<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 January 2, 1999 Commission File No. 0-1915
THOMASTON MILLS, INC.
- ---------------------------------------
<TABLE>
<CAPTION>
GEORGIA 58-0460470
- --------------------------------- ------------------------------------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 -- January 2, 1999 and
June 27, 1998
Condensed consolidated statements of operations -- thirteen
weeks ended January 2, 1999 and thirteen weeks ended December
27, 1997 and twenty-seven weeks ended January 2, 1999 and
twenty-six weeks ended December 27, 1997
Condensed consolidated statements of cash flows --
twenty-seven weeks ended January 2, 1999 and twenty-six weeks
ended December 27, 1997.
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
<TABLE>
<CAPTION>
(Dollars in Thousands)
January 02, 1999 June 27, 1998
---------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 2,412 $ 1,122
Accounts receivable, less allowance of
$761 at January 2, 1999 and $871 at June 27, 1998 30,198 46,268
Inventories--Note B 50,943 46,585
Other current assets 6,478 8,832
-------- --------
TOTAL CURRENT ASSETS 90,031 102,807
PROPERTY, PLANT AND EQUIPMENT 253,110 251,159
Less allowance for depreciation 175,816 168,336
-------- --------
77,294 82,823
OTHER ASSETS 10,364 4,536
-------- --------
$177,689 $190,166
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,943 $ 11,805
Accrued liabilities 6,977 8,101
Current portion of long-term debt
and capital lease obligations 2,039 2,648
-------- --------
TOTAL CURRENT LIABILITIES 23,959 22,554
OBLIGATIONS UNDER CAPITAL LEASE -
LESS CURRENT PORTION 1,178 1,361
LONG-TERM DEBT 68,033 72,268
DEFERRED INCOME TAXES 4,907 4,907
OTHER LIABILITIES 3,024 2,861
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 8,904 8,904
Retained earnings 65,610 75,237
-------- --------
82,008 91,635
Less treasury stock - at cost 5,420 5,420
-------- --------
76,588 86,215
-------- --------
$177,689 $190,166
======== ========
</TABLE>
NOTE: The Balance Sheet at June 27, 1998 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 13 Weeks 27 Weeks 26 Weeks
Ended Ended Ended Ended
Jan. 02, 1999 Dec. 27, 1997 Jan. 02, 1999 Dec. 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 47,760 $ 68,036 $ 108,748 $ 141,248
Cost of sales 50,645 61,438 111,266 132,743
----------- ----------- ----------- -----------
(2,885) 6,598 (2,518) 8,505
Selling, general
and administrative expenses 4,511 4,915 9,876 10,069
----------- ----------- ----------- -----------
(7,396) 1,683 (12,394) (1,564)
Other income (expense) - net 315 72 459 175
----------- ----------- ----------- -----------
(7,081) 1,755 (11,935) (1,389)
Interest expense 1,613 1,215 3,198 2,542
----------- ----------- ----------- -----------
Income (loss) before
income taxes (8,694) 540 (15,133) (3,931)
Provision for income taxes
(benefit) (3,304) 205 (5,751) (1,494)
----------- ----------- ----------- -----------
Net income (loss) $ (5,390) $ 335 $ (9,382) $ (2,437)
=========== =========== =========== ===========
Weighted Average Number of Shares - Basic 6,540,046 6,539,996 6,540,046 6,539,996
Basic earnings (loss) per share $ (0.8200) $ 0.05 $ (1.4300) $ (0.3700)
Weighted Average Number of Shares - Diluted 6,540,046 6,551,466 6,540,046 6,539,996
Diluted earnings (loss) per share $ (0.8200) $ 0.05 $ (1.4300) $ (0.3700)
Dividends paid per share $ 0.0000 $ 0.0750 $ 0.0375 $ 0.1500
</TABLE>
<PAGE> 5
THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
27 Weeks 26 Weeks
Ended Ended
Jan. 2, 1999 Dec. 27, 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (9,382) $ (2,437)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 7,538 8,494
Gain on sale of property, plant
and equipment (35) 0
Changes in operating assets and
liabilities:
Accounts receivable 16,069 10,958
Inventories (4,358) (9,209)
Other assets (3,473) 4
Accounts payable and accrued expenses 2,549 (7,111)
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,908 699
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,009) (6,373)
Less capital lease obligations incurred 0 664
-------- --------
Cash for property, plant and equipment (2,009) (5,709)
Proceeds from sales of property, plant
and equipment 35 2
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (1,974) (5,707)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 3,500 8,664
Less capital lease obligations incurred 0 (664)
-------- --------
Cash proceeds from borrowings 3,500 8,000
Principal payments on revolving lines of
credit, long-term debt and capital lease
obligations (8,899) (2,528)
Cash dividends paid (245) (981)
-------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (5,644) 4,491
-------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,290 (517)
Cash and cash equivalents at beginning
of period 1,122 1,886
-------- --------
Cash and cash equivalents at end
of period $ 2,412 $ 1,369
======== ========
</TABLE>
<PAGE> 6
THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 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 thirteen weeks ended January 2, 1999
are not necessarily indicative of the results that may be expected for the year
ending July 3, 1999. Certain fiscal 1998 balances have been reclassified to
conform with the fiscal 1999 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 27, 1998.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
January 2, 1999 June 27, 1998
--------------- -------------
<S> <C> <C>
Raw materials $ 6,249 $ 7,569
Work in process 31,019 29,525
Finished products 23,602 21,631
LIFO reserve (9,927) (12,140)
-------------- -------------
$ 50,943 $ 46,585
============== =============
</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 Date)
13 Weeks 13 Weeks 27 Weeks 26 Weeks
Ended Ended Ended Ended
Jan. 2, 1999 Dec. 27, 1997 Jan. 2, 1999 Dec. 27, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations $ (5,390) $ 335 $ (9,382) $ (2,437)
----------- ---------- ----------- -----------
Numerator for basic and diluted earnings (loss) per share $ (5,390) $ 335 $ (9,382) $ (2,437)
=========== ========== =========== ===========
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 6,540,046 6,539,996 6,540,046 6,539,996
Dilutive effect of potential common shares -
Employee stock options N/A 11,470 N/A N/A
----------- ---------- ----------- -----------
Denominator for diluted earnings (loss) per share -
adjusted weighted-average shares and
assumed conversions 6,540,046 6,551,466 6,540,046 6,539,996
=========== ========== =========== ===========
Basic earnings (loss) per share $ (0.8200) $ 0.0500 $ (1.4300) $ (0.3700)
=========== ========== =========== ===========
Diluted earnings (loss) per share $ (0.8200) $ 0.0500 $ (1.4300) $ (0.3700)
=========== ========== =========== ===========
Potentially dilutive common shares related to
options outstanding:
Not considered in calculation due to net loss 0 0 0 6,607
=========== ========== =========== ===========
Not considered in calculation due to average
price of Company's common stock exceeding
exercise price of options 892,025 605,669 900,666 632,326
=========== ========== =========== ===========
</TABLE>
<PAGE> 8
THOMASTON MILLS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Sales for the second fiscal quarter ended January 2, 1999 were down 30% to
$47,760,000 from second quarter sales last year of $68,036,000. Both the
Consumer Products Division and the Apparel Fabrics Division experienced sales
declines. Although a portion of the sales decline was expected due to the sale
of the Rattlers Division and the closing of the Griffin, Georgia yarn facility,
depressed market conditions resulted in less than expected units sold along with
less sales dollars per unit being generated. Sales of $108,748,000 for the
twenty-seven week period ended January 2, 1999 were down 23% from sales of
$141,248,000 for the comparable twenty-six week period last year.
