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Previous: THOMASTON MILLS INC, 10-K405, 1999-10-01 |
Next: TSR INC, 10-Q, 1999-10-01 |
Thomaston Mills 1999 Annual Report
THE FIRST
100
YEARS
1899 - 1999
1
TO OUR SHAREHOLDERS
[PHOTO]
Neil H. Hightower
Thomaston Mills’ 100th year of operations was one of the most challenging in the Company’s history. The business environment for U.S. textile companies has changed dramatically the last few years. We have been moving rapidly into a truly global market with NAFTA and the WTO reducing quotas and tariffs on imported products. This, coupled with the Asian financial crisis, has brought a flood of imported garments, fabrics and yarn. To address this situation, the decision was made to exit the sales yarn and denim businesses. The performance of these two businesses had been unsatisfactory for several years, and the prospects for improvement in these areas does not look promising. These changes brought about the announcement to close the Thomaston Division and Pike Division on June 11, 1999. These plants ceased operations in August 1999.
The year just ended was obviously a year of transition. Sales for the year, including discontinued operations, were $221,152,000, compared to $280,730,000 the year before. The sales decline occurred in all areas of the Company, but the denim and sales yarn areas were impacted by the announcement to exit these businesses. Going forward, the Company will concentrate on consumer products and piece dyed apparel fabrics.
Our consumer products operations, starting with bale opening, carding, spinning, weaving, finishing, and sewing in the Lakeside Plant, are some of the most modern and competitive in the industry. Our piece dyed apparel business will utilize state-of-the-art preparation and dyeing at the Finishing Division. The piece dyed fabrics quality is quite good, and the Company has become a preferred supplier of these products with several customers.
The Company took a charge for discontinued operations in 1999 of $24.5 million. This charge includes severance pay for the 700 employees leaving the Company by September 1, 1999. It also covers all other expected losses associated with closing and discontinuing the denim and sales yarn businesses including a non-cash writedown of assets.
Organization Changes
[PHOTO]
George H. Hightower, Jr.
The Company had a major reorganization this past year. First of all, H. Stewart Davis was named President of the Consumer Products Division and will remain Executive Vice President of the corporation. George H. Hightower, Jr. was named President of the Apparel Fabrics Division and will also remain Executive Vice President of the corporation. Robert B. Dale was employed and named Vice President, Consumer Products Sales. William C. James was named Vice President, Consumer Products Operations. This new organization is working well to better focus the organization along customer and product lines.
As part of the reorganization and downsizing, we are saying goodbye to approximately 700 fine, dedicated people. We are sensitive to the impact this change is having on these individuals and the communities where we operate. Our Human Resource Department is working hard to help place these people in new jobs. The Georgia State Department of Labor has also been very helpful in this process.
2
William H. Hightower, Jr. has asked that he not be nominated for election as a director. At age 87, he felt it was time to retire from the Board. His insight on the industry and Company will be missed. He has been associated with Thomaston Mills for over 65 years and served as chief executive officer from 1972 to 1982.
Raw Material
Last fiscal year, government funds ran out to support the Step 2 Cotton Competitiveness Program. This caused U.S. mills to process higher priced cotton fiber than our foreign competition. A very large cotton crop is forecast for this year, and New York futures are significantly lower than last year. A bill is before Congress to reinstate the Step 2 Competitiveness Program. We expect this program to be very beneficial to U.S. mills when competitiveness payments are reinstated. Polyester prices are also lower than they were this time last year.
Capital Investments
The Company spent $4.0 million last fiscal year on capital improvements. Most of these funds were spent on additional automation for consumer products sewing and improvements to the Peerless Division Weave Room for consumer products. Capital investments were much lower than normal last year for obvious reasons. The Company is in position to throttle back on these capital improvements because of heavy expenditures over the last several years. From 1993 through fiscal 1999, the Company invested over $109 million in new plant and equipment. Thomaston Mills is very modern compared to the rest of the industry.
[PHOTO]
H. Stewart Davis
Supply Chain Management
Last year the Company made substantial investments in a new supply chain management system and personnel. The objective has been to make Thomaston Mills second to none in customer service while simultaneously making the Company more efficient in the use of inventory. Inventories were reduced $6.2 million during the fiscal year, and there was a significant improvement in on time deliveries. We expect this trend to continue in both the Consumer Products area and the Apparel Fabrics area.
Outlook
Thomaston Mills has gone through a tremendous amount of change the last year. The Company is now smaller but focused on markets with a future. The restructuring of the Company was done to make the Company stronger and ultimately more profitable. In looking ahead, we feel the real benefit of these changes will start to show up in the second half of the current fiscal year.
| Sincerely, | |
|
/s/ NEIL H. HIGHTOWER _________________________________________ Neil H. Hightower |
|
| President and Chief Executive Officer |
September 1, 1999
3
FIVE YEAR SUMMARY
THOMASTON MILLS, INC. AND SUBSIDIARY
| Fiscal Years | 1999 | 1998 | 1997 | 1996 | 1995 | ||||||||||||||||
| Operations: | |||||||||||||||||||||
| Thousands of Dollars — for the years ended | |||||||||||||||||||||
| Net sales | $ | 168,353 | $ | 199,314 | $ | 195,124 | $ | 176,017 | $ | 176,004 | |||||||||||
| Income (loss) from continuing operations before income taxes (benefit) | (20,840 | ) | (13,634 | ) | (9,313 | ) | 2,188 | 7,925 | |||||||||||||
| Income taxes (benefit) from continuing operations | (3,539 | ) | (4,833 | ) | (3,572 | ) | (101 | ) | 1,007 | ||||||||||||
| Income (loss) from continuing operations | (17,301 | ) | (8,801 | ) | (5,741 | ) | (216 | ) | 1,734 | ||||||||||||
| Income (loss) from discontinued operations | (24,469 | ) | (2,728 | ) | (1,906 | ) | 831 | 1,639 | |||||||||||||
| Net income (loss) | (41,770 | ) | (11,529 | ) | (7,647 | ) | 615 | 3,373 | |||||||||||||
| Net income (loss) from continuing operations as percentage of net sales | (10.28 | )% | (4.42 | )% | (2.94 | )% | (.12 | )% | (.99 | )% | |||||||||||
| Cash dividends | 245 | 1,717 | 1,962 | 1,912 | 1,846 | ||||||||||||||||
| Depreciation and amortization | 16,708 | 16,878 | 17,296 | 16,331 | 14,927 | ||||||||||||||||
| Capital expenditures | 4,038 | 10,334 | 16,049 | 17,900 | 19,631 | ||||||||||||||||
| Per Share of Common Stock: | |||||||||||||||||||||
| Income (loss) from continuing operations — basic | $ | (2.65 | ) | $ | (1.34 | ) | $ | (.88 | ) | $ | (.03 | ) | $ | .27 | |||||||
| Income (loss)from continuing operations — diluted | (2.65 | ) | (1.34 | ) | (.88 | ) | (.03 | ) | .26 | ||||||||||||
| Income (loss) from discontinued operations — basic | (3.74 | ) | (.42 | ) | (.29 | ) | .12 | .25 | |||||||||||||
| Income (loss) from discontinued operations — diluted | (3.74 | ) | (.42 | ) | (.29 | ) | .12 | .25 | |||||||||||||
| Net income (loss) — basic | (6.39 | ) | (1.76 | ) | (1.17 | ) | .09 | .52 | |||||||||||||
| Net income (loss) — diluted | (6.39 | ) | (1.76 | ) | (1.17 | ) | .09 | .51 | |||||||||||||
| Cash dividends | .0375 | .2625 | .3000 | .2925 | .2825 | ||||||||||||||||
| Shareholders’ equity | 6.76 | 13.18 | 15.21 | 16.68 | 16.88 | ||||||||||||||||
| Financial Condition: | |||||||||||||||||||||
| Thousands of Dollars — at end of year | |||||||||||||||||||||
| Total assets | $ | 148,421 | $ | 188,435 | $ | 197,197 | $ | 189,459 | $ | 186,323 | |||||||||||
| Inventories at replacement cost | 49,362 | 58,725 | 63,451 | 55,791 | 52,293 | ||||||||||||||||
| Less LIFO reserve | (8,991 | ) | (12,140 | ) | (15,222 | ) | (13,081 | ) | (12,627 | ) | |||||||||||
| Inventories at LIFO cost(*) | 40,371 | 46,585 | 48,229 | 42,710 | 39,666 | ||||||||||||||||
| Property, plant and equipment — net | 51,660 | 82,823 | 89,373 | 90,623 | 88,634 | ||||||||||||||||
| Working capital | 41,779 | 80,253 | 78,127 | 71,288 | 70,734 | ||||||||||||||||
| Long-term debt and capital lease obligations | 67,659 | 73,629 | 64,017 | 47,551 | 46,110 | ||||||||||||||||
| Shareholders’ equity | 44,200 | 86,215 | 99,461 | 109,070 | 110,275 | ||||||||||||||||
| (*) | In 1995, the Company changed to the LIFO method of accounting for purchased cloth and yarn. |
1999 Product Mix Including Discontinued Operations
[GRAPH]
1999 Product Mix From Continuing Operations
[GRAPH]
4
THE FIRST 100 YEARS
Thomaston Mills, Inc. was chartered as Thomaston Cotton Mills on December 2, 1899. On these pages, we have highlighted some of the milestones in the Company’s history which cover the first 100 years.
