<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 October 2, 1999 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 30286-0004
- --------------------------------------------------------------------------------
(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
710,838 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 -- October 2, 1999 and
July 3, 1999
Condensed consolidated statements of operations -- thirteen weeks ended
October 2, 1999 and fourteen weeks ended October 3, 1998.
Condensed consolidated statements of cash flows -- thirteen weeks ended
October 2, 1999 and fourteen weeks ended October 3, 1998.
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>
OCTOBER 2, 1999 July 3, 1999
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 2,715 $ 353
Accounts receivable, less allowance of
$812 at October 2, 1999 and $950 at July 3, 1999 29,179 35,237
Inventories--Note B 34,837 40,371
Other current assets 2,133 1,038
--------- ---------
TOTAL CURRENT ASSETS 68,864 76,999
PROPERTY, PLANT AND EQUIPMENT 166,898 166,339
Less allowance for depreciation 116,959 114,679
--------- ---------
49,939 51,660
Assets held for sale 10,410 10,709
Deferred Income taxes 3,116 3,116
Other assets 6,345 5,937
--------- ---------
$ 138,674 $ 148,421
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,674 $ 17,950
Accrued liabilities 8,242 7,339
Current portion of long-term debt
and capital lease obligations 4,398 4,398
Reserve for discontinued operations 257 5,533
--------- ---------
TOTAL CURRENT LIABILITIES 25,571 35,220
OBLIGATIONS UNDER CAPITAL LEASE -
LESS CURRENT PORTION 865 963
LONG-TERM DEBT, less current portion 66,178 66,696
OTHER LIABILITIES 1,588 1,342
SHAREHOLDERS' EQUITY
Class A Common Stock--5,620,518 shares
outstanding including 710,838 treasury shares 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 10,766 8,904
Retained earnings 31,632 33,222
--------- ---------
49,892 49,620
Less treasury stock - at cost 5,420 5,420
--------- ---------
44,472 44,200
--------- ---------
$ 138,674 $ 148,421
========= =========
</TABLE>
NOTE: The Balance Sheet at July 3, 1999 has
been derived from the Audited Financial
Statements at that date. See Notes 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>
13 WEEKS 14 Weeks
ENDED Ended
OCTOBER 2, 1999 October 3, 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 40,724 $ 43,070
Cost of sales 36,231 41,697
------------ ------------
Gross profit 4,493 1,373
Selling, general and administrative expenses 4,057 4,476
------------ ------------
Operating profit (loss) 436 (3,103)
Interest expense 2,068 1,585
Amortization of credit agreement fees 74 0
Other income (expense) - net 116 144
------------ ------------
Loss from continuing operations before income tax benefit (1,590) (4,544)
Benefit for income taxes 0 (2,447)
------------ ------------
Loss from continuing operations (1,590) (2,097)
Loss from discontinued operations 0 (1,895)
------------ ------------
Net loss (1,590) (3,992)
============ ============
Weighted Average Number of Shares - Basic and Diluted 6,540,046 6,540,046
Basic and diluted loss per share:
Continuing operations $ (0.24) $ (0.32)
Discontinued operations 0.00 $ (0.29)
------------ ------------
Net loss per share $ (0.24) (0.61)
Dividends paid per share $ 0.0000 $ 0.0375
</TABLE>
<PAGE> 5
THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
13 WEEKS 14 Weeks
ENDED Ended
OCTOBER 2, 1999 October 3, 1998
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,590) $(3,992)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 2,493 3,905
Gain on sale of property, plant
and equipment (18) (35)
Changes in operating assets and
liabilities:
Accounts receivable 6,058 6,728
Inventories 5,534 (6,449)
Other assets 166 (4,230)
Assets held for sale 299 0
Accounts payable and accrued expenses (4,127) 3,685
Reserve for discontinued operations (5,276) 0
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,539 (388)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (562) (852)
Proceeds from sales of property, plant
and equipment 18 35
------- -------
NET CASH USED IN INVESTING
ACTIVITIES (544) (817)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 5,836 3,500
Principal payments on revolving lines of
credit, long-term debt and capital lease
obligations (6,469) (2,640)
Cash dividends paid 0 (245)
------- -------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (633) 615
------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,362 (590)
Cash and cash equivalents at beginning
of period 353 1,122
------- -------
Cash and cash equivalents at end
of period $ 2,715 $ 532
------- -------
</TABLE>
<PAGE> 6
THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999
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 October 2,
1999 are not necessarily indicative of the results that may be expected for the
year ending July 1, 2000. Certain fiscal 1999 balances have been reclassified to
conform with the fiscal 2000 classifications. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended July 3, 1999.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
OCTOBER 2, 1999 July 3, 1999
--------------- ------------
<S> <C> <C>
Raw materials $ 4,509 $ 5,304
Work in process 20,525 24,245
Finished products 18,494 19,813
LIFO reserve (8,691) (8,991)
-------- --------
$ 34,837 $ 40,371
======== ========
</TABLE>
<PAGE> 7
NOTE C -- NET INCOME (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share" in its second quarter ended on December 27, 1997. SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented and where necessary, restated
to conform to SFAS No. 128 requirements.