Cost of sales for the second fiscal quarter was $50,645,000, or 106% of sales,
compared to cost of sales for the second fiscal quarter last year of
$61,438,000, or 90% of sales. Lower sales levels have caused the Company's
manufacturing facilities to operate at below optimum capacity levels. This low
capacity utilization and the resulting higher fixed costs per unit have offset
declines the Company has experienced in raw material costs.
For the second fiscal quarter ended January 2, 1999, the Company generated a
negative gross profit of $2,885,000 compared to a positive gross profit of
$6,598,000 for the second fiscal quarter last year. For the twenty-seven weeks
ended January 2, 1999, the Company generated a negative gross profit of
$2,518,000 compared to a positive gross profit of $8,505,000 for the twenty-six
weeks ended December 27, 1997. The negative gross profit was primarily the
result of the Company's concentrated effort to reduce the level of off-quality
goods in inventory. The Company believes that it has adequately reserved for
off-quality goods remaining in inventory at January 2, 1999.
Selling, general and administrative expenses decreased for the quarter and the
twenty-seven weeks ended January 2, 1999 when compared to the comparable quarter
and the twenty-six weeks ended December 27, 1997. The decrease in sales,
however, resulted in selling, general and administrative expenses as a
percentage of sales to increase to 9.4% of sales for the second quarter in the
current fiscal year compared to 7.2% of sales for the second quarter last year.
For the twenty-seven weeks ended January 2, 1999, selling, general and
administrative expenses were 9.1% of sales as compared to 7.1% of sales for the
twenty-six weeks ended December 27, 1997.
Other income during the second quarter of fiscal year 1999 was $315,000,
compared to $72,000 for the second quarter of fiscal year 1998. Other income
relates to miscellaneous equipment sales, royalties earned on the
Company's sale of the Rattlers Brand and interest earned on the Company's
short-term investments of cash.
Interest expense increased for both the quarter and the twenty-seven weeks ended
January 2, 1999 when compared to the second quarter and the twenty-six weeks
ended December 27, 1997. This increase was the result of increased borrowings
and higher interest rates under the Company's credit facilities.
<PAGE> 9
Income tax expense (benefit) for the second quarter and first six months of both
fiscal years 1999 and 1998 was 38% of taxable income (loss), which approximates
the statutory income tax rate for the tax jurisdictions in which the Company
operates.
For the second quarter of fiscal year 1999, the Company sustained a loss of
$5,390,000, or $.82 per basic and diluted share, as compared to a second quarter
fiscal year 1998 net income of $335,000, or $.05 per basic and diluted share.
For the twenty-seven weeks ended January 2, 1999, the Company sustained a loss
of $9,382,000, or $1.43 per basic and diluted share, as compared to a net loss
of $2,437,000, or $.37 per basic and diluted share, for the twenty-six weeks
ended December 27, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At January 2, 1999, working capital was $66,072,000 as compared to $84,106,000
at December 27, 1997. The ratio of current assets to current liabilities was
3.75:1 at January 2, 1999 and 5.30:1 at December 27, 1997.
Operating activities provided cash flow of $8,908,000 during the twenty-seven
weeks ended January 2, 1999. The primary use of funds was $5,644,000 in net
principal payments on revolving lines of credit, long-term debt and capital
lease obligations. Investing activities, consisting of purchases of property,
plant and equipment, used funds of $1,974,000.
On August 19, 1998, the Company entered into a new two-year credit agreement
with a group of banks for borrowings up to $80,250,000 including a revolving
credit facility up to $45,000,000, a term loan of $18,000,000 and standby
letters of credit of $17,250,000 (the "Credit Agreement"). Proceeds from
borrowings under the Credit Agreement were used to refinance the Company's
revolving credit facility, a long-term note payable due March 2001 in the amount
of $2,150,000 and a portion of the Industrial Revenue Bonds existing at June 27,
1998. Standby letters of credit were issued to provide credit enhancement of
other credit facilities existing at June 27, 1998. Borrowings under the Credit
Agreement were initially secured by all assets and properties of the Company,
other than real estate. The borrowings available under the revolving credit
facility are based on the amount of eligible trade accounts receivable and
inventories. Based on the latest calculation of availability, the Company had
the ability to borrow up to an additional $3,850,000 under the revolving credit
facility. The interest rate on borrowings under this line is currently based on
the prime interest rate plus 1-1/2%. The Company pays facility fees on the
unused portions of the committed credit line.
On January 19, 1999, the Company and its lenders amended the Credit Agreement to
provide for, among other things, a reduction in the borrowing-base fixed reserve
from $10,000,000 to $5,000,000. The lenders have agreed to allow the reduction
in the borrowing base fixed reserve requirement to continue in effect through
April 30, 1999. This amendment also provides that, borrowings under the Credit
Agreement are to be further secured by all real estate of the Company.
<PAGE> 10
The Credit Agreement contains various restrictive covenants relating to, among
other things, net working capital, minimum cumulative earnings before interest,
taxes, depreciation and amortization (EBITDA), and debt to equity ratios. Also
included are certain restrictions on capital expenditures and the amount of cash
dividends that may be paid. During second quarter of fiscal year 1999, the
Company was not in compliance with the restrictive covenants relating to minimum
cumulative EBITDA and minimum tangible net worth. The Company has obtained a
waiver from the lenders under the Credit Agreement with respect to
non-compliance with the restrictive covenants regarding the minimum cumulative
EBITDA requirement for the quarter and second quarter of fiscal year 1999 and
the minimum tangible net worth requirement for the second quarter of fiscal year
1999 continuing through April 30, 1999.