[PHOTO]
The original Thomaston Division plant was constructed in 1900. In 1915, Mill Number Two was added and Mill Number Three was added in 1917.
[PHOTO]
Pictured are three members of the Hightower family who served as chief executive officer of the Company — William H. Hightower (center) 1936-1947; Robert E. Hightower, Jr. (left) from 1947-1952 and Julian T. Hightower 1952-1972.
[PHOTO]
Thomaston’s shuttle looms (shown) were eventually replaced with today’s shuttleless weaving machines.
1899
In December a group of investors, under the leadership of Robert E. Hightower and R.A. Mathews, chartered Thomaston Cotton Mills in Thomaston, Georgia.
1900
When completed, the original plant had two stories and was 75 feet by 200 feet. The mill’s 100 workers produced sheeting, with weaving done on the first floor and carding and spinning on the second.
1901
A contract with the James E. Reynolds Company of New York stipulated they would be the sole distributor of the Thomaston products, selling them on a commission basis.
1915
A series of expansions of the original mill took place from 1906 through 1910. Business remained good; and Mill Number Two was added in 1915.
1917
Mill Number Three was added and its 25,000 spindles were dedicated to making a loosely woven fabric, which served as a base for the rubber exterior of automobile tires.
1919
Peerless Mill was chartered for wide sheeting production of sheets and pillowcases.
1924
In 1924, Thomaston Cotton Mills chartered the Bleachery as a separate operation to bleach and finish products produced by the mills owned by Thomaston Cotton Mills and for other mills in the South.
1932
A mill in Griffin, Georgia, was purchased, renovated and modernized. The Griffin Plant was turned into an efficient plant, capable of yielding fine combed yarns, broadcloths, and other combed yarn woven fabrics.
5
[PHOTO]
An aerial photograph, taken in the late 1940s, shows the Thomaston (foreground), Peerless (middle, right) and Finishing (middle, left) divisions.
[PHOTO]
William H. Hightower, Jr. was Thomaston’s chief executive officer 1972-1982 and George H. Hightower, Sr. served 1982-1986.
[PHOTO]
Many of the intermediate mill operations were replaced through the Company’s modernization programs begun in 1946.
1936
It was decided in 1936, after surviving six very trying Depression years, the time had come to modernize the mills in order to bring them to peak efficiency.
1938
In 1938, the necessary paperwork was drawn up to create a single company — Thomaston Cotton Mills — with four divisions: Thomaston, Griffin, Peerless, and the Bleachery. This more accurately reflected the Company’s strength and presence in the industry.
1946
After WWII, from 1946 through 1960, Thomaston conducted a modernization program that replaced almost every piece of equipment with state-of-the-art machinery.
1968
A decision was made to bring to an end the nearly 50-year-old selling agreement between Thomaston and J.P. Stevens. Thomaston Mills began to take charge of all of its sales.
[PHOTO]
Thomaston now uses state-of-the-art air jet technology in its weaving operations.
[PHOTO]
The Company manufactures and markets bedding and accessories under the Thomaston® label.
1970
In the Spring of 1970, Thomaston Mills introduced its initial line of patterned sheets under the brand name “Thomaston American Mood Prints.” Solid colored sheets and heavy corded bedspreads were soon added to the mix.
6
1977
Thomaston was far-sighted enough to establish an Export Department in 1977. Today, our products are very well accepted abroad and have been for years.
1980
In December 1980, the contract was signed for the construction of a new $12 million dollar weaving plant in Pike County, one mile south of Zebulon, Georgia.
1986
During the mid-eighties, yarn customers not only required just-in-time delivery, they also preferred purchasing yarn with the cost of transportation built into the price. To meet these needs, the Company established its own over-the-road-trucking fleet.
1988
Thomaston became a trend-setter in 1988, introducing the bed ensemble concept of offering complete sets of coordinated bedding, which is now a standard throughout the industry and accounts for about 50% of all bedding sold today.
On March 1, 1988, the Company’s Class A non-voting stock and Class B voting stock were first listed on NASDAQ, which allowed the stock to be traded on the open market.
[PHOTO]
The Lakeside Plant was built in 1993 and expanded in 1997-98. This division houses the comforter and accessory sewing operations as well as the home furnishings distribution center.
[PHOTO]
The dye range, installed in 1998, enables the Company to offer a greater variety of fabric widths and finishes.
1993
In 1993, the Lakeside Plant, a $15 million, 242,000-square-foot facility, was built to handle the Company’s sewing operations.
1998
Another major technological improvement was the addition of an $8 million dye range, the length of a football field, which automatically replenishes dye baths and monitors product quality.
All yarn production was transferred from the Griffin facility to Thomaston, and the Griffin facility was closed.
1999
To enhance profitability and future growth potential, the Company discontinued its Denim and Industrial Yarn divisions, which have been unprofitable in recent years.
7
CONSOLIDATED BALANCE SHEETS
| July 3, 1999 | June 27, 1998 | |||||||||
| (In thousands, | ||||||||||
| except share data) | ||||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 353 | $ | 1,122 | ||||||
| Trade accounts receivable less allowance of $950 in 1999 and $871 in 1998 | 35,237 | 46,268 | ||||||||
| Inventories | 40,371 | 46,585 | ||||||||
| Deferred income taxes | — | 5,016 | ||||||||
| Prepaid expenses and other current assets | 1,038 | 1,089 | ||||||||
| Refundable income taxes | — | 2,727 | ||||||||
| Total current assets | 76,999 | 102,807 | ||||||||
| Property, plant and equipment: | ||||||||||
| Land and improvements | 4,546 | 5,737 | ||||||||
| Buildings and improvements | 38,170 | 48,844 | ||||||||
| Machinery, equipment and fixtures | 123,623 | 196,578 | ||||||||
| 166,339 | 251,159 | |||||||||
| Less allowances for depreciation and amortization | 114,679 | 168,336 | ||||||||
| 51,660 | 82,823 | |||||||||
| Assets held for sale | 10,709 | — | ||||||||
| Deferred income taxes | 3,116 | — | ||||||||
| Other assets | 5,937 | 2,805 | ||||||||
| Total assets | $ | 148,421 | $ | 188,435 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Trade accounts payable | $ | 17,950 | $ | 11,805 | ||||||
| Salaries and wages | 674 | 1,302 | ||||||||
| Withholding and payroll taxes | 303 | 958 | ||||||||
| Local taxes | 801 | 878 | ||||||||
| Accrued interest | 672 | 356 | ||||||||
| Other current liabilities | 5,287 | 4,607 | ||||||||
| Current portion of long-term debt | 4,000 | 2,648 | ||||||||
| Reserve for discontinued operations | 5,533 | — | ||||||||
| Total current liabilities | 35,220 | 22,554 | ||||||||
| Long-term debt, less current portion | 66,696 | 72,268 | ||||||||
| Capital lease obligations, less current portion | 963 | 1,361 | ||||||||
| Deferred income taxes | — | 4,907 | ||||||||
