at
September 28, 1997 and June 28, 1997 5,621 5,621
Class B Common Stock--1,873,506 shares
outstanding including 243,140 treasury shares at
September 28, 1997 and June 28, 1997 1,873 1,873
Additional paid-in capital 8,904 8,904
Retained earnings 85,221 88,483
-------- --------
101,619 104,881
Less treasury stock - at cost 5,420 5,420
-------- --------
96,199 99,461
-------- --------
$201,543 $197,697
======== ========
</TABLE>
NOTE: The Balance Sheet at June 28, 1997 has been
derived from the Audited Financial Statements at that
date. See Note to Condensed Financial Statements.
<PAGE> 4
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. 27, 1997 Sept. 28, 1996
-------------- --------------
<S> <C> <C>
Net sales $ 73,212 $ 68,913
Cost of sales 71,305 64,849
----------- -----------
1,907 4,064
Selling, general
and administrative expenses 5,154 5,219
----------- -----------
(3,247) (1,155)
Other income 103 63
----------- -----------
(3,144) (1,092)
Interest expense 1,327 829
----------- -----------
Income (loss) before
income taxes (4,471) (1,921)
Provision for income taxes
(benefit) (1,699) (730)
----------- -----------
Net income (loss) $ (2,772) $ (1,191)
=========== ===========
Average Number of Shares 6,539,996 6,545,863
Data Per Share:
Net income (loss) $ (.42) $ (.18)
Dividends paid $ .0750 $ .0750
</TABLE>
<PAGE> 5
THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
[ Three Months Ended Three Months Ended
Sept. 27, 1997 Sept. 28, 1996
------------------ -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,772) $ (1,191)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 4,220 4,522
Changes in operating assets and
liabilities:
Accounts receivable (782) 1,543
Inventories (2,981) (5,071)
Other assets (1,959) (318)
Accounts payable and accrued expenses 3,566 905
-------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (708) 390
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,534) (938)
Proceeds from sales of property, plant
and equipment 1 0
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (3,533) (938)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 4,000 20,000
Principal payments on revolving lines of
credit, long-term debt and capital lease
obligations (458) (19,600)
Cash dividends paid (491) (491)
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,051 (91)
-------- --------
DECREASE IN CASH
AND CASH EQUIVALENTS (1,190) (639)
Cash and cash equivalents at beginning
of period 1,886 2,077
-------- --------
Cash and cash equivalents at end
of period $ 696 $ 1,438
======== ========
</TABLE>
<PAGE> 6
THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1997
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 27,
1997 are not necessarily indicative of the results that may be expected for the
year ending June 27, 1998. Certain Fiscal 1997 balances have been reclassified
to conform with the Fiscal 1998 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 28, 1997.
NOTE B -- NEW ACCOUNTING STANDARDS
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.
NOTE C -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Sept. 27, 1997 June 28, 1996
-------------- --------------
<S> <C> <C>
Raw materials $ 9,514 $ 9,197
Work in process 31,838 32,012
Finished products 25,580 22,742
LIFO reserve (15,222) (115,222)
------------- ------------
$ 51,710 $ 48,729
============= ============
</TABLE>
<PAGE> 7
THOMASTON MILLS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Sales for the first fiscal quarter ended September 27,1997 increased 6.2% to
$73,212,000 as compared to sales of $68,913,000 for the first quarter last year.
This sales increase occurred primarily in the month of September and was
generated by the Company's Industrial Products area. Sales in the Company's
Industrial and Apparel products areas showed insignificant change as a result of
continued depressed market conditions and low prices for denim and sales yarn.
Cost of sales for the quarter just ended increased to $71,305,000 or 97.4% of
sales. For first quarter fiscal year 1997, cost of goods sold were $64,849,000
or 94.1% of sales. Raw material cost decreases in first quarter fiscal year 1998
were offset by high fixed costs per unit due to low capacity utilization of the
Company's manufacturing facilities.
First quarter fiscal year 1998 increases in cost of sales resulted in gross
profit declining to 2.6% of sales compared to gross profit of 5.9% of first
quarter fiscal year 1997 sales.
Selling, general and administrative expenses decreased to $5,154,000 or 7.0% of
sales as compared to first quarter fiscal year 1997 selling, general and
administrative expenses of $5,219,000 or 7.6%. During first quarter fiscal year
1997, the Company experienced bad debt losses of $137,000 involving a number of
it's weaker customers. During first quarter fiscal year 1998, bad debt losses
amounted to $43,000.
Other income during first quarter fiscal year 1998 was $103,000 and $63,000 for
fiscal year 1997 first quarter. Other income relates to miscellaneous equipment
sales and interest earned on the Company's short-term investments of cash.
Interest expense increased $498,000 from $829,000 in first quarter fiscal year
1997 to $1,327,000 in first quarter fiscal year 1998. This increase was the
result of increased borrowings under the Company's various credit agreements and
slightly higher interest rates.
The Company's pretax loss for first quarter 1998 resulted in an income tax
benefit of $1,699,000 or 38% of pretax loss. The statutory tax rate for the tax
jurisdictions in which the Company operates is 38%.
For first quarter fiscal year 1998, the company sustained a loss of $2,772,000
or $.42 per common share as compared to a first quarter fiscal year 1997 net
loss of $1,191,000 or $.18 per common share.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position. At September 27,
1997, working capital was $79,498,000 as compared to $73,637,000 at September
28,1996. The ratio of current assets to current liabilities was 3.56:1 at
September 27,1997 and 3.76:1 at September 28, 1996.