The following table sets forth the computation of the numerator and denominator
used in the calculation of basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
(Dollars in Thousands except Share and Per Share Data)
13 WEEKS 14 WEEKS
ENDED ENDED
OCTOBER 2, 1999 OCTOBER 3, 1998
--------------- ---------------
<S> <C> <C>
Numerator:
Net income (loss) from continuing operations $ (1,590) $ (2,097)
------------ ------------
Numerator for basic and diluted earnings (loss) per share $ (1,590) $ (2,097)
------------ ------------
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 6,540,046 6,540,046
Dilutive effect of potential common shares -
Employee stock options N/A N/A
Warrants N/A N/A
------------ ------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 6,540,046 6,540,046
------------ ------------
Basic earnings (loss) per share $ (0.24) $ (0.32)
------------ ------------
Diluted earnings (loss) per share $ (0.24) $ (0.32)
------------ ------------
Potentially dilutive common shares related to options
and warrants outstanding:
Not considered in calculation due to net loss 551,810 257
------------ ------------
Not considered in calculation due to average
price of Company's common stock exceeding
exercise price of options 810,871 907,367
------------ ------------
</TABLE>
<PAGE> 8
NOTE D -- SEGMENT INFORMATION
The Company has two reportable segments in its continuing operations: Consumer
Products and Apparel Fabrics. Each reportable segment is organized around
product similarities. The Consumer Products segment manufactures and sells a
complete line of muslin, percale and 250-count products for the bedroom,
including fashion-coordinated bedding sets and comforters marketed under the
Thomaston label and offers home furnishing fabrics for sell to other
manufacturers of home furnishings. The Apparel Fabrics line is directed toward
dyeing and finishing heavier fabrics such as twill and other value-added
fabrics.
The profit performance measure for the Company's segments is defined as Internal
EBIT (earnings before interest and taxes). The aggregate of Internal EBIT for
the reportable segments differs from the Company's consolidated earnings before
interest and taxes by costs that are deemed to be non-operating in nature.
Allocations of corporate general and administrative expenses are used in the
determination of segment profit performance.
<TABLE>
<CAPTION>
(Dollars in Thousands except Share and Per Share Data)
NET SALES PROFIT PERFORMANCE
13 WEEKS 14 WEEKS 13 WEEKS 14 WEEKS
ENDED ENDED ENDED ENDED
OCTOBER 2, 1999 OCTOBER 3, 1998 OCTOBER 2, 1999 OCTOBER 3, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Reportable segments:
Consumer products 27,381 28,467 244 (1,962)
Apparel fabrics 13,343 14,603 308 (997)
------- ------- ----- -----
Segment total 40,724 43,070 552 (2,959)
Interest expense ======= ======= 2,068 1,585
Other non-segment 74 0
----- -----
Consolidated (loss) before
taxes from continuing operations (1,590) (4,544)
===== =====
</TABLE>
<PAGE> 9
THOMASTON MILLS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In the fourth quarter of fiscal 1999, the Company began a comprehensive
restructuring of the Company's operations and businesses with a view towards
enhancing and focusing on the Company's operations which are believed to present
the best future profitability and growth potential. As a result of completing
the assessment of various strategic alternatives, the Company concluded that
discontinuing the Company's denim and industrial yarn operations, which have
been unprofitable in recent years, was in the best interest of the Company. In
conjunction with the exit of these businesses, the Company's balance sheet
includes assets held for sale in the amount of $9,554,000. Proceeds from the
sale of these assets will be applied against outstanding term loan obligations.