In connection with granting the waiver with respect to non-compliance with the
restrictive covenants as described above, the Company's lenders are requiring
that the Company obtain, by not later than March 15, 1999, a commitment letter
pursuant to which one or more new lenders will provide financing in an aggregate
amount at least sufficient to pay in full all outstanding obligations and retire
all commitments of the lenders under the Credit Agreement by not later than
April 30, 1999. The Company has commenced discussions with several potential
lending institutions, and has received one proposal, and expects to receive
additional proposals, with respect to available refinancing opportunities. In
the event that the Company is unable to obtain such a commitment by March 15,
1999, then the waivers granted by the lenders in February 1999 will be subject
to withdrawal. The Company expects that it will be able to obtain and consummate
a refinancing of its outstanding indebtedness under the Credit Agreement;
however, there can be no assurance that a commitment letter will be obtained, or
that new financing arrangements will be available and consummated, within the
time periods required, or that, if available, such financing would be on terms
that are favorable to the Company. Furthermore, there can be no assurance as to
what remedies the lenders may seek under the terms of the Credit Agreement if
the Company is unable to meet the foregoing conditions. If the Company does not
obtain such commitment letter of complete the refinancing within the time
periods required, the Company would seek an extension of such time deadlines
from the lenders. In addition, as a condition to issuing the waiver described
above, the lenders are requiring that the pledge of the Company's real estate to
secure the borrowings under the Credit Agreement be substantially completed by
February 19, 1999. If the required action are not completed by that date, the
waivers are subject to withdrawal. The Company currently anticipates that it
will meet the required time deadlines.
ORGANIZATIONAL CHANGES
On September 16, 1998, the Company announced its plans to close its Griffin,
Georgia, yarn facility and to transfer its production to other Company
facilities. The consolidation of the Company's yarn production was
designed to improve manufacturing capacity utilization. All employees at the
Griffin plant were offered transfers to other Company facilities. The Griffin
facility was closed mid-November 1998 and the facility is being offered for
sale.
The Company has reorganized along division lines and, effective October 16,
1998, H. Stewart Davis was elected Executive Vice President of the Company and
President - Consumer Products Division and George H. Hightower, Jr. was elected
Executive Vice President of the Company and President - Apparel Fabrics
Division. Mr. Neil H. Hightower, President and CEO also announced that William
James joined the Company as Director of Operations Planning and Control. On
December 10, 1998, Mr. James was elected Vice President of Consumer Products
Manufacturing and Operations.
On January 18, 1999, Robert B. Dale joined the Company as Vice President of
Sales and Marketing for the Consumer Products Division.
<PAGE> 11
INVENTORIES
Inventories at January 2, 1999 and December 27, 1997 were $50,934,000 and
$57,938,000, respectively. Total inventory turns on an average annualized rate
were 4.4 times for the twenty-seven weeks ended January 2, 1999 and 4.6 times
for the twenty-six weeks ended December 27, 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 currently anticipate any material difficulty in
obtaining cotton.
In order to assure a continuous supply of cotton, the Company enters into cotton
purchase contracts for several months in advance of delivery which either
provide for (1) fixed quantities to be purchased at a pre-determined price, or
(2) fixed quantities to be purchased at a price to be determined (at a later
date). When the Company sells its product to its customers, the cost of cotton
under existing cotton purchase contracts is taken into account in calculating
the price for the Company's product. The Company generally attempts to match
product sales contracts with fixed price cotton purchase contracts and uses
market price cotton contracts to anticipate future needs and subsequent product
sales contracts. To the extent prices are sometimes fixed in advance of
shipment, the Company may benefit from its cotton purchase contracts to the
extent prices thereafter rise, or incur increased cost to the extent prices
thereafter fall.
GATT
In December 1993, 117 countries reached an agreement under the General Agreement
on Tariffs and Trade that would cover new areas of trade, further cut tariffs
and strengthen multilateral free-trade rules by creating a World Trade
Organization (WTO) as its successor. This agreement was ratified by the United
States Congress and went into effect on July 1, 1995. As part of this new
agreement, the Multifiber Arrangement (MFA) under which textile and apparel
trade had been controlled, will be phased out along with its import quotas over
a 10-year period. Tariffs on textiles will be cut by an average of 11.6% over 10
years. A weighted average tariff for products sold by Thomaston Mills, if
imported, would be cut by 8.8%. Under the agreement, quotas on the least
sensitive import products will be phased out over the first five years and
quotas on the most sensitive import products will not be affected until the
latter part of the 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> 12
RATTLERS BRAND
In January 1998, the Company entered into a license agreement by which it agreed
to license (with an option to purchase) its Rattlers Brand trademark. Under this
agreement, the Company will be paid a royalty for sales of products using the
Rattlers Brand trademark. The agreement is for a term of twelve years and
includes provisions for minimum annual royalty payments.
YEAR 2000
The Company is committed to being Year 2000 compliant by September 30, 1999. A
task force was formed two years ago with representatives from data processing,
greige manufacturing, finishing, purchasing, accounting and internal audit. The
company-wide endeavor, which involves the testing, assessment and remediation of
both information technology and non-information technology systems, is designed
to significantly reduce the risk of business interruption to Thomaston Mills'
internal operations, business partners, customers, and suppliers as the next
century approaches.
The millennium issue is being addressed on two fronts:
Internal - 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 January 2, 1999, the work was
approximately 97% complete. As testing of the systems continues, the Company
will determine whether contingency plans must be developed and implemented to
address any system failures or interruptions. Testing is scheduled to be
completed prior to the end of the third quarter of fiscal 1999.
External - the Company has inventoried all equipment in use within the Company
that contains a computer chip or uses externally developed software. The
manufacturers are being contacted for Y2K compliance certification. The
Company's customers and vendors are also being contacted for written Y2K
assurance. As of January 2, 1999, approximately 60% of those customers and
business partners contacted have responded and, to date, the Company has not
been informed of any external systems or equipment wit a Year 2000 compliance
issue that would materially impair the Company's business, financial
condition or results of operations. However, the Company has no means of
ensuring that such external systems or equipment will not encounter compliance
problems that are expected to require further remediation. The Company will
continue to monitor the progress of its material vendors and customers in
addressing those issues, and will develop contingency plans if potential
problems are identified.
Anticipated costs for the compliance effort total $450,000, most of which has
been incurred and expensed. To date, the Company's review has not revealed any
significant problems relative to the Year 2000 issue; 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.
<PAGE> 13
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 1995. 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, the Company's degree of leverage and debt service
requirements, the ability to obtain additional financing on acceptable terms,
volatility of commodities markets, ability to control operating costs,
developing successful new products and maintaining effective pricing and
promotion of its products.