<PAGE> 8
Financing activities provided cash flow of $3,051,000 during the quarter ended
September 27, 1997. The primary use of funds was $3,533,000 in purchases of
property, plant and equipment. Operating activities used funds of $708,000.
During first quarter fiscal year 1997, the Company completed the financing for
an expansion of the Lakeside Comforter Plant and an addition of a new dye range.
This project began in the fourth quarter of fiscal year 1996. Financing was
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 only interest 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 1997, the Company revised and expanded
its revolving credit agreement with a group of banks to provide for unsecured
borrowings of up to $39,000,000. At September 27, 1997, an additional $8,000,000
was available under this agreement.
INVENTORIES
Inventories at September 27, 1997 and September 28, 1996 were $51,710,000 and
$47,781,000, respectively. Total inventory turns on an average annualized rate
were 5.5 times for first quarter 1998 and 5.4 times for first quarter 1997.
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 ten-year period. Tariffs on textiles will be cut by an average of 11.6% over
ten years. A
<PAGE> 9
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.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As of September 27, 1997, 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:
13.1 Quarterly Report to Shareholders dated
September 27, 1997.
27 Financial Data Schedule (for SEC purposes only)
(b) The Company did not file any reports on Form 8-K
during the three months ended September 27, 1997.
<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.
Date: November 11, 1997 /s/ Neil H. Hightower
----------------- ---------------------
Neil H. Hightower
President and Chief
Executive Officer
Date: November 11, 1997 /s/ Rosser R. Raines
----------------- --------------------
Rosser R. Raines
Treasurer-Principal Financial
Officer
<PAGE> 1
EXHIBIT 13.1
[THOMASTON LOGO] NEWS
RELEASE
FIRST QUARTER REPORT
1998
TO THE SHAREHOLDERS:
As forecasted at our Annual Shareholders Meeting, Thomaston Mills had a loss
for the first fiscal quarter of $2,772,000 or $.42 per share. Sales for the
quarter were $73,212,000, up 6.2% from the same quarter a year ago. Most of the
sales increase occurred in the month of September. The loss was caused by
continued low prices for denim and sales yarn, plus continued import
competition in the discount sheet and comforter business. Seconds produced have
also been higher than planned in the piece dyed apparel area due to start up of
the new dye range.
On the positive side, sales have begun to improve, and plants are running close
to capacity. The reduction in the work force is for all practical purposes now
complete, and was accomplished mostly through attrition and early retirements.
The work force reduction and other cost reductions should begin to have an
impact. Product development efforts have been intensified to create new value
added apparel fabrics and home furnishings.
While we are getting off to a slow start in the new fiscal year, we are
optimistic that fiscal year ending June 1998 will be profitable for Thomaston
Mills.
Sincerely,
/s/ Neil H. Hightower
Neil H. Hightower
President and CEO
October 22, 1997
<PAGE> 2
THOMASTON MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
SEPTEMBER 27, September 28,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 73,212 $ 68,913
Cost of sales 71,305 64,849
- ----------------------------------------------------------------------------------------------
1,907 4,064
Selling, general and administrative expenses 5,154 5,219
Other income (expense)-net 103 63
- ----------------------------------------------------------------------------------------------
(3,144) (1,092)
Interest expense 1,327 829
- ----------------------------------------------------------------------------------------------
Income (loss) before income taxes (4,471) (1,921)
Provision for income taxes (benefit) (1,699) (730)
- ----------------------------------------------------------------------------------------------
Net income (loss) $ (2,772) $ (1,191)
==============================================================================================
Average Number of Shares 6,539,996 6,545,863
Net income (loss) per share $ (0.4200) $ (0.1800)
Dividends paid per share $ 0.0750 $ 0.0750
==============================================================================================
</TABLE>
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 27, September 28,
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 696 $ 1,438
Accounts receivable 51,422 49,280
Less allowance for uncollectible accounts (500) (415)
Inventories 51,710 47,781
Refundable income taxes 4,605 0
Other current assets 2,620 2,248
- ---------------------------------------------------------------------------------------------
Total Current Assets 110,553 100,332
Property, Plant and Equipment 251,041 234,304
Less allowance for depreciation (162,354) (147,264)
Other assets 2,303 1,859
- ---------------------------------------------------------------------------------------------
$ 201,543 $ 189,231
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 18,385 $ 15,919
Accrued liabilities 9,635 7,752
Current portion of capital lease obligations 387 376
Current portion of long-term debt 2,648 2,648
- ---------------------------------------------------------------------------------------------
Total Current Liabilities 31,055 26,695
Obligations under capital leases 1,037 1,383
Long-term debt 66,521 46,669
Deferred income taxes 5,758 6,874
Other liabilities 973 221
Shareholders' Equity 96,199 107,389
- ---------------------------------------------------------------------------------------------
$ 201,543 $ 189,231
=============================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 696
<SECURITIES> 0
<RECEIVABLES> 51,422
<ALLOWANCES> 500
<INVENTORY> 51,710
<CURRENT-ASSETS> 110,553
<PP&E> 251,041
<DEPRECIATION> 162,354
<TOTAL-ASSETS> 201,543
<CURRENT-LIABILITIES> 31,055
<BONDS> 35,521
0
0
<COMMON> 7,494
<OTHER-SE> 88,705
<TOTAL-LIABILITY-AND-EQUITY> 201,543
<SALES> 73,212
<TOTAL-REVENUES> 73,315
<CGS> 71,305
<TOTAL-COSTS> 71,305
<OTHER-EXPENSES> 5,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,327
<INCOME-PRETAX> (4,471)
<INCOME-TAX> (1,699)
<INCOME-CONTINUING> (2,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,772)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