The Company has concluded that it will focus on the manufacturing and marketing
of home furnishing as well as dyeing and finishing fabrics for casual and career
apparel. The Company believes that these operations offer the most viable
opportunity for improving future profitability. Discussions below pertaining to
the operating results exclude the Company's discontinued operations.
RESULTS OF OPERATIONS
Sales from continuing operations for the first fiscal quarter ended October 2,
1999 were down 5.4% to $40,724,000 from first quarter sales last year of
$43,070,000; however, an improvement in the product mix of units sold resulted
in an increase in gross profit from $1,373,000 in first quarter last year to
$4,493,000 gross profit for the first quarter of fiscal year 2000. Both the
Consumer Products and Apparel Fabrics areas of the Company generated improved
gross margins on decreased sales dollars.
Cost of sales for the quarter just ended decreased to 89.0% of sales or
$36,231,000. For first quarter fiscal year 1999, cost of goods sold were 96.8%
of sales or $41,697,000. Improved manufacturing capacity utilization and
plant productivity along with decreases in raw material costs have contributed
to the decline in cost of goods sold.
Gross profit for the first quarter was 11.0% of sales as compared to 3.2% of
sales for the first quarter last year.
Selling, general and administrative expenses decreased from $4,476,000 for first
quarter fiscal year 1999 to $4,057,000 for first quarter 2000. The Company's
realignment of its operations has contributed to reductions in certain selling,
general and administrative expenses. As a percentage of sales, selling, general
and administrative expenses were 10.4% for first quarter fiscal year 1999 and
10.0% for first quarter 2000.
Other income during first quarter fiscal years 2000 and 1999 respectively was
$116,000 and $144,000. Other income relates to miscellaneous equipment sales and
interest earned on the Company's short-term investments of cash.
Interest expense and amortization of credit agreement fees increased $557,000
from $1,585,000 in first quarter fiscal year 1999 to $2,142,000 in first quarter
fiscal year 2000. This increase was
<PAGE> 10
the result of higher interest rates under the Company's various credit
agreements. Total debt at October 2, 1999 was $70,178,000, down $5,689,000 from
total debt at October 3, 1998 of $75,867,000.
The Company has not recorded an income tax benefit for first quarter 2000 as a
result of its operating loss carry forward position. The Company recorded an
income tax benefit of $2,447,000 for first quarter 1999. This future anticipated
benefit was recorded based on tax planning strategies as to the realization of
the deferred tax benefit.
For first quarter fiscal year 2000, the Company sustained a loss from continuing
operations of $1,590,000 or $.24 per basic and diluted share as compared to the
first quarter fiscal year 1999 loss from continuing operations of $2,097,000 or
$.32 per basic and diluted share.
LIQUIDITY AND CAPITAL RESOURCES
On October 2, 1999, working capital was $43,293,000 as compared to $80,909,000
at October 3, 1998. The ratio of current assets to current liabilities was 2.7:1
at October 2, 1999 and 4.0:1 at October 3, 1998. Changes in working capital are
primarily the result of lower levels of inventory and accounts receivables.
Improvements in supply-chain inventory control systems and the selling off of
inventories associated with discontinued operations have resulted in decreased
inventory levels at October 2, 1999, as compared to inventory levels at October
3, 1998. The collection of receivables associated with discontinued operations
and reduced sales during the first quarter fiscal year 2000 have resulted in a
reduction in accounts receivable.
Operating activities provided cash of $3,539,000 during first quarter of fiscal
year 2000. During first quarter of fiscal year 1999, operating activities used
cash of $388,000. Net cash used in investing activities amounted to $544,000
during first quarter 2000 compared to $817,000 used in first quarter 1999.
Capital expenditures have been reduced as a result of the Company's realignment
of its operations. Financing activities used cash of $633,000 during first
quarter of fiscal year 2000 as a result of net repayments of indebtedness.
During first quarter of fiscal year 1999, financing activities provided funds of
$615,000.
On July 27, 1999, the Company entered into a new Loan and Security Agreement
(the Loan Agreement) which provides for borrowing as follows:
- - Revolving advances equal to the lesser of $70,000,000 or a specified
percentage of certain accounts receivable and inventory as defined in
the Loan Agreement. At November 9, 1999, $29,132,000 was outstanding
and $3,975,000 was available for borrowing under the revolving advances
provisions. The revolving advances bear interest at the Reference Rate
plus 1% or the Euro-dollar Rate plus 3.25%. The revolving advances are
payable on July 27, 2004, and provide for an early termination penalty
as specified in the Loan Agreement.