| Other liabilities | 1,342 | 1,130 | ||||||||
| Shareholders’ equity: | ||||||||||
| Class A Common Stock — $1 par; 30,000,000 shares authorized; 5,620,518 shares outstanding including 710,838 treasury shares in 1999 and 1998 | 5,621 | 5,621 | ||||||||
| Class B Common Stock — $1 par; 10,000,000 shares authorized; 1,873,506 shares outstanding including 243,140 treasury shares in 1999 and 1998 | 1,873 | 1,873 | ||||||||
| Additional paid-in capital | 8,904 | 8,904 | ||||||||
| Retained earnings | 33,222 | 75,237 | ||||||||
| 49,620 | 91,635 | |||||||||
| Less treasury stock — at cost | 5,420 | 5,420 | ||||||||
| 44,200 | 86,215 | |||||||||
| Total liabilities and shareholders’ equity | $ | 148,421 | $ | 188,435 | ||||||
See accompanying notes
8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Class A | Class B | Additional | ||||||||||||||||||||||
| Common | Common | Paid-in | Retained | Treasury | ||||||||||||||||||||
| Stock | Stock | Capital | Earnings | Stock | Total | |||||||||||||||||||
| (In thousands, except share data) | ||||||||||||||||||||||||
| Balance June 29, 1996 | $ | 5,621 | $ | 1,873 | $ | 8,904 | $ | 98,092 | $ | (5,420 | ) | $ | 109,070 | |||||||||||
| Net loss for the year | — | — | — | (7,647 | ) | — | (7,647 | ) | ||||||||||||||||
| Cash dividends on common stock, $.30 per share | — | — | — | (1,962 | ) | — | (1,962 | ) | ||||||||||||||||
| Balance June 28, 1997 | 5,621 | 1,873 | 8,904 | 88,483 | (5,420 | ) | 99,461 | |||||||||||||||||
| Net loss for the year | — | — | — | (11,529 | ) | — | (11,529 | ) | ||||||||||||||||
| Cash dividends on common stock, $.2625 per share | — | — | — | (1,717 | ) | — | (1,717 | ) | ||||||||||||||||
| Balance June 27, 1998 | 5,621 | 1,873 | 8,904 | 75,237 | (5,420 | ) | 86,215 | |||||||||||||||||
| Net loss for the year | — | — | — | (41,770 | ) | — | (41,770 | ) | ||||||||||||||||
| Cash dividends on common stock, $.0375 per share | — | — | — | (245 | ) | — | (245 | ) | ||||||||||||||||
| Balance July 3, 1999 | $ | 5,621 | $ | 1,873 | $ | 8,904 | $ | 33,222 | $ | (5,420 | ) | $ | 44,200 | |||||||||||
See accompanying notes
9
CONSOLIDATED STATEMENTS OF OPERATIONS
| Fifty-three Week | Fifty-two Week | Fifty-two Week | ||||||||||||
| Period ended | Period ended | Period ended | ||||||||||||
| July 3, 1999 | June 27, 1998 | June 28, 1997 | ||||||||||||
| (In thousands, except share data) | ||||||||||||||
| Net sales | $ | 168,353 | $ | 199,314 | $ | 195,124 | ||||||||
| Cost of sales | 166,260 | 192,598 | 184,839 | |||||||||||
| Gross profit | 2,093 | 6,716 | 10,285 | |||||||||||
| Selling, general and administrative expenses | 16,491 | 15,577 | 16,598 | |||||||||||
| Operating loss | (14,398 | ) | (8,861 | ) | (6,313 | ) | ||||||||
| Interest expense | 7,366 | 5,147 | 3,453 | |||||||||||
| Amortization of credit agreement fees | 2,023 | — | — | |||||||||||
| Other income, net | 2,947 | 374 | 453 | |||||||||||
| Loss from continuing operations before income tax benefit | (20,840 | ) | (13,634 | ) | (9,313 | ) | ||||||||
| Benefit for income taxes | (3,539 | ) | (4,833 | ) | (3,572 | ) | ||||||||
| Loss from continuing operations | (17,301 | ) | (8,801 | ) | (5,741 | ) | ||||||||
| Discontinued operations: | ||||||||||||||
| Loss from discontinued operations | (11,801 | ) | (2,728 | ) | (1,906 | ) | ||||||||
| Loss on disposal of discontinued operations including losses during the phase out period | (12,668 | ) | — | — | ||||||||||
| (24,469 | ) | (2,728 | ) | (1,906 | ) | |||||||||
| Net loss | $ | (41,770 | ) | $ | (11,529 | ) | $ | (7,647 | ) | |||||
| Weighted average number of basic and diluted shares | 6,540,020 | 6,540,020 | 6,539,996 | |||||||||||
| Basic and diluted net loss per share: | ||||||||||||||
| Continuing operations | $ | (2.65 | ) | $ | (1.34 | ) | $ | (.88 | ) | |||||
| Discontinued operations | (3.74 | ) | (.42 | ) | (.29 | ) | ||||||||
| Net loss | $ | (6.39 | ) | $ | (1.76 | ) | $ | (1.17 | ) | |||||
See accompanying notes
10
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fifty-three Week | Fifty-two Week | Fifty-two Week | ||||||||||||
| Period ended | Period ended | Period ended | ||||||||||||
| July 3, 1999 | June 27, 1998 | June 28, 1997 | ||||||||||||
| (In thousands) | ||||||||||||||
| Operating activities: | ||||||||||||||
| Net loss | $ | (41,770 | ) | $ | (11,529 | ) | $ | (7,647 | ) | |||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 16,708 | 16,878 | 17,296 | |||||||||||
| Gain on sales of property, plant and equipment | (2,854 | ) | (63 | ) | (7 | ) | ||||||||
| Deferred income tax benefit | (3,007 | ) | (4,112 | ) | (1,347 | ) | ||||||||
| Write-down of assets held for sale | 9,627 | — | — | |||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Trade accounts receivable | 11,031 | 3,872 | 268 | |||||||||||
| Inventories | 6,214 | 1,644 | (5,519 | ) | ||||||||||
| Prepaid expenses and other assets | (2,377 | ) | (806 | ) | (3,698 | ) | ||||||||
| Accounts payable | 6,145 | (4,255 | ) | 180 | ||||||||||
| Accrued expenses and other current liabilities | (152 | ) | (8 | ) | 1,918 | |||||||||
| Reserve for discontinued operations | 5,533 | — | — | |||||||||||
| Net cash provided by operating activities | 5,098 | 1,621 | 1,444 | |||||||||||
| Investing activities: | ||||||||||||||
| Purchases of property, plant and equipment | (4,038 | ) | (10,334 | ) | (16,049 | ) | ||||||||
| Less capital lease obligations incurred | — | 664 | — | |||||||||||
| Cash used for property, plant and equipment | (4,038 | ) | (9,670 | ) | (16,049 | ) | ||||||||
| Proceeds from sales of property, plant and equipment | 3,034 | 68 | 11 | |||||||||||
| Net cash used in investing activities | (1,004 | ) | (9,602 | ) | (16,038 | ) | ||||||||
| Financing activities: | ||||||||||||||
| Proceeds from revolving lines of credit and long-term debt | 10,765 | 12,664 | 39,500 | |||||||||||
| Less capital lease obligations incurred | — | (664 | ) | — | ||||||||||
| Cash proceeds from borrowings | 10,765 | 12,000 | 39,500 | |||||||||||
| Principal payments on revolving lines of credit, long-term debt and capital lease obligations | (15,383 | ) | (3,066 | ) | (23,135 | ) | ||||||||
| Cash dividends paid | (245 | ) | (1,717 | ) | (1,962 | ) | ||||||||
| Net cash provided by (used in) financing activities | (4,863 | ) | 7,217 | 14,403 | ||||||||||
| Decrease in cash and cash equivalents | (769 | ) | (764 | ) | (191 | ) | ||||||||
| Cash and cash equivalents at beginning of period | 1,122 | 1,886 | 2,077 | |||||||||||
| Cash and cash equivalents at end of period | $ | 353 | $ | 1,122 | $ | 1,886 | ||||||||
See accompanying notes
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 3, 1999
Note 1. Accounting Policies
Description of Business
Thomaston Mills, Inc. and Subsidiary, (the “Company”) manufactures and markets home furnishing fabrics including sheets, pillowcases, comforters and related accessories as well as fabrics which are sold to other manufacturers of home furnishings. The Company also dyes and finishes fabric for casual and career apparel which is marketed to clothing manufacturers. These products are marketed both domestically and internationally.