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As of January 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) (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
On October 22, 1998, the Company's Class B Common Stock began
trading on the Nasdaq Smallcap Market under the ticker symbol
TMSTB. The Class B Common Stock had previously traded on the
Nasdaq National Market, but no longer met certain of the
listing criteria, including the minimum public float
requirement. The Company's Class A Common Stock continues to
trade on the Nasdaq National Market under the symbol TMSTA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 First Amendment to Credit and Security
Agreement, dated as of January 19, 1999, by
and among the Company, Thomaston Mills FSC,
Inc., and the Lenders named therein.
10.2 Consent and Waiver No. 1 to the Credit and
Security Agreement, dated as of February 12,
1999, by and among the Company, Thomaston
Mills FSC, Inc., and the Lenders named
therein.
10.3 Amended and Restated Consent and Waiver
No. 1 to the Credit and Security Agreement,
as of February 16, 1999, by and among the
Company, Thomaston Mills FSC, Inc., and the
Lenders named therein. (to be filed by
amendment.)
13.1 Quarterly Report to Shareholders dated
January 2, 1999.
27.0 Financial Data Schedule (for SEC purposes
only)
<PAGE> 15
(b) The Company did not file any reports on Form 8-K
during the three months ended January 2, 1999.
<PAGE> 16
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: February 15, 1999 Executive Officer
------------------
/s/ A. William Ott
--------------------------------------
A. William Ott
Treasurer and Chief
Date: February 15, 1999 Financial Officer
------------------
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
CREDIT AND SECURITY AGREEMENT
Preamble. THIS FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT (hereinafter,
together with all schedules and exhibits hereto, and any supplements, additions,
modifications or amendments thereto made from time to time called the "First
Amendment"), dated as of January 19, 1999 (the "First Amendment Date"), is made
by and among THOMASTON MILLS, INC., a Georgia corporation (hereinafter, together
with its successors and permitted assigns called the "Borrower"); THOMASTON
MILLS FSC, INC., a U.S. Virgin islands corporation (hereafter, together with its
successors and permitted assigns, called "FSC"); NATIONSBANK, N.A., a national
banking association (hereinafter, together with its successors and permitted
assigns, called "NationsBank"; NationsBank, together with SunTrust and Wachovia,
each as hereinafter defined, called collectively, the "Lenders" and,
individually, a "Lender"); SUNTRUST BANK, ATLANTA, a Georgia banking corporation
(hereinafter, together with its successors and permitted assigns, called
"SunTrust"), individually and as "Administrative Agent" and "Syndication Agent"
(as those terms are defined in the Credit Agreement defined below), on behalf of
the Lenders; WACHOVIA BANK, N.A., a national banking association (hereinafter,
together with its successors and permitted assigns, called "Wachovia"), as
"Special Issuer," "Documentation Agent" and "Collateral Agent" (as those terms
are defined in the Credit Agreement defined below), on behalf of the Lenders;
and SUNTRUST EQUITABLE SECURITIES CORPORATION, a Tennessee corporation
(hereinafter, together with its successors and permitted assigns called
"SunTrust Equitable Securities"), as "Arranger" and "Lead Manager" (as those
terms are defined in the Credit Agreement defined below), on behalf of the
Lenders.
The Borrower, FSC, SunTrust (in its respective capacities
described above), Wachovia (in its respective capacities described above),
NationsBank as a Lender and SunTrust Equitable Securities (in its respective
capacities described above) (the foregoing parties herein sometimes collectively
called the "Parties" and individually called a "Party") are Parties to a certain
Credit and Security Agreement, dated as of August 19, 1998 (which is called
herein the "Credit Agreement"), pursuant to which, among other things, the
Lenders agreed to extend credit and other financial accommodations to the
Borrower. The Parties have agreed to modify and amend the Credit Agreement in
the manner, and subject to the terms and conditions, set forth hereinbelow.
NOW, THEREFORE, in consideration of the foregoing premises,
the mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Parties, each intending to be legally bound, hereby agree as
follows:
SECTION 1. Definitions. Capitalized terms used in this First Amendment
and not defined herein are defined in the Credit Agreement.
SECTION 2. Amendments to Credit Agreement. The Parties hereby amend the
Credit Agreement as set forth in SECTIONS 2.1 through 2.10.
<PAGE> 2
2.1 Incorporated Definitions. The terms "First Amendment" and
"First Amendment Date," defined and described in the Preamble hereinabove, are
incorporated by reference into, and made an integral part of, SECTION 1.1, as
defined terms therein in the appropriate alphabetic order.
2.2 Definition of Borrowing Base. The defined term "Borrowing
Base," set forth in SECTION 1.1 of the Credit Agreement, is amended by deleting
existing clause (x) thereof, in its entirety, therefrom, and substituting in its
place the following revised clause (x):
(x) a fixed and continuing reserve, in the
amount of Ten Million Dollars ($10,000,000), from the Closing
Date through January 18, 1999, reducing to Five Million
Dollars ($5,000,000) on January 19, 1999 and continuing in
such reduced amount until March 1, 1999, on which date such
reserve shall be increased to, and remain thereafter at, Ten
Million Dollars ($10,000,000);
2.3 Definition of Eligible Accounts. The defined term
"Eligible Accounts," set forth in SECTION 1.1 of the Credit Agreement, is
amended by deleting existing clause (v) thereof, in its entirety, therefrom, and
substituting in its place the following revised clause (v):
(v) which is owing by any Account Debtor whose
accounts, in face amount, with the Obligors exceed ten percent
(10%) of such Obligor's Eligible Accounts (except for VF
Corporation, as to which such concentration limit shall be,
instead, twenty-five percent (25%), but only to the extent of
such excess);
2.4 Collateral Reserve Account. Pursuant to clause (ii) of
the fifth sentence of SECTION 3.02 of the Credit Agreement, the Borrower is
hereby advised in writing by the Collateral Agent of a different arrangement
selected by the Collateral Agent (as directed by the Required Lenders) in
respect of the disposition of collected amounts on deposit from time to time in
the Collateral Reserve Account; that is, effective as of the Amendment Date, and
continuing at all times thereafter, the Administrative Agent will apply all
collected amounts in the Collateral Account to Revolving Loans then outstanding
and Letter of Credit Obligations in respect of In-Line Standby Letters of Credit
and Commercial Letters of Credit then due and payable, pro rata among each of
such Obligations based on the proportion which each bears to the total amount of
all such Obligations, all in conformity with the last sentence of SECTION 3.02
and subject to the overriding provisions of SECTION 3.02 in respect of such
dispositions during any time that a Default or Event of Default is in existence.