- - Tranche A Term Loan of $20,000,000 is payable in monthly installments
of $333,333 beginning August 1, 1999, and bears interest at the
Reference Rate plus 1.75% or the Euro-dollar Rate plus 3.75%.
- - Tranche B Term Loan of $5,000,000 is due July 23, 2004, and bears
interest at 18.5% of which 15% is payable currently and 3.5% per annum
is payable on the maturity date.
<PAGE> 11
Borrowings under this Loan Agreement were used to reduce the existing Credit and
Security Agreement to $15,000,000 as discussed below and to repay the senior
notes payable and industrial revenue bonds.
On July 27, 1999, the Company entered into an Amended and Restated Credit and
Security Agreement (the Credit Agreement) which reduced the existing borrowings
to $15,000,000. Interest is accrued at a rate of 15% increasing at the rate of
1% per month to a rate of 20% effective January 1, 2000. Interest is payable at
the Euro-dollar Rate plus 3.5% or the Base Rate plus 1.5%. The difference in the
interest accrued and the interest paid is added to the balance of the
borrowings. Borrowings under the Credit Agreement are due July 24, 2004, unless
repaid prior to that date. In connection with the Credit Agreement, the Company
issued to the lenders warrants to purchase 10% of the fully diluted Class A and
Class B common shares (approximately 742,000 shares at July 27, 1999) as defined
for nominal consideration. The warrants are exercisable after December 31, 1999,
through December 31, 2004. If the Company repays the $15,000,000 loan prior to
December 31, 1999, the lenders will cancel the warrants and will forgive the
difference of the interest accrued and the interest paid above 15%.
Borrowings under the Loan Agreement and Credit Agreement are secured by all
assets and properties of the Company. The Loan Agreement and the Credit
Agreement contain various restrictions relating to, among other things,
maintaining a certain level of tangible net worth, attainment of certain amounts
of earnings before interest, taxes, depreciation and amortization, restrictions
on capital expenditures and the payment of dividends. Capital expenditures for
fiscal year 2000 are projected to approximate $4,000,000.
Management believes that cash provided by operating activities and the new Loan
Agreement will be sufficient to finance capital requirements and operating needs
of the Company for fiscal year 2000.
INVENTORIES
Inventories at October 2, 1999 and October 2, 1998 were $34,837,000 and
$53,034,000, respectively. Improvements in supply-chain inventory control
systems and the selling off of inventories associated with discontinued
operations have resulted in decreased inventory levels at October 2, 1999 as
compared to inventory levels at October 3, 1998. Total inventory turns on an
average annualized rate were 4.2 times for first quarter 2000 and 3.1 times for
first quarter 1999.
NEW ACCOUNTING STANDARDS
The Company has adopted Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information", effective with fiscal
year ended July 3, 1999. Reportable segments in its continuing operations are
Consumer Products and Apparel Fabrics (see Note D). The adoption of Statement
131 did not affect results of operations or financial position.
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
<PAGE> 12
market and buys its cotton from brokers. The Company has not had and does not
currently anticipate any 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. 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. In the event China is admitted to the WTO, the U.S. apparel industry
could be adversely affected.
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.
YEAR 2000
The year 2000 issue refers generally to a data structure problem that may exist
as a result of computer programs using a two-digit number rather than a
four-digit number to define the applicable year. Computer programs or hardware
that have date sensitive software or embedded chips may recognize a date such as
01/01/00 as January 1, 1900 rather than January 1, 2000. This misreading could
result in system failures or miscalculations causing disruptions of operations
and the inability of a company to process transactions, send invoices, apply
correct terms and interest, process payroll or engage in similar normal business
activities.
The Company continues to address the Year 2000 compliance issue. In 1996, the
Company formed a Year 2000 task force, which includes representatives from the
information technology
<PAGE> 13
group, greige manufacturing, finishing, purchasing, cost accounting, financial
accounting and internal audit. The task force initiated a compliance program
involving three phases: (1) assessment, (2) remediation (including modification,
upgrading and replacement) and (3) testing.
The Company is addressing the Year 2000 issue on two fronts:
- - Internal - The Company uses a mainframe operating environment for most
of its programs along with PC based networking applications. Most
internally developed systems have been rewritten since 1990. Beginning
in 1991, a standard feature incorporated into all rewrites was a
four-digit year capability. Intensive review, modification and testing
of all internal programs began in January 1998. As of October 2, 1999,
100% of all application programs (on-line and batch) and 100% of all
application job streams have been determined to be Year 2000 compliant.