Management Plans
The Company reported a net loss of $41,770,000 for the fiscal year ended July 3, 1999 including a loss of $24,469,000 relating to discontinued operations. This compares to net losses of $11,529,000 and $7,647,000 in the fiscal years ended June 27, 1998 and June 28, 1997 which include losses of $2,728,000 and $1,906,000, respectively, relating to discontinued operations.
In the fourth quarter of fiscal 1999, the Company began a comprehensive restructuring of the Company’s operations and businesses focusing on enhancing the Company’s operations which are believed to present the best future profitability and growth potential. Upon completing the assessment of various strategic alternatives, the Company concluded discontinuing the Company’s denim and industrial yarn operations, which have been unprofitable in recent years, was in the best interest of the Company. See Note 2 for a further discussion of discontinued operations.
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 these operations offer the most viable opportunity for improving future profitability. The Company has initiated a personnel and operational realignment of these businesses to improve their future profit margins.
On July 27, 1999, the Company entered into a new Loan and Security Agreement and repaid a portion of its existing borrowings as discussed in Note 4.
The Company believes the initiatives discussed above, along with other measures to improve operations, will result in improved operating margins and future profitability; however, such plans require management to make estimates and assumptions regarding future operations. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated.
Cash Equivalents
The Company defines cash equivalents as all highly liquid investments with a maturity of three months or less when purchased.
Restricted Cash
Restricted cash represents funds held on deposit with a bank pursuant to a debt agreement. These amounts, aggregating $2,045,000 at July 3, 1999, are classified as “other assets” for financial statement purposes, and on July 27, 1999 were used to repay outstanding borrowings.
12
Accounts Receivable
The Company manufactures and sells its products to companies in diversified industries. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. Receivables generally are due within 45 days.
Inventories
Inventories are stated at the lower of cost or market. With the exception of certain supplies, which are valued at the first-in, first-out (FIFO) method, inventory cost is determined using the last-in, first-out (LIFO) method. The Company uses the LIFO method of inventory valuation because it results in a better matching of current costs and revenues.
Assets Held for Sale
Assets held for sale represent real estate and equipment the Company has decided to dispose of. These assets are recorded at the lower of cost or net realizable value as required by Statement of Financial Accounting Standards, (SFAS) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” or Accounting Principle Board Opinion, (APB) No. 30, “Reporting the Results of Operations Discontinued Events and Extraordinary Items,” as appropriate.
Cotton Purchase Contracts
The Company’s primary raw material is cotton. Cotton is traded on established markets and periodically experiences price fluctuations. In order to assure a continuous supply of cotton, the Company enters into cotton purchase contracts for several months in advance of delivery that either provide for (1) fixed quantities to be purchased at a predetermined price, or (2) fixed quantities to be purchased at a price to be determined (at a later date). To the extent prices are sometimes fixed in advance of shipment, the Company may benefit from its cotton purchase contracts to the extent prices thereafter rise, or incur increased cost to the extent prices thereafter fall. Any benefit or additional costs incurred as a result of these contracts are deferred and subsequently recognized in operations as cost of goods sold in the same period the products are sold to its customers.
Revenue Recognition
In general, the Company recognizes revenue on product sales when the units are shipped.
Net Loss Per Share
Basic and diluted net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding. Common equivalent shares of 880,503,647,221 and 534,066 for 1999, 1998 and 1997, respectively, were not included in the computation of net loss per share because there was a net loss and/or the exercise price of the options was greater than the average market price of the common shares and therefore, the effect would be antidilutive.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.
13
New Accounting Standards
In 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and for Hedging Activities.” SFAS No. 133, which is effective for fiscal quarters beginning after June 15, 2000, will provide a comprehensive standard for the recognition and measurement of derivatives and hedging activities. SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes “special accounting” for the different types of hedges. Though the accounting treatment and criteria for each type of hedge is unique, they all result in recognizing offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. Changes in the fair value of derivatives that do not meet the hedge criteria are included in earnings in the same period of the change. The Company plans to adopt SFAS No. 133 in fiscal year 2001, but has not yet completed its analysis of the impact, if any, SFAS No. 133 may have on its consolidated financial statements.
Stock-Based Compensation Plans
The Company has elected to follow APB No. 25, “Accounting for Stock Issued to Employees” and related interpretations, in accounting for its employee stock options and adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock Based Compensation”. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant and, accordingly, recognizes no compensation expense for the stock option grants.
Property, Plant and Equipment
Property, plant and equipment is stated on the basis of cost. The Company provides depreciation for financial reporting over the estimated useful lives of fixed assets principally using the straight-line method. The range of useful lives of buildings, improvements and boilers are 15 — 39 years and production machinery, equipment and fixtures are 3 — 11 years.
Fair Values of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt. These financial instruments are stated at cost which approximates fair value.
Reclassifications
Certain reclassifications were made to the 1998 consolidated financial statements in order to conform to the 1999 presentation.
Note 2. Discontinued Operations
In June 1999, the Company made the decision to discontinue the denim and industrial yarn operations which have been unprofitable in recent years. These operations have been treated as discontinued operations in the July 3, 1999 and prior consolidated financial statements.
The pre-tax loss on the disposal of these operations is $12,668,000 which includes approximately $3,216,000 for operating results through the expected date of closing. This loss provides for the write-down of assets (consisting principally of trade accounts receivable, inventory and property, plant and equipment) to their net realizable values and accruals for anticipated losses and costs (consisting principally of losses on cotton contracts and severance expenses). A valuation allowance has been established to offset the estimated tax benefits. Management closed these operations on September 1, 1999.
Discontinued operations include management’s best estimates of the amounts expected to be realized from the assets and future operations. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the loss on disposal.
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The results of operations prior to the measurement date for the denim and industrial yarn businesses have been classified as loss from discontinued operations as follows:
| July 3, | June 27, | June 28, | ||||||||||
| Year ended | 1999 | 1998 | 1997 | |||||||||
| (In thousands) | ||||||||||||
| Revenues | $ | 48,550 | $ | 81,416 | $ | 90,834 | ||||||
| Cost of sales | 55,040 | 81,077 | 88,219 | |||||||||
| Gross profit (loss) | (6,490 | ) | 339 | 2,615 | ||||||||
| Other expenses, net | 5,311 | 4,564 | 5,706 | |||||||||
| Loss before income tax benefit | (11,801 | ) | (4,225 | ) | (3,091 | ) | ||||||
| Income tax (benefit) | — | (1,497 | ) | (1,185 | ) | |||||||
| Loss from discontinued operations | $ | (11,801 | ) | $ | (2,728 | ) | $ | (1,906 | ) | |||
The assets of the discontinued operations at July 3, 1999 are as follows (in thousands):
| Trade accounts receivable | $ | 8,195 | ||
| Inventories | 9,022 | |||
| Assets held for sale | 9,554 | |||
| $ | 26,771 | |||
Note 3. Inventories
Inventories consisted of the following (in thousands):
| July 3, | June 27, | |||||||
| 1999 | 1998 | |||||||
| Raw materials and supplies | $ | 5,304 | $ | 7,569 | ||||
| Work in process | 24,245 | 29,525 | ||||||
| Finished goods | 19,813 | 21,631 | ||||||
| LIFO reserve | (8,991 | ) | (12,140 | ) | ||||
| $ | 40,371 | $ | 46,585 | |||||
During 1999, the Company recorded a decrement in the LIFO reserve as a result of a reduction in inventory quantities. The effect of this decrement was to decrease the net loss by $3,149,000.
15
Note 4. Long-Term Debt
Long-term debt consisted of the following (in thousands):
| July 3, | June 27, | |||||||
| 1999 | 1998 | |||||||
| Revolving credit agreement | $ | 41,308 | $ | 39,000 | ||||
| Senior note payable in nine annual principal payments of $1,667 beginning December 16, 1996 with interest payments due semi-annually at a rate of 7.94% | 10,000 | 11,666 | ||||||
| Note payable in quarterly principal payments of $195 through March 2001 with interest payments due quarterly at a rate of 9.6%, collateralized | — | 2,150 | ||||||
| Industrial revenue bonds payable with floating interest rates ranging up to 65% of the prime interest rate, collateralized | 19,388 | 22,100 | ||||||
| 70,696 | 74,916 | |||||||
| Less amounts due within one year(1) | 4,000 | 2,648 | ||||||
| $ | 66,696 | $ | 72,268 | |||||
| (1) | Amounts due within one year have been determined based on the agreements discussed below. |
On July 27, 1999, the Company entered into a 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 July 27, 1999, $29,911,000 was outstanding and $12,314,000 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. |
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 27, 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 forgive the difference of the interest accrued and the interest paid above 15%.