2.5 Interest Rates. SECTION 2.05 of the Credit Agreement is
amended by adding thereto, at the end thereof, the following:
(f) Notwithstanding any of the foregoing
provisions of this SECTION 2.05, excepting therefrom only
subsections (d) and (e) hereof, effective on and at all times
after the First Amendment Date,
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<PAGE> 3
the following provisions shall govern the interest rate
payable on the Loans:
(i) all Loans made, continued or
converted shall be made, continued as or converted
into Base Rate Loans only;
(ii) all Base Rate Loans existing on the
First Amendment Date, together with any and all Loans
made, continued or converted into Base Rate Loans
after the First Amendment Date, shall bear interest
at the Base Rate plus an Applicable Margin of one
percent (1%) per annum (without any subsequent
performance pricing adjustment);
(iii) the interest rate payable on all
Euro-Dollar Loans outstanding on the First Amendment
Date shall be increased by one percent (1%) per
annum, effective as of the First Amendment Date, and
all such Euro-Dollar Loans shall by converted into
Base Rate Loans effective upon the expiration of the
current Interest Period respective thereto;
2.6 Financial Reporting. SECTION 5.01 of the Credit Agreement
is amended by adding thereto, at the end thereof, the following new subsection
(p):
(p) without limitation of the foregoing clauses
(a) through (n), and in supplementation thereof, effective on
the First Amendment Date, and continuing at all relevant times
thereafter, the following additional reporting covenants shall
apply:
(i) there shall be included with the
monthly financial statements required to be delivered
to the Lenders pursuant to clause (b) of this SECTION
5.01, divisional financial statements for the
relevant fiscal period, in respect of each of the
Borrower's operating divisions, segregated on a
division-by-division basis;
(ii) as soon as available and in any
event on the second Business Day of each calendar
week, the Borrower shall have prepared and delivered
to each of the Lenders (x) a cash forecast and budget
for the coming four (4) calendar weeks (including the
-3-
<PAGE> 4
current week), segregated week-by-week and (y) a
weekly reconciliation of discrepancies among
forecasted, budgeted and actual cash receipts and
disbursements for the prior week, all in form
satisfactory to the Agents; and
(iii) the Borrowing Base Certificate (and
accompanying documentation) described in clause (j)
of this SECTION 5.01, shall be prepared and delivered
weekly by the Borrower, as of the last Business Day
of the preceding calendar week, with the Borrowing
Base Certificate to be delivered on the third
Business Day of each calendar week, and with the
accompanying documentation to be delivered on the
fourth Business Day of each calendar week..
2.7 Reports Respecting Collateral. SECTION 5.32 of the Credit
Agreement is amended by deleting therefrom (i) the words "twenty (20) days after
the end of each Fiscal Month" in the second line thereof and substituting in
their place the words "the first Business Day of each calendar week"; and by
further deleting therefrom the words "preceding Fiscal Month" and substituting
in their place the words "preceding calendar week," wherever they appear in such
SECTION.
2.8 Field Audit. In conformity with SECTION 5.02 of the
Credit Agreement, the Borrower shall fully cooperate with the Collateral Agent
in the conduct of a field audit of the Collateral, commencing on or as soon as
practicable after the Amendment Date.
2.9 Inventory Appraisal. SECTION 5.34 of the Credit Agreement
shall be amended by adding thereto, at the end thereof, the following new
sentence:
In addition to the foregoing, as soon as practicable
after the First Amendment Date, but in any event by February
15, 1999, the Borrower shall obtain, at its expense, and
deliver to the Collateral Agent an appraisal of the Inventory
Collateral from an appraiser, and using an appraisal
methodology, approved by the Agents.
2.10 Mortgages. There shall be added to ARTICLE 5 a new
SECTION 5.42, to read as follows:
SECTION 5.42 Mortgages. As soon as available after
the First Amendment Date, but in any event by not later than
February 10, 1999, the Borrower shall deliver or cause to be
delivered to the Collateral Agent, in respect of that portion
of the Aggregate Real Properties as are owned by the Obligors
on the First
-4-
<PAGE> 5
Amendment Date on which any manufacturing facilities (whether
open or closed) are situated, and all contiguous, adjacent and
related real property, including, in Pike County, Georgia, all
timberland, consisting of 900 acres, more or less (herein, the
"Mortgaged Real Property"), the following:
(i) a mortgage, deed to secure debt,
deed of trust or similar instrument of conveyance
(herein, a "Mortgage"), conveying to the Collateral
Agent for the benefit of all Agents and Lenders a
first priority Lien on the Mortgaged Real Property,
free and clear of all other Liens and encumbrances
excepting only those which are approved in writing by
the Collateral Agent;
(ii) a mortgagee's title insurance
policy (or binder committing to issue same), in
customary ALTA form, from a title insurer selected by
the Borrower, at its expense, but acceptable to the
Collateral Agent, insuring the Collateral Agent's
interest as mortgagee in the Mortgaged Real Property
in an amount of coverage acceptable to the Collateral
Agent and containing only such exceptions and
limitations as shall be acceptable to the Collateral
Agent;
(iii) a current, as-built boundary line
survey of the Mortgaged Real Property from a
registered land surveyor, selected by the Borrower,
at its expense, but acceptable to the Collateral
Agent in customary ALTA form;
(iv) as appropriate, a lessor's
acknowledgment and consent in respect of any
Mortgaged Real Property which is leased; and
(v) such other, similar or related
requirements as the Collateral Agent may require in
connection the foregoing.
Additionally, the Lenders reserve the right to require that Borrower comply with
the foregoing requirements as to any one or more or all other parcels of real
property, whether now owned or hereafter acquired, which Borrower shall do as
soon as possible after, but in any event within thirty (30) days after, receipt
of written request therefor from Agent that it do so.
-5-
<PAGE> 6
SECTION 3. Representations and Warranties of Obligors. The Borrower
and FSC, each severally, represents and warrants to the other Parties that:
(a) It has the power and authority to enter into and to perform
this First Amendment, to execute and deliver all documents
relating to this First Amendment, and or incur the obligations
provided for in this First Amendment, all of which have been
duly authorized and approved in accordance with its corporate
documents;
(b) This First Amendment, together with all documents executed
pursuant hereto, shall constitute when executed its valid and
legally binding obligations in accordance with their
respective terms;
(c) All representations and warranties made by it in the Credit
Agreement are true and correct as of the date hereof, with the
same force and effect as if all representations and warranties
were fully set forth herein;
(d) Its Obligations under the Credit Documents remain valid and
enforceable Obligations, and the execution and delivery of
this First Amendment and the other documents executed in
connection herewith shall not be construed as a novation of
the Credit Agreement or any of the other Credit Documents;
(e) As of the date hereof, it has no offsets, defenses or
counterclaims against the payment of any of the Obligations;
and
(f) As of the date hereof, and after giving effect to the terms
hereof, no Default Condition or Event of Default exists,
except in relation to Borrower's continuing compliance with
Sections 5.21 and 5.24 of the Credit Agreement as they relate
to Borrower's Fiscal Quarter ending closest to December 31,
1998; which Default Conditions and Events of Default have not
been waived by Lenders, and are not being waived hereby by
Lenders, but shall continue, together with Lenders' full
reservation after all rights and remedies deriving therefrom,
notwithstanding this Amendment.