The Company has utilized a virtual Y2K test machine run on the
mainframe for several months and tested individual applications as they
have been converted. The Year 2000 compliance program, however, is an
ongoing process, involving continual evaluation and may be subject to a
change in response to new developments.
- - External - The Company has inventoried all equipment that operates via
a computer chip or externally developed software. Assessment revealed
that most of the equipment (such as machinery utilizing process
controllers, HVAC, elevators and other items) either were not date
sensitive or date sensitivity was not relevant to continued operation
of the equipment. For equipment where date sensitivity is relevant, the
manufacturers have been contacted for Year 2000 compliance
certification, and upgrades have been made where necessary. The
Company's customers, vendors (including supply and utility services),
business partners, and professional and financial institutions have
also been contacted for written Year 2000 compliance certification. As
of October 2, 1999, response has been received from approximately 60%
of all contacts, and all responses have been favorable. Follow up
contacts are being made to all non respondents. While there can be no
assurance that all providers' systems, or their suppliers' systems,
upon which the Company relies, will be ready in a timely manner and
will not have a material effect on the Company, the Company is not
aware of any third party with a Year 2000 issue that will materially
impact the Company's results of operations, liquidity or capital
resources.
The Company estimates that it has incurred approximately $450,000 in cost
related to the Year 2000 project, all of which has been expensed and funded
through operating cash flows.
Management believes it has an effective program in place to address the Year
2000 issue that will significantly reduce the risk of business interruption to
its internal operations, business partners, customers, and suppliers as the next
century approaches. However, there can be no assurance that the Company's
systems or equipment or those of its vendors, customers or other third parties,
will be made Year 2000 compliant in a timely manner or that the impact of the
failure to achieve such compliance will not have a material adverse effect on
the Company's business, financial condition or results of operations. The
Company is updating its contingency plans based on the current status of its
progress toward becoming Year 2000 compliant. The plans include the addressing
of potential needs during the actual transition of operations on January 1,
2000. In addition, the Company is developing a Year 2000 business continuity
plan for its critical business functions that will include potential failure by
critical third parties to address the Year 2000 issue. Management believes the
continuity plan will be completed and in place before December 31, 1999.
<PAGE> 14
FORWARD-LOOKING STATEMENTS
Certain of the above statements contained herein under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1996. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements express or
implied by such forward-looking statements. Such factors include, among other
things, business conditions, volatility of commodities markets, ability to
control operating costs, developing successful new products and maintaining
effective pricing and promotion of its products. Additionally, there can be no
assurance that the Company (i) will have access to financial capital in the
future or that it can obtain such capital on terms that are favorable to the
Company or otherwise reasonably acceptable to it, or (ii) will be able to
generate profits from, or continue the growth of, the lines of businesses and
operations that the Company has retained subsequent to its restructuring
efforts. A failure by the Company to obtain capital in the future on terms that
are favorable to it or a failure by the Company to generate profits from, or
grow, its remaining business lines may have a material adverse effect on the
Company's business, financial condition or results of operations.
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As of October 2, 1999, 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) Not applicable.
(b) Not applicable.