Borrowings under the Loan Agreement and the 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
16
earnings before interest, taxes, depreciation and amortization and restrictions on capital expenditures and the payment of dividends.
Maturities of debt during the next five years based on the July 27, 1999 loan agreements are $4,000,000 in 2000, $4,000,000 in 2001, $4,000,000 in 2002, $4,000,000 in 2003, and $4,000,000 in 2004 and $49,911,000 thereafter.
Cash payments for interest were $6,655,000, $5,122,000 and $3,775,000 in 1999, 1998 and 1997, respectively. Interest capitalized was $0 in 1999, $0 in 1998, and $453,000 in 1997, respectively.
The fair value of the Company’s long term debt is estimated to approximate its carrying amount based on the variable nature of their interest rates.
Note 5. Shareholders’ Equity
Preferred Stock
There are 600,000 authorized shares of Preferred Stock ($100 par value), none of which were outstanding at July 3, 1999.
Common Stock
The Class A Common Stock does not have voting rights except to the extent provided by law. The Class B Common Stock has full voting rights. Each share of Class A Common Stock is entitled to dividends at least equal to the per share dividends declared on the Class B Common Stock.
Stock Options
The Company currently has four stock option plans which provide for the issuance of options to acquire 801,988 shares of Class A Common Stock and 368,020 shares of Class B Common Stock. Options awarded under these plans are granted at market value on the date of grant and vest at a rate of 20% per year.
The Company applies APB 25 and related interpretations in accounting for its employee stock option plans. Accordingly, no compensation expense has been recognized for these stock option plans. If compensation expense for the stock option plans had been determined based on the fair value at the grant dates for awards under the plans, consistent with the alternative method set forth under SFAS 123, the Company’s net loss, basic and diluted net loss per share would have been as follows (in thousands, except per share data):
| Year ended | 1999 | 1998 | 1997 | ||||||||||||||
| Net (loss) | |||||||||||||||||
| As reported | $ | (41,770 | ) | $ | (11,529 | ) | $ | (7,647 | ) | ||||||||
| Pro forma | $ | (42,158 | ) | $ | (11,702 | ) | $ | (7,921 | ) | ||||||||
| Basic and diluted net (loss) per share | |||||||||||||||||
| As reported | $ | (6.39 | ) | $ | (1.76 | ) | $ | (1.17 | ) | ||||||||
| Pro forma | $ | (6.45 | ) | $ | (1.79 | ) | $ | (1.21 | ) | ||||||||
The fair value for these options, in accordance with SFAS 123, was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997: risk-free interest rates of 5.69%, 5.38%, and 6.25%; a dividend yield of 1.06%, 3.00% and 2.50%, volatility factors of the expected market price of the Company’s Class A Common Stock of 0.38, 0.35, 0.35; and Class B Common Stock of 0.00, 0.33 and 0.35; and a weighted average expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and which are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.
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Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The effects of applying SFAS 123 in the above pro forma disclosure may not be indicative of future results.
A summary of the Company’s stock option activity and related information follows:
| Fifty-three Week | Fifty-two Week | Fifty-two Week | ||||||||||||||||||||||
| Period ended | Period ended | Period ended | ||||||||||||||||||||||
| July 3, 1999 | June 27, 1998 | June 28, 1997 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Options | Price | Options | Price | Options | Price | |||||||||||||||||||
| Stock options outstanding at beginning of year | 906,840 | $ | 12.74 | 610,620 | $ | 14.98 | 580,120 | $ | 15.25 | |||||||||||||||
| Options granted | 5,000 | 4.15 | 343,420 | 8.59 | 39,000 | 10.50 | ||||||||||||||||||
| Options exercised | — | — | (50 | ) | 8.50 | — | — | |||||||||||||||||
| Options expired | — | — | (4,000 | ) | 6.25 | — | — | |||||||||||||||||
| Options forfeited | (58,750 | ) | 11.39 | (43,150 | ) | 12.07 | (8,500 | ) | 13.09 | |||||||||||||||
| Stock options outstanding at end of year | 853,090 | $ | 12.78 | 906,840 | $ | 12.74 | 610,620 | $ | 14.98 | |||||||||||||||
| Exercisable at end of year | 619,719 | $ | 14.10 | 485,534 | $ | 14.41 | 332,220 | $ | 15.11 | |||||||||||||||
| Weighted-average fair value of options granted during the year | $ | 1.59 | $ | 2.51 | $ | 3.39 | ||||||||||||||||||
The following table summarizes information about stock options at July 3, 1999:
| Outstanding Stock Options | ||||||||||||||||||||
| Exercisable Stock Options | ||||||||||||||||||||
| Weighted-Average | ||||||||||||||||||||
| Remaining | Weighted-Average | Weighted-Average | ||||||||||||||||||
| Range of Exercise Prices | Shares | Contractual Life | Exercise Price | Shares | Exercise Price | |||||||||||||||
| $9.00 to $9.63 | 28,520 | .18 years | $ | 9.21 | 28,520 | $ | 9.21 | |||||||||||||
| 16.00 | 16,000 | 3.13 years | 16.00 | 16,000 | 16.00 | |||||||||||||||
| 17.25 to 17.88 | 288,000 | 5.12 years | 17.51 | 288,000 | 17.51 | |||||||||||||||
| 13.25 to 13.63 | 174,800 | 6.18 years | 13.32 | 142,400 | 13.32 | |||||||||||||||
| 10.50 | 32,800 | 7.90 years | 10.50 | 19,680 | 10.50 | |||||||||||||||
| 8.50 to 9.00 | 291,970 | 8.32 years | 8.64 | 117,719 | 8.64 | |||||||||||||||
| 8.50 | 8,000 | 8.83 years | 8.50 | 3,200 | 8.50 | |||||||||||||||
| 7.50 | 8,000 | 8.92 years | 7.50 | 3,200 | 7.50 | |||||||||||||||
| 4.25 | 4,500 | 9.17 years | 4.25 | 900 | 4.25 | |||||||||||||||
| 3.25 | 500 | 9.28 years | 3.25 | 100 | 3.25 | |||||||||||||||
Note 6. Income Taxes
Income tax (benefit) from continuing and discontinued operations consisted of the following (in thousands):
| 1999 | 1998 | 1997 | ||||||||||
| Federal | $ | (533 | ) | $ | (2,042 | ) | $ | (2,903 | ) | |||
| State | — | (176 | ) | (507 | ) | |||||||
| Deferred | (17,817 | ) | (4,112 | ) | (1,347 | ) | ||||||
| Change in valuation reserve | 14,811 | — | — | |||||||||
| $ | (3,539 | ) | $ | (6,330 | ) | $ | (4,757 | ) | ||||
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Significant components of the Company’s deferred income tax liabilities and assets were as follows (in thousands):
| July 3, | June 27, | |||||||||
| 1999 | 1998 | |||||||||
| Deferred income tax liabilities: | ||||||||||
| Property, plant and equipment | $ | 5,109 | $ | 5,801 | ||||||
| Inventory | 446 | 446 | ||||||||
| Employee and retiree benefits | 254 | 107 | ||||||||
| Other | 67 | — | ||||||||
| Total deferred income tax liabilities | 5,876 | 6,354 | ||||||||
| Deferred income tax assets: | ||||||||||
| Employee and retiree benefits | 1,379 | 963 | ||||||||
| Alternative minimum tax | 284 | 284 | ||||||||
| Inventory | 668 | 1,241 | ||||||||
| Reserve for discontinued operations | 2,158 | — | ||||||||
| Operating loss carryforward | 14,866 | 3,393 | ||||||||
| Bad debt allowances | 195 | 340 | ||||||||
| Property plant and equipment | 3,764 | — | ||||||||
| Other | 489 | 242 | ||||||||
| Total deferred income tax assets | 23,803 | 6,463 | ||||||||
| Valuation reserve | (14,811 | ) | — | |||||||
| Net deferred income tax asset | $ | 3,116 | $ | 109 | ||||||
At July 3, 1999, the Company had net operating loss carryforwards (NOL’s) of approximately $38,100,000 for income tax purposes. If not utilized, $8,700,000 of such carryforwards will begin expiring in the year 2013, while $29,400,000 of such carryforwards will begin expiring in the year 2019.