SECTION 4. Waiver of Claims. As a specific inducement to the other
Parties without which the Borrower and FSC acknowledge the other Parties would
not enter into this First Amendment and the other documents executed in
connection herewith, each of the Borrower and FSC hereby waives any and all
claims that it may have against any other Party, as of the date hereof, arising
out of or relating to the Credit Agreement or any other Credit Document whether
sounding in contract, tort, or any other basis.
SECTION 5. Conditions of Effectiveness. This First Amendment shall
become effective when, and only when, the Documentation Agent shall have
received this First Amendment, executed by each Party.
-6-
<PAGE> 7
SECTION 5. Miscellaneous.
5.1 Reference to Credit Agreement. Upon the effectiveness of
this Credit Agreement, each reference in the Credit Agreement to "this Credit
Agreement" and each reference in the other Credit Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended
hereby.
5.2 Effect on Credit Documents. Except as specifically
amended above, all terms of the Credit Agreement and all other Credit Documents
shall remain in full force and effect and are hereby ratified and confirmed.
5.3 No Waiver. The execution, delivery and effectiveness of
this First Amendment shall not operate as a waiver of any right, power, or
remedy of Lenders or the Agents under any of the Credit Documents, nor
constitute a waiver of any provision of any of the Credit Documents.
5.4 Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Agents and the Lenders in connection with
the preparation, reproduction, execution, and delivery of this First Amendment
and the other instruments and documents to be delivered hereunder, including the
reasonable fees and out-of-pocket expenses of counsel for the Agent and the
Lenders with respect hereto.
5.5 No Novation. Nothing contained herein intended, or shall
be construed, to constitute a novation to the Credit Agreement or any Credit
Document.
5.6 Governing Law. This First Amendment shall be governed by
and construed in accordance with the laws of the State of Georgia, without
giving affect to conflict of law provisions.
5.7 Counterparts. This First Amendment may be executed in
counterparts. Each counterpart shall bind the Party or Parties executing same.
All counterparts, taken together, shall constitute one and the same agreement.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the Parties have caused this First
Amendment to be duly executed, under seal, by their respective authorized
officers as of the day and year first above written.
"BORROWER"
THOMASTON MILLS, INC.
By: (SEAL)
-------------------------------
Neil H. Hightower
President and Chief Executive Officer
Attest:
---------------------------------
A. William Ott
Vice President-Finance
(CORPORATE SEAL)
"SUBSIDIARY GUARANTOR"
THOMASTON MILLS FSC, INC.
By: (SEAL)
-------------------------------
Neil H. Hightower
President and Chief Executive Officer
Attest:
------------------------------
A. William Ott
Vice President-Finance
(CORPORATE SEAL)
-8-
<PAGE> 9
SUNTRUST BANK, ATLANTA,
as Administrative Agent,
Syndication Agent and as a Lender (SEAL)
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(CORPORATE SEAL)
-9-
<PAGE> 10
WACHOVIA BANK, N.A.,
as Special Issuer, Documentation Agent,
Collateral Agent, and as a Lender (SEAL)
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-10-
<PAGE> 11
NATIONSBANK, N.A.,
as a Lender (SEAL)
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-11-
<PAGE> 12
SUNTRUST EQUITABLE SECURITIES
CORPORATION, as Arranger and Lead
Manager
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(CORPORATE SEAL)
-12-
<PAGE> 1
EXHIBIT 10.2
CONSENT AND WAIVER NO. 1 TO
CREDIT AND SECURITY AGREEMENT
Preamble. THIS CONSENT AND WAIVER NO. 1 (this "First Waiver"), dated as of
February 12, 1999 (the "First Waiver Date"), is made by and among THOMASTON
MILLS, INC., a Georgia corporation (hereinafter, together with its successors
and permitted assigns called the "Borrower"); THOMASTON MILLS FSC, INC., a U.S.
Virgin islands corporation (hereafter, together with its successors and
permitted assigns, called "FSC"); NATIONSBANK, N.A., a national banking
association (hereinafter, together with its successors and permitted assigns,
called "NationsBank"; NationsBank, together with SunTrust and Wachovia, each as
hereinafter defined, called collectively, the "Lenders" and, individually, a
"Lender"); SUNTRUST BANK, ATLANTA, a Georgia banking corporation (hereinafter,
together with its successors and permitted assigns, called "SunTrust"),
individually and as "Administrative Agent" and "Syndication Agent" (as those
terms are defined in the Credit Agreement defined below), on behalf of the
Lenders; WACHOVIA BANK, N.A., a national banking association (hereinafter,
together with its successors and permitted assigns, called "Wachovia"), as
"Special Issuer," "Documentation Agent" and "Collateral Agent" (as those terms
are defined in the Credit Agreement defined below), on behalf of the Lenders;
and SUNTRUST EQUITABLE SECURITIES CORPORATION, a Tennessee corporation
(hereinafter, together with its successors and permitted assigns called
"SunTrust Equitable Securities"), as "Arranger" and "Lead Manager" (as those
terms are defined in the Credit Agreement defined below), on behalf of the
Lenders.
The Borrower, FSC, SunTrust (in its respective capacities
described above), Wachovia (in its respective capacities described above),
NationsBank as a Lender and SunTrust Equitable Securities (in its respective
capacities described above) (the foregoing parties herein sometimes collectively
called the "Parties" and individually called a "Party") are Parties to a certain
Credit and Security Agreement, dated as of August 19, 1998 (which is called
herein the "Credit Agreement"), pursuant to which, among other things, the
Lenders agreed to extend credit and other financial accommodations to the
Borrower. The Borrower has requested that the Lenders waive the Borrower's
compliance with certain terms and conditions of the Credit Agreement, which the
Lenders have agreed to do, in the manner, and subject to the terms and
conditions, set forth hereinbelow.
NOW, THEREFORE, in consideration of the foregoing premises,
the mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Parties, each intending to be legally bound, hereby agree as
follows:
SECTION 1. Definitions. Capitalized terms used in this First Waiver and
not defined herein are defined in the Credit Agreement.