(c) In connection with the Amended and Restated Credit and
Security Agreement that the Company entered into on
July 27, 1999 (the "Credit Agreement"), the Company
issued to the lenders warrants to purchase 10% of the
fully diluted Class A and Class B common shares
(approximately 742,000 shares as of July 27, 1999) for
nominal consideration. The warrants are exercisable by
the lenders after December 31, 1999, through December
31, 2004. If the Company repays the $15,000,000 loan
made pursuant to the Credit Agreement prior to
December 31, 1999, the lenders will cancel the warrants
and will forgive the difference of the interest accrued
under the Credit Agreement and the interest paid
thereunder above 15%. The Company issued the warrants
pursuant to the exemption set forth by Section 4(2) of
the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) (b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The election of directors and selection of Ernst & Young as the
Company's independent auditors were approved by the holders of the
Company's Class B Common Stock at the Annual Meeting of Shareholders
held on October 7, 1999. Set forth below are the results of the voting:
<TABLE>
<CAPTION>
VOTES VOTES
FOR AGAINST ABSTENTIONS WITHHELD
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
ELECTION OF DIRECTORS
Thomas D. Adams, Jr. 1,546,598 0 1,349 18,594
C. Ronald Barfield 1,546,598 0 1,349 18,594
Archie H. Davis 1,546,598 0 1,349 18,594
H. Stewart Davis 1,546,598 0 1,349 18,594
George H. Hightower 1,546,598 0 1,349 18,594
George H. Hightower, Jr. 1,546,598 0 1,349 18,594
Neil H. Hightower 1,546,598 0 1,349 18,594
Rosser R. Raines 1,546,598 0 1,349 18,594
Dr. Jerry M. Williamson 1,546,598 0 1,349 18,594
Dom H. Wyant 1,546,598 0 1,349 18,594
SELECTION OF ERNST & YOUNG 1,566,541 0 1,349 0
</TABLE>
<PAGE> 16
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amended and Restated Credit and Security Agreement,
dated as of July 27, 1999, among the Company, its
subsidiary, Bank of America, N.A., SunTrust Bank,
Atlanta and Wachovia Bank, N.A., as lenders;
SunTrust Bank, Atlanta, as agent; Wachovia Bank,
N.A., as agent; and SunTrust Equitable Securities
Corporation, as arranger and lead manager, as
amended by that certain First Amendment to Amended
and Restated Credit and Security Agreement, dated as
of September 10, 1999, incorporated by reference
to Exhibit 10.10 at the Company's Annual Report
on Form 10-K for the fiscal year ended July 3, 1999
(the "1999 10-K").
10.2 Pledge Agreement, dated as of July 23, 1999, made by
the Company in favor of Wachovia Bank, N.A., as
collateral agent, incorporated by reference to
Exhibit 10.11 of the 1999 10-K.
10.3 $75,000,000 Loan and Security Agreement among the
Company, the financial institutions named therein,
as lenders, Foothill Capital Corporation, as agent,
and Foothill Capital Corporation and General Electric
Capital Corporation, as co-agents, dated as of July
27, 1999, incorporated by reference to Exhibit
10.12 of the 1999 10-K.
10.4 Patent Security Agreement, dated as of July 27,
1999, made by the Company in favor of Foothill
Capital Corporation, as agent for the co-agents and
lenders, incorporated by reference to Exhibit 10.13
of the 1999 10-K.
10.5 Trademark Security Agreement, dated as of July 27,
1999, made by the Company to Foothill Corporation, as
agent for the lender group, incorporated by
reference to Exhibit 10.14 of the 1999 10-K.
13.1 Quarterly Report to Shareholders dated October 2,
1999.
27.0 Financial Data Schedule (for SEC purposes only)
(b) The Company did not file any reports on Form 8-K during the
three months ended October 2, 1999.
<PAGE> 17
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.
/s/ Neil H. Hightower
------------------------------
Neil H. Hightower
President and Chief
Date: November 16, 1999 Executive Officer
-------------------
/s/ A. Wiliam Ott
------------------------------
A. William Ott
Treasurer and Chief
Date: November 16, 1999 Financial Officer
-------------------
<PAGE> 1
EXHIBIT 13.1
[LOGO]
NEWS
RELEASE
FIRST QUARTER REPORT
2000
TO THE SHAREHOLDERS:
Thomaston Mills made significant progress in operations for the quarter ended
October 2, 1999 when compared to the year before. Sales from continuing
operations for the quarter were $40,724,000, and the Company had a net loss of
$1,590,000 compared to a net loss of $3,992,000 for the prior year's quarter.
The Company is now completely out of the denim and sales yarn businesses, and
practically all inventory from these businesses has been sold. Capacity
utilization has improved in the piece dyed apparel area and the consumer
products area. Product development has been intensified throughout the Company
with emphasis on new value-added piece dyed apparel fabrics and home textile
designs. Manufacturing efficiencies are improving, and our new systems for
scheduling and customer service are beginning to pay off.
Long term debt is down compared to the year before, and inventories have been
reduced. Inventories are expected to rise some in the current quarter in
preparation for heavier consumer products shipments in the quarter starting in
January.
We still have a long way to go, but the trends are now in the right direction.
As we said at our shareholders' meeting earlier this month, we have reorganized,
refocused and refinanced, and we're coming back.
Sincerely,
/s/ Neil H. Hightower
- ---------------------
Neil H. Hightower
President and CEO
October 25, 1999
THOMASTON MILLS, INC.