The reasons for the differences between total income tax expense (benefit) and the amount computed by applying the statutory Federal income tax rate to loss before income taxes were as follows (in thousands):
| 1999 | 1998 | 1997 | ||||||||||
| Benefit at statutory rates | $ | (15,405 | ) | $ | (6,072 | ) | $ | (4,217 | ) | |||
| State income tax benefit, net of Federal tax benefit | (2,321 | ) | (371 | ) | (491 | ) | ||||||
| Change in valuation reserve | 14,811 | — | — | |||||||||
| Adjustment of estimated tax liabilities for prior years | (533 | ) | 157 | — | ||||||||
| Other items | (91 | ) | (44 | ) | (49 | ) | ||||||
| $ | (3,539 | ) | $ | (6,330 | ) | $ | (4,757 | ) | ||||
Cash payments for income taxes were $56,000, $13,000, and $330,000 in 1999, 1998 and 1997, respectively. Income tax refunds were $3,316,000, $2,402,000 and $-0-in 1999, 1998 and 1997, respectively.
Note 7. Pension Plans
The Company has noncontributory defined benefit pension plans covering substantially all employees. Benefits are based on the employee’s average earnings for the last five full calendar years of employment for Pension Plan No. 1. For Pension Plan No. 2, benefits are based on years of service. The Company’s funding policy is to contribute annually such amounts as are necessary to provide assets sufficient to meet the benefits to be paid to the plans’ members and to keep the plans actuarially sound. Contributions are intended to provide, not only for benefits attributed to service to date, but also for benefits expected to be earned in the future.
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The Company offers a limited number of postretirement benefits, primarily health care, to early retirees who have satisfied certain minimum service requirements. SFAS No. 106, which requires accrual accounting for postretirement benefits, was adopted in 1993, and the Company has elected to recognize the transition obligation of such adoption over a period of twenty years.
Summarized information on the Company’s pension and other postretirement benefits is as follows (in thousands):
| Other Postretirement | |||||||||||||||||
| Pension Benefits | Benefits | ||||||||||||||||
| 1999 | 1998 | 1999 | 1998 | ||||||||||||||
| Reconciliation of benefit obligation: | |||||||||||||||||
| Net benefit obligation at beginning of year | $ | 37,110 | $ | 33,288 | $ | 1,739 | $ | 1,898 | |||||||||
| Service cost | 885 | 791 | 137 | 137 | |||||||||||||
| Interest cost | 2,589 | 2,644 | 127 | 158 | |||||||||||||
| Plan participants’ contributions | — | — | 130 | 116 | |||||||||||||
| Actual gain (loss) | (3,638 | ) | 2,679 | (34 | ) | (328 | ) | ||||||||||
| Benefits paid | (2,411 | ) | (2,292 | ) | (203 | ) | (242 | ) | |||||||||
| Net benefit obligation at end of year | 34,535 | 37,110 | 1,896 | 1,739 | |||||||||||||
| Reconciliation of fair value of plan assets: | |||||||||||||||||
| Fair value of plan assets at beginning of year | 41,065 | 36,366 | |||||||||||||||
| Actual return on plan assets | 2,621 | 6,098 | |||||||||||||||
| Employer contributions | 333 | 893 | |||||||||||||||
| Gross benefits paid | (2,411 | ) | (2,292 | ) | |||||||||||||
| Fair value of plan assets at end of year | 41,608 | 41,065 | |||||||||||||||
| Funded status | |||||||||||||||||
| Funded status at end of year | 7,073 | 3,955 | (1,896 | ) | (1,739 | ) | |||||||||||
| Unrecognized net actuarial gain | (9,030 | ) | (6,392 | ) | (1,371 | ) | (1,415 | ) | |||||||||
| Unamortized prior service cost | 1,923 | 2,163 | — | — | |||||||||||||
| Unrecognized net transition obligation | 26 | 23 | 1,850 | 1,992 | |||||||||||||
| Net amount recognized at end of year | $ | (8 | ) | $ | (251 | ) | $ | (1,417 | ) | $ | (1,162 | ) | |||||
The amounts recognized in the consolidated balance sheets consist of (in thousands):
| Other | |||||||||||||||||
| Postretirement | |||||||||||||||||
| Pension Benefits | Benefits | ||||||||||||||||
| 1999 | 1998 | 1999 | 1998 | ||||||||||||||
| Prepaid benefit cost | 2,409 | 2,006 | — | — | |||||||||||||
| Accrued benefit cost | (2,417 | ) | (2,257 | ) | (1,417 | ) | (1,162 | ) | |||||||||
| Additional minimum liability | — | (38 | ) | — | — | ||||||||||||
| Intangible asset | — | 38 | — | — | |||||||||||||
| Net amount recognized at end of year | (8 | ) | (251 | ) | (1,417 | ) | (1,162 | ) | |||||||||
| Weighted-average assumptions as of June 30: | |||||||||||||||||
| Discount rate | 7.75% | 7.00% | 7.75% | 7.00% | |||||||||||||
| Expected return on plan assets | 8.50% | 8.50% | — | — | |||||||||||||
| Rate of compensation increase | 3.00% | 3.00% | 3.00% | 3.00% | |||||||||||||
| Health care cost trend on covered charges | — | — | 4.75% | 4.00% | |||||||||||||
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The amounts shown below represent the components of the net periodic benefit cost (in thousands):
| Pension Benefits | |||||||||||||
| 1999 | 1998 | 1997 | |||||||||||
| Service cost | $ | 885 | $ | 791 | $ | 820 | |||||||
| Interest cost | 2,589 | 2,644 | 2,561 | ||||||||||
| Expected return on plan assets | (3,422 | ) | (3,003 | ) | (2,679 | ) | |||||||
| Amortization of unrecognized amounts: | |||||||||||||
| Transition (asset) | (2 | ) | (2 | ) | (2 | ) | |||||||
| Prior service cost | 241 | 241 | 224 | ||||||||||
| Actuarial (gain) | (200 | ) | (197 | ) | (90 | ) | |||||||
| Benefit cost | $ | 91 | $ | 474 | $ | 834 | |||||||
| Other Postretirement Benefits | |||||||||||||
| 1999 | 1998 | 1997 | |||||||||||
| Service cost | $ | 137 | $ | 137 | $ | 130 | |||||||
| Interest cost | 127 | 158 | 155 | ||||||||||
| Amortization of unrecognized amounts | |||||||||||||
| Transition liability | 142 | 142 | 142 | ||||||||||
| Actuarial (gain) | (79 | ) | (62 | ) | (53 | ) | |||||||
| Benefit cost | $ | 327 | $ | 375 | $ | 374 | |||||||
The assumed health care cost trend rate has a significant effect on the amounts reported. A one percentage point change in the assumed health care cost trend rate would have the following effects (in thousands):
| Effect of a one percentage point increase in assumed health care cost trend: | |||||
| on total service and interest cost components | $ | 26 | |||
| on postretirement benefit obligation | 171 | ||||
| Effect of one percentage point decrease in assumed health care trend: | |||||
| on total service and interest cost components | (23 | ) | |||
| on postretirement benefit obligation | (151 | ) | |||
Substantially all of the plans’ assets are invested in corporate and governmental bonds, common stocks, co-mingled trust investment funds and temporary investments. Assets of the plans included approximately $257,000 and $709,000 of Thomaston Mills, Inc. Class A Common Stock and Class B Common Stock at July 3, 1999 and June 27, 1998, respectively. The plans held 120,166 shares of Thomaston Mills, Inc. Class A Common Stock and Class B Common Stock at July 3, 1999. These shares earned approximately $5,000 in dividends during the year.
Note 8. Commitments
The Company leases building facilities under an operating lease. The lease payments under the lease increase periodically as stipulated in the lease agreement. At July 3, 1999, future minimum lease payments for the operating lease are $756,000 in 2000; $793,000 in 2001; $830,000 in 2002; $830,000 in 2003, $830,000 in 2004 and $5,712,000 thereafter.
Note 9. 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
21
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. Assets measured in each reportable segment include long-lived assets and inventories at current cost and trade accounts receivables.