SECTION 2. Waivers to Credit Agreement. The Lenders waive the
Borrower's compliance with the following terms and conditions of the Credit,
retroactive to the date of such non-compliance (the following herein called the
"Waivers"):
<PAGE> 2
(i) that, pursuant to Section 2.01(ii), the total amount
of all then outstanding Working Capital Obligations not exceed the
aggregate amount of the Borrowing Base, as to which the Borrower was
not in compliance on one or more days during the period from January 2,
1999 through January 18, 1999 (because the fixed reserve against the
Borrowing Base, set forth in clause (x) of the definition thereof,
remained at $10,000,000 during such period pending the execution of the
First Amendment to the Credit Agreement, effective as of January 19,
1999);
(ii) that, pursuant to Section 5.21, Consolidated EBITDA
be at least $2,700,000 for the two (2) Fiscal Quarters ending closest
to December 31, 1998, as to which the Borrower was not in compliance as
of January 2, 1999 (the actual Fiscal Quarter end);
(iii) that, pursuant to Section 5.24, Consolidated Tangible
Net Worth be at least $77,500,000 plus the cumulative increase
described in said Section for the Fiscal Quarter ending closest to
December 31, 1998, as to which the Borrower was not in compliance as of
January 2, 1999 (the actual Fiscal Quarter end);
(iv) that, pursuant to Section 5.34, by not later than
February 15, 1999, the Borrower shall have delivered to the Collateral
Agent the appraisal of the Inventory Collateral described therein; and
(v) that, pursuant to Section 5.42, by not later than
February 10, 1999, the Borrower shall have delivered certain Mortgages
and other instruments more particularly described therein in respect of
the Mortgaged Real Property;
subject, however, to the following terms and conditions:
(A) the foregoing waivers are limited solely to the
specific matters and for the specific times or time periods described
hereinabove;
(B) on the First Waiver Date, the Borrower shall have
paid to SunTrust, as Administrative Agent, the sum of $81,592.03, as a
waiver fee, to be shared by the Lenders pro rata based on their
respective shares of the total Commitments;
(C) as soon as practicable, but not later than March 15,
1999, the Borrower shall have obtained and delivered a copy to each of
the Agents of a written commitment letter (or series thereof) from one
or more banks or other financial institutions, on a fully underwritten
basis and which is otherwise acceptable to the Required Lenders, to
extend financing to the Borrower in an aggregate amount at least
sufficient to pay all Obligations (at par) and retire all Commitments
under the Credit Agreement by not later than April 30, 1999, which
commitment shall have been accepted by the Borrower (and, should the
Borrower be unable to comply with the foregoing requirement by March
15, 1999, then, the Waivers granted hereinabove shall be subject to
withdrawal by the Required Lenders);
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<PAGE> 3
(D) In specific reference to the requirements for
delivery of the appraisal of the Inventory Collateral, the Borrower
shall have obtained and delivered such appraisal to the Collateral
Agent by not later than February 19, 1999 (and, should the Borrower be
unable to comply with the foregoing requirement by March 15, 1999,
then, the Waivers granted hereinabove shall be subject to withdrawal by
the Required Lenders); and
(E) in specific reference to the requirements for
delivery of Mortgages and other instruments in respect of Mortgaged
Real Property set forth in Section 5.42:
(1) by not later than February 19, 1999, the
Borrower shall have complied in all respects with Section 5.42
in regard to the following real property: (a) all real
property in Pike County, (b) the "Griffin plant" and (c) the
"Northside plant";
(2) by not later than February 19, 1999, the
Borrower shall have complied at least with the requirement in
Section 5.42 that Mortgages be executed and delivered to the
Collateral Agent in respect of all other Mortgaged Real
Property not described in clause (1) above; and
(3) by not later than March 5, 1999, the
Borrower shall have complied in all other respects with
Section 5.42 in respect of all Mortgaged Real Property
described in clause (2) above;
and, if Borrower is unable to comply with any of the foregoing
requirements by the deadlines stated therefor, then, (i) the Waivers
granted hereinabove shall be subject to withdrawal by the Required
Lenders and (ii) at the option of the Required Lenders, a late delivery
fee of $1,000 per Business Day shall be imposed until the Borrower has
duly complied with each of such requirements.
SECTION 3. Representations and Warranties of Obligors. The Borrower
and FSC, each severally, represents and warrants to the other Parties that:
(a) It has the power and authority to enter into and to perform
this First Waiver, to execute and deliver all documents
relating to this First Waiver, and or incur the obligations
provided for in this First Waiver, all of which have been duly
authorized and approved in accordance with its corporate
documents;
(b) This First Waiver, together with all documents executed
pursuant hereto, shall constitute when executed its valid and
legally binding obligations in accordance with their
respective terms;
(c) All representations and warranties made by it in the Credit
Agreement are true and correct as of the date hereof, with the
same force and effect as if all representations and warranties
were fully set forth herein;
-3-
<PAGE> 4
(d) Its Obligations under the Credit Documents remain valid and
enforceable Obligations, and the execution and delivery of
this First Waiver and the other documents executed in
connection herewith shall not be construed as a novation of
the Credit Agreement or any of the other Credit Documents;
(e) As of the date hereof, it has no offsets, defenses or
counterclaims against the payment of any of the Obligations;
and
(f) As of the date hereof, and after giving effect to the terms
hereof, no Default Condition or Event of Default exists.
SECTION 4. Waiver of Claims. As a specific inducement to the other
Parties without which the Borrower and FSC acknowledge the other Parties would
not enter into this First Waiver and the other documents executed in connection
herewith, each of the Borrower and FSC hereby waives any and all claims that it
may have against any other Party, as of the date hereof, arising out of or
relating to the Credit Agreement or any other Credit Document whether sounding
in contract, tort, or any other basis.
SECTION 5. Conditions of Effectiveness. This First Waiver shall become
effective when, and only when, the Documentation Agent shall have received this
First Waiver, executed by each Party.
SECTION 5. Miscellaneous.
5.1 Reference to Credit Agreement. Upon the effectiveness of
this First Waiver, each reference in the Credit Agreement to "this Credit
Agreement" and each reference in the other Credit Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as modified
hereby.
5.2 Effect on Credit Documents. Except as specifically waived
above, all terms of the Credit Agreement and all other Credit Documents shall
remain in full force and effect and are hereby ratified and confirmed.
5.3 No Other Waiver. The execution, delivery and
effectiveness of this First Waiver shall not operate as a waiver of any right,
power, or remedy of Lenders or the Agents under any of the Credit Documents, nor
constitute a waiver of any provision of any of the Credit Documents, other than
as expressly set forth hereinabove.