Post Office Box 311
THOMASTON, GEORGIA 30286-0004
<PAGE> 2
THOMASTON MILLS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 14 WEEKS ENDED
OCTOBER 2, 1999 OCTOBER 3, 1998
--------------- ---------------
<S> <C> <C>
Net sales................................................... $ 40,724 43,070
Cost of sales............................................... 36,231 41,697
---------- ----------
4,493 1,373
Selling, general and administrative expenses................ 4,057 4,476
---------- ----------
436 (3,103)
Interest expense............................................ 2,068 1,585
Amortization of credit agreement fees....................... 74 0
Other income (expense) - net................................ 116 144
---------- ----------
Loss from continuing operations before income tax benefit... (1,590) (4,544)
Benefit for income taxes.................................... 0 (2,447)
---------- ----------
Loss from continuing operations............................. (1,590) (2,097)
Loss from discontinued operations........................... 0 (1,895)
---------- ----------
Net loss.................................................... $ (1,590) $ (3,992)
========== ==========
Weighted average number of shares........................... 6,540,046 6,540,046
Basic and diluted loss per share:
Continuing operations..................................... $ (0.24) $ (0.32)
Discontinued operations................................... (0.00) (0.29)
---------- ----------
Net loss per share.......................................... $ (0.24) $ (0.61)
---------- ----------
Dividends paid per share.................................... $ 0.0000 $ 0.0375
========== ==========
</TABLE>
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 2, 1999 OCTOBER 3, 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 2,715 532
Accounts receivable less allowance of $812 in 1999 and
$871 in 1998............................................ 29,179 39,541
Inventories............................................... 34,837 53,034
Other current assets...................................... 2,133 12,918
--------- ---------
Total Current Assets............................. 68,864 106,025
Property, Plant and Equipment............................... 166,898 252,011
Less allowance for depreciation........................... (116,959) 172,240)
--------- ---------
49,939 79,771
Assets held for sale........................................ 10,410 0
Deferred income taxes....................................... 3,116 0
Other Assets................................................ 6,345 4,680
--------- ---------
$ 138,674 $ 190,476
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 12,674 $ 15,312
Accrued liabilities....................................... 8,242 7,765
Current portion of capital lease obligations.............. 398 372
Current portion of long-term debt......................... 4,000 1,667
Reserve for discontinued operations....................... 257 0
--------- ---------
Total Current Liabilities.......................... 25,571 25,116
Obligations under capital leases............................ 865 1,270
Long-term debt.............................................. 66,178 74,200
Deferred income taxes....................................... 0 4,907
Other liabilities........................................... 1,588 3,005
Shareholders' Equity........................................ 44,472 81,978
--------- ---------
$ 138,674 $ 190,476
========= =========
</TABLE>
RECLASSIFICATIONS: CERTAIN RECLASSIFICATIONS WERE MADE TO THE 1999
CONSOLIDATED FINANCIAL STATEMENTS IN ORDER TO CONFORM TO THE 2000 PRESENTATION.
FORWARD-LOOKING STATEMENTS: CERTAIN OF THE ABOVE STATEMENTS CONTAINED HEREIN
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1996. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE
THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESS OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHER
THINGS, BUSINESS CONDITIONS, VOLATILITY OF COMMODITIES MARKETS, ABILITY TO
CONTROL OPERATING COSTS, DEVELOPING SUCCESSFUL NEW PRODUCTS AND MAINTAINING
EFFECTIVE PRICING AND PROMOTION OF ITS PRODUCTS.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUL-04-1999
<PERIOD-END> OCT-02-1999
<CASH> 2,715
<SECURITIES> 0
<RECEIVABLES> 29,991
<ALLOWANCES> 812
<INVENTORY> 34,837
<CURRENT-ASSETS> 68,864
<PP&E> 166,898
<DEPRECIATION> 116,959
<TOTAL-ASSETS> 138,674
<CURRENT-LIABILITIES> 25,571
<BONDS> 0
0
0
<COMMON> 7,494
<OTHER-SE> 36,978
<TOTAL-LIABILITY-AND-EQUITY> 138,674
<SALES> 40,724
<TOTAL-REVENUES> 40,840
<CGS> 36,231
<TOTAL-COSTS> 36,231
<OTHER-EXPENSES> 4,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,068
<INCOME-PRETAX> (1,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,590)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