Allocations of corporate general and administrative expenses are used in the determination of segment profit performance; however, assets of the corporate departments are not used in the segment asset performance measurement.
| Net Sales | Profit Performance | ||||||||||||||||||||||||
| 1999 | 1998 | 1997 | 1999 | 1998 | 1997 | ||||||||||||||||||||
| Reportable segments: | |||||||||||||||||||||||||
| Consumer products | 107,032 | 130,050 | 138,492 | (9,540 | ) | (6,489 | ) | (7,389 | ) | ||||||||||||||||
| Apparel fabrics | 61,321 | 69,264 | 56,632 | (4,858 | ) | (2,372 | ) | 1,076 | |||||||||||||||||
| Segment total | 168,353 | 199,314 | 195,124 | (14,398 | ) | (8,861 | ) | (6,313 | ) | ||||||||||||||||
| Interest expense | 7,366 | 5,147 | 3,453 | ||||||||||||||||||||||
| Other non-segment (income) | (924 | ) | (374 | ) | (453 | ) | |||||||||||||||||||
| Consolidated (loss) before taxes from continuing operations | (20,840 | ) | (13,634 | ) | (9,313 | ) | |||||||||||||||||||
| Capital Expenditures | Depreciation and Amortization | |||||||||||||||||||||||||
| 1999 | 1998 | 1997 | 1999 | 1998 | 1997 | |||||||||||||||||||||
| Reportable segments: | ||||||||||||||||||||||||||
| Consumer products | 2,586 | 6,202 | 9,038 | 10,384 | 7,169 | 6,797 | ||||||||||||||||||||
| Apparel fabrics | 598 | 1,458 | 5,687 | 3,014 | 5,003 | 5,414 | ||||||||||||||||||||
| Discontinued operations | 854 | 2,010 | 1,324 | 3,310 | 4,706 | 5,085 | ||||||||||||||||||||
| Total continuing operations | 4,038 | 9,670 | 16,049 | 16,708 | 16,878 | 17,296 | ||||||||||||||||||||
Assets Used in Performance Measurement
| 1999 | 1998 | |||||||||
| Reportable segments: | ||||||||||
| Consumer products | 79,649 | 90,246 | ||||||||
| Apparel fabrics | 29,648 | 36,280 | ||||||||
| Assets in performance measurement | 109,297 | 126,526 | ||||||||
| Assets not in segment measurements: | ||||||||||
| Other operating assets | 12,353 | 14,492 | ||||||||
| Assets of discontinued operations | 26,771 | 47,417 | ||||||||
| Total consolidated assets | 148,421 | 188,435 | ||||||||
Net sales to one customer were 11% of the Company’s consolidated net sales in 1999, inclusive of sales from both continuing and discontinued operations. Net sales to a single customer in fiscal year 1998 and 1997 did not exceed 10% of consolidated net sales. Substantially all of the Company’s sales were to domestic customers and all assets are domestically based for the periods presented.
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Note 10. Quarterly Results of Operations (Unaudited)
During the fourth quarter of 1999, the Company discontinued its denim and industrial yarn operations. As a result, the Company recognized $14,918,000 ($3.55 per share) in the fourth quarter due to losses on disposal of discontinued operations including losses during the phase out period. See Note 2 for details.
Adjustments made in the fourth quarter of 1999, excluding the discontinued operations increased the net loss by approximately $1,060,000 ($.16 per share) and in the fourth quarter of 1998 decreased the net loss by approximately $1,514,000 ($0.23 per share). The 1999 adjustments related primarily to LIFO inventory quantities at year-end being different from original projections and changes in the estimates of certain accruals. The 1998 adjustments related primarily to differences between actual and estimated pension expense, additional inventory reserves, including the Fabrication division and LIFO inventory quantities at year end being different from original projections.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
We have audited the accompanying consolidated balance sheets of Thomaston Mills, Inc. and Subsidiary as of July 3, 1999 and June 27, 1998, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended July 3, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomaston Mills, Inc. and Subsidiary at July 3, 1999 and June 27, 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 3, 1999, in conformity with generally accepted accounting principles.
| Ernst & Young, LLP |
Atlanta, Georgia
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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. The Company has initiated a personnel and operational realignment of these businesses to improve their future profit margins.
Results of Operations
Fiscal Year 1999 Compared to 1998
In the fourth quarter of 1999, Thomaston Mills made the decision to discontinue the denim and industrial yarn operations. These operations have been unprofitable in recent years and management believed they offered limited upside potential. As a result of these actions, the Company reported a loss from discontinued operations of $24,469,000 which included losses from the discontinued businesses of $11,801,000 and an estimated loss on disposal of $12,668,000. The estimated loss on disposal of these operations includes approximately $3,216,000 for operating results from the date of the decision to dispose of the business (June 1999) through the date of closing (August 1999).The loss on disposal also provides for write-down of assets (consisting principally of trade accounts receivable, inventory and property, plant and equipment) to their net realizable values and accrue for anticipated losses and costs (consisting principally of losses on cotton contracts and severance expenses). A valuation allowance has been established to offset the estimated tax benefits on losses from discontinued operations.
The following comparisons and the comparison of fiscal year 1998 to 1997 reflect restatement for discontinued operations.
Results for the Company’s continuing operations reflected sales of $168,353,000 for 1999 compared to sales of $199,314,000 for 1998. Depressed market demand for greige goods and finished fabrics sold through the Company’s Consumer Products Division contributed to the sales decline. Sales were also impacted by the sale in 1998 of the Company’s Rattlers Brand Division.
Gross profit as a percentage of sales was 1.2% in 1999 compared to 3.4% in 1998. Raw material price decreases were more than offset by low manufacturing capacity utilization as a result of fewer sales and continued efforts to control inventory.
Selling, general and administrative expenses increased from $15,577,000 in 1998 to $16,491,000 in 1999. Interest costs and the amortization of credit agreement fees totaled $9,389,000 in 1999 compared to interest costs of $5,147,000 in 1998, due to increased interest rates and fees associated with the Company’s refinancing of its loan agreements. Other income for 1999 was $2,947,000 which consisted primarily of sales of surplus land.
The Company recorded an income tax benefit of $3,539,000 in 1999. This future anticipated benefit was recorded based on tax planning strategies as to the realization of the deferred tax benefit. Additional tax benefits have not been recorded as a result of the Company’s operating loss carry forward position. Income tax benefits were recorded in 1998 as the Company had the ability to carry back substantially all of the income tax loss to prior years,
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Loss from continuing operations was $17,301,000, or $2.65 per basic and diluted share in 1999 and $8,801,000, or $1.34 per basic and diluted share in 1998.
Fiscal Year 1998 Compared to 1997
Net sales from continuing operations were relatively flat year over year for 1998 and 1997 with sales of $199,314,000 and $195,124,000 respectively. Gross profit declined from 5.3% of sales in 1997 to 3.4% of sales in 1998. During the latter part of fiscal year 1998, the Company made a concentrated effort to identify and sell (or allow for future sale) certain inventory items considered slow-moving or off-quality.
Selling, general and administrative expenses decreased to $15,577,000 or 7.8% of sales in 1998 from $16,598,000 or 8.5% of sales in 1997. Significant components of selling, general and administrative expenses showing reductions from 1997 to 1998 included advertising expense, layout and artwork, bad debt expense and salaries.
Interest expense increased $1,694,000 from $3,453,000 in 1997 to $5,147,000 in 1998. This increase was the result of increased borrowings under the Company’s various credit agreements, slightly higher interest rates and 1997 capitalized interest associated with the Company’s addition to its Lakeside Comforter Plant and the new Dye Range project.
As a result of its pretax loss for fiscal years 1998 and 1997, the Company generated income tax benefits of $4,833,000 and $3,572,000, respectively.
The Company sustained a loss from continuing operations of $8,801,000 or $1.34 per basic and diluted share for 1998 as compared to a loss from continuing operations of $5,741,000 or $.88 per basic and diluted share in 1997.
Losses from discontinued operations were $2,728,000, or $.42 per basic and diluted share for 1998 and $1,906,000, or $.29 per basic and diluted share for 1997.
Liquidity and Capital Resources
Operating activities provided cash of $5,074,000 for 1999 and $1,621,000 for 1998. Net cash used in investing activities amounted to $1,004,000 in 1999 compared to $9,602,000 in 1998. Capital expenditures for 1999 were reduced due to the Company’s restructuring of its operations. During 1999, financing activities used cash of $4,839,000 as a result of net repayments of indebtedness. During 1998, the financing activities provided cash in the amount of $7,217,000 as a result of net borrowings.