5.4 Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Agents and the Lenders in connection with
the preparation, reproduction, execution, and delivery of this First Waiver and
the other instruments and documents to be delivered hereunder, including the
reasonable fees and out-of-pocket expenses of counsel for the Agent and the
Lenders with respect hereto.
-4-
<PAGE> 5
5.5 No Novation. Nothing contained herein intended, or shall
be construed, to constitute a novation to the Credit Agreement or any Credit
Document.
5.6 Governing Law. This First Waiver shall be governed by and
construed in accordance with the laws of the State of Georgia, without giving
affect to conflict of law provisions.
5.7 Counterparts. This First Waiver may be executed in
counterparts. Each counterpart shall bind the Party or Parties executing same.
All counterparts, taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties have caused this First Waiver
to be duly executed, under seal, by their respective authorized officers as of
the day and year first above written.
"BORROWER"
THOMASTON MILLS, INC.
By: (SEAL)
-------------------------------
Neil H. Hightower
President and Chief Executive Officer
Attest:
---------------------------------
A. William Ott
Vice President-Finance
(CORPORATE SEAL)
-5-
<PAGE> 6
"SUBSIDIARY GUARANTOR"
THOMASTON MILLS FSC, INC.
By: (SEAL)
-------------------------------
Neil H. Hightower
President and Chief Executive Officer
Attest:
---------------------------------
A. William Ott
Vice President-Finance
(CORPORATE SEAL)
-6-
<PAGE> 7
SUNTRUST BANK, ATLANTA,
as Administrative Agent,
Syndication Agent and as a Lender (SEAL)
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
(CORPORATE SEAL)
-7-
<PAGE> 8
WACHOVIA BANK, N.A.,
as Special Issuer, Documentation Agent,
Collateral Agent, and as a Lender (SEAL)
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-8-
<PAGE> 9
NATIONSBANK, N.A.,
as a Lender (SEAL)
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-9-
<PAGE> 10
SUNTRUST EQUITABLE SECURITIES
CORPORATION, as Arranger and Lead
Manager
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
(CORPORATE SEAL)
-10-
<PAGE> 1
EXHIBIT 13.1
[THOMASTON MILLS, INC. LOGO]
NEWS RELEASE
SECOND QUARTER REPORT
1999
TO THE SHAREHOLDERS:
Thomaston Mills' sales for the quarter ended January 2, 1999 were $47,760,000
compared to $68,036,000 for the same quarter the year before. The Company had a
net after tax loss for the quarter of $5,390,000 or $.82 per basic and diluted
share.
A portion of the decrease in sales was anticipated, as a result of the sale of
the Rattlers Division and the closing of the Griffin Division. However, the
markets for some of the Company's products continue to be impacted by a surge
in imports, primarily due to the Asian financial situation which has continued
to have an adverse effect on sales.
The reorganization of the Company into strategic business units is going well.
Robert B. Dale was employed and elected to the position of Vice President Sales
and Marketing - Consumer Products by the Board of Directors. We are confident
that he will bring new energy and insight to the Consumer Products area of the
Company.
While the financial performance of the Company is unsatisfactory, there is a
tremendous amount of positive effort taking place within the Company to
improve. Significant progress is being made in supply chain management which
will help in our goal to make our company second to none in customer service.
The people here at Thomaston Mills are all committed to making the Company a
strong global competitor, and we are all committed to reinstating profits as
soon as possible.
Sincerely,
/s/ Neil H. Hightower
Neil H. Hightower
President and CEO
January 26, 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 13 Weeks 27 Weeks 26 Weeks
Ended Ended Ended Ended
January 2, December 27, January 2, December 27,
1999 1997 1999 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 47,760 $ 68,036 $ 108,748 $ 141,248
Cost of sales 50,645 61,438 111,266 132,743
- ------------------------------------------------------------------------------------------------------------------------------
(2,885) 6,598 (2,518) 8,505
Selling, general and administrative expenses 4,511 4,915 9,876 10,069
Other income (expense) -- net 315 72 459 175
- ------------------------------------------------------------------------------------------------------------------------------
(7,081) 1,755 (11,935) (1,389)
Interest expense 1,613 1,215 3,198 2,542
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (8,694) 540 (15,133) (3,931)
Provision for income taxes (benefit) (3,304) 205 (5,751) (1,494)
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (5,390) $ 335 $ (9,382) $ (2,437)
==============================================================================================================================
Average Number of Shares 6,540,046 6,551,466 6,540,046 6,539,996
Basic and diluted earnings (loss) per share $ (0.8200) $ 0.0500 $ (1.4300) $ (0.3700)
Dividends paid per share $ 0.0000 $ 0.0750 $ 0.0375 $ 0.1500
==============================================================================================================================
</TABLE>
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,412 $ 1,369
Accounts receivable 30,959 39,682
Less allowance for uncollectible accounts (761) (500)
Inventories 50,943 57,938
Other current assets 6,478 5,182
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 90,031 103,671
Property, Plant and Equipment 253,110 250,896
Less allowance for depreciation (175,816) (163,645)
Other assets 10,364 2,383
- ------------------------------------------------------------------------------------------------------------------------------
$ 177,689 $ 193,305
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,943 $ 8,967
Accrued liabilities 6,977 7,599
Current portion of capital lease obligations 372 351
Current portion of long-term debt 1,667 2,648
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 23,959 19,565
Obligations under capital leases 1,178 1,529
Long-term debt 68,033 68,659
Deferred income taxes 4,907 5,758
Other liabilities 3,024 1,751
Shareholders' Equity $ 76,588 $ 96,043
==============================================================================================================================
$ 177,689 $ 193,305
==============================================================================================================================
</TABLE>
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> 6-MOS
<FISCAL-YEAR-END> JUL-3-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> JAN-02-1999
<CASH> 2,412
<SECURITIES> 0
<RECEIVABLES> 30,959
<ALLOWANCES> 761
<INVENTORY> 50,943
<CURRENT-ASSETS> 90,031
<PP&E> 253,110
<DEPRECIATION> 175,816
<TOTAL-ASSETS> 177,689
<CURRENT-LIABILITIES> 23,959
<BONDS> 30,033
0
0
<COMMON> 7,494
<OTHER-SE> 60,094
<TOTAL-LIABILITY-AND-EQUITY> 177,689
<SALES> 108,748
<TOTAL-REVENUES> 109,207
<CGS> 111,266
<TOTAL-COSTS> 111,266
<OTHER-EXPENSES> 9,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,198
<INCOME-PRETAX> (15,133)
<INCOME-TAX> (5,751)
<INCOME-CONTINUING> (9,382)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,382)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