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 July 27, 1999, $29,911,000 was outstanding and $12,314,000 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. |
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.
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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 the 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 and restrictions on capital expenditures. 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 July 3, 1999 and June 27, 1998 were $40,371,000 and $46,585,000, respectively. During 1999, the Company has continued a concentrated effort to optimize inventory levels and to identify and sell (or allow for future sale) certain inventory items considered slow-moving or off-quality.
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 9).The adoption of Statement 131 did not affect results of operations or financial position.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and for Hedging Activities.” SFAS No. 133, which is effective for fiscal quarters beginning after June 15, 2000, will provide a comprehensive standard for the recognition and measurement of derivatives and hedging activities. SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes “special accounting” for the different types of hedges. Though the accounting treatment and criteria for each type of hedge is unique, they all result in recognizing offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. Changes in the fair value of derivatives that do not meet the hedge criteria are included in earnings in the same period of the change. The Company plans to adopt SFAS No. 133 in fiscal year 2001, but has not yet completed its analysis of the impact, if any, that SFAS No. 133 may have on its financial statements.
Interest Rate Risk Management
The Company is exposed to changes in interest rates due to its financial position. Based on the Company’s floating rate debt outstanding after the re-financing on July 27, 1999,a 100 basis point increase in market rates would increase interest expense and increase net loss before income taxes by approximately $500,000. The amount was determined by calculating the effect of the hypothetical interest rate on the Company’s floating rate debt.
The fair market value of long-term fixed interest rate debt is also subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates decline and decrease as interest rates rise. The estimated fair value of the Company’s total long-term fixed-rate debt at July 27, 1999
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Raw Materials
The Company’s primary raw material is cotton. As a commodity, cotton is traded on established markets and periodically experiences price fluctuations. The Company monitors the cotton market and buys its cotton from brokers. The Company has not had and does not anticipate any material difficulty in obtaining cotton.
In order to assure a continuous supply of cotton, the Company enters into cotton purchase contracts for several months in advance of delivery which either provide for (1) fixed quantities to be purchased at a pre-determined price, or (2) fixed quantities to be purchased at a price to be determined (at a later date). When the Company sells its product to its customers, the cost of cotton under existing cotton purchase contracts is taken into account in calculating the price for the Company’s product. The Company generally attempts to match product sales contracts with fixed price cotton purchase contracts and uses market price cotton contracts to anticipate future needs and subsequent product sales contracts. To the extent prices are sometimes fixed in advance of shipment, the Company may benefit from its cotton purchase contracts to the extent prices thereafter rise, or incur increased cost to the extent prices thereafter fall.
GATT
In December 1993, 117 countries reached an agreement under the General Agreement on Tariffs and Trade that would cover new areas of trade, further cut tariffs and strengthen multilateral free-trade rules by creating a World Trade Organization (WTO) as its successor. This agreement was ratified by the United States Congress and went into effect on July 1, 1995. As part of this new agreement, the Multifiber Arrangement (MFA) under which textile and apparel trade had been controlled, will be phased out along with its import quotas over a 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.
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 a 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 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.
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The Company is addressing the Year 2000 issue on two fronts:
(1) 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 September 10, 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.
(2) 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 certifications. As of September 10, 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 of 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 system 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.
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
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DIRECTORS & OFFICERS
Directors
Thomas D. Adams, Jr. 1976 (2)
C. Ronald Barfield, 1989 (2)
Archie H. Davis, 1993 (2)
H. Stewart Davis, 1981
George H. Hightower, 1945 (1)
George H. Hightower, Jr., 1981
Neil H. Hightower, 1980 (1)
William H. Hightower, 1939 (1)
Rosser R. Raines, 1993
Dr. Jerry M. Williamson, 1981 (2)
Dom H. Wyant, 1983 (2)
Officers
Neil H. Hightower, 1966
H. Stewart Davis, 1971
H. Hightower, Jr., 1977
Robert B. Dale, 1999
James F. Haygood, Jr., 1995
Jonathan O. Huff, 1990
William C. James, 1999
A. William Ott, 1998
Daniel B. Tripp, 1991
Ronald W. VanHouten, 1990
Note: Dates after names indicate year first elected as Director or Officer.
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The high and low sales prices and cash dividends per share were as follows:
| Common Stock Prices | ||||||||||||||||||||||||
| Class A | Class B | Cash Dividends Per Share | ||||||||||||||||||||||
| High | Low | High | Low | Class A | Class B | |||||||||||||||||||
| Fiscal 1998 | ||||||||||||||||||||||||
| First Quarter | $ | 10.00 | $ | 8.00 | $ | 10.00 | $ | 6.63 | $.0750 | $.0750 | ||||||||||||||
| Second Quarter | 9.50 | 8.50 | 10.00 | 8.25 | .0750 | .0750 | ||||||||||||||||||
| Third Quarter | 9.50 | 7.50 | 9.50 | 8.50 | .0750 | .0750 | ||||||||||||||||||
| Fourth Quarter | 8.75 | 5.70 | 9.50 | 6.50 | .0375 | .0375 | ||||||||||||||||||
| Fiscal 1999 | ||||||||||||||||||||||||
| First Quarter | $ | 7.00 | $ | 3.75 | $ | 6.75 | $ | 3.75 | $.0325 | $.0375 | ||||||||||||||
| Second Quarter | 5.00 | 1.88 | 3.75 | 1.50 | — | — | ||||||||||||||||||
| Third Quarter | 4.00 | 2.00 | 4.75 | 2.25 | — | — | ||||||||||||||||||
| Fourth Quarter | 3.56 | 2.00 | 3.56 | 2.00 | — | — | ||||||||||||||||||
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SHAREHOLDER INFORMATION
Market Information on Company’s Common Stock
Thomaston Mills Class A Common Stock, is traded on the NASDAQ National Market System under ticker symbol TMST-A. Thomaston Mills Class B Common Stock, is traded on the NASDAQ Small Cap Market with the symbol TMST-B. Market makers in Thomaston Mills stock at the end of the year were as follows:
Knight Secs, LP, Jersey City
Dividend Information
The Class A Common Stock is entitled to dividends equal to dividends, when declared, on the Class B Common Stock.
Form 10-K
A copy of the Company’s Form 10-K, as filed with the Securities and Exchange Commission, will be available in October and will be furnished to shareholders upon request.
Transfer Agent & Dividend Disbursing Agent
First Union National Bank, Corporate Trust Department in Charlotte, NC is the transfer agent and dividend disbursing agent of Thomaston Mills Common Stock. Notices regarding change of address, and inquiries regarding lost dividend checks, lost or stolen stock certificates and transfers of stocks, other than a purchase and sale which must be handled through a broker, should be addressed to the First Union National Bank, ATTN: Shareholder Customer Service, 1525 West W.T. Harris Blvd, 3C3, Charlotte, NC 28288-1153.
Approximate Number of Shareholders of Record
Annual Meeting
The annual meeting of the shareholders of the Company will be held at the Employee Relations Office of the Company, 207 East Gordon Street, Thomaston, Georgia at 11:00 a.m., Thursday, October 7, 1999.
Shareholders Information Contact
Mr. Ronald W. VanHouten, Secretary
Internet Address
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MISSION STATEMENT
The Management of Thomaston Mills, Inc. is committed to the textile business, to our customers and to our employees. To this end, we have established a set of ten key objectives which we must strive to achieve, both as individuals and as a company.
| • | To demonstrate the highest ethical standards in all dealings with our customers and suppliers. | |
| • | To assure that the quality of every product we sell is better than our customers request. | |
| • | To provide a level of service to our customers that allows them to be competitive and profitable. | |
| • | To be fair in our dealings with every employee at all times. | |
| • | To provide adequate wages and fringe benefits for Thomaston Mills’ employees. | |
| • | To encourage open communications among all our employees at every level of the organization. | |
| • | To insist that every Thomaston Mills employee achieves the high standards of individual performance necessary to be competitive. | |
| • | To be a good corporate citizen in each community where we operate. | |
| • | To invest in plant and equipment to keep Thomaston Mills competitive in our chosen markets. | |
| • | To consistently earn a profit so that Thomaston Mills can continue to fulfill these objectives and be a rewarding investment for the shareholders of the Company. |
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[LOGO]
THOMASTON MILLS
P.O. Box 311
Thomaston, Georgia 30286-0004
[LOGO]
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