<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 1, 2000 Commission File No. 0-1915
THOMASTON MILLS, INC.
GEORGIA 58-0460470
- ----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
115 East Main Street, P.O. Box 311, Thomaston, Georgia 30286-0004
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (706) 647-7131.
---------------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the close of the period covered by this report.
Class A Common Stock $1 Par Value - 5,620,518 Shares including
710,838 Treasury Shares
Class B Common Stock $1 Par Value - 1,873,506 Shares including
243,140 Treasury Shares
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing for
the past 90 days.
Yes [X] No [ ]
<PAGE> 2
INDEX
THOMASTON MILLS, INC. AND SUBSIDIARY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - January 1, 2000 and July 3,
1999
Condensed consolidated statements of operations -- thirteen
weeks ended January 1, 2000 and thirteen weeks ended January
2, 1999 and twenty-six weeks ended January 1, 2000 and
twenty-seven weeks ended January 2, 1999
Condensed consolidated statements of cash flows - twenty-six
weeks ended January 1, 2000 and twenty-seven weeks ended
January 2, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
JANUARY 1, 2000 July 3, 1999
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 293 $ 353
Accounts receivable, less allowance of
$724 at January 1, 2000 and $950 at July 3, 1999 25,350 35,237
Inventories--Note B 37,324 40,371
Other current assets 1,096 1,038
-------- --------
TOTAL CURRENT ASSETS 64,063 76,999
PROPERTY, PLANT AND EQUIPMENT 167,273 166,339
Less allowance for depreciation 119,268 114,679
-------- --------
48,005 51,660
Assets held for sale 9,680 10,709
Deferred income taxes 3,116 3,116
Other assets 7,732 5,937
-------- --------
$132,596 $148,421
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,490 $ 17,950
Accrued liabilities 9,092 7,339
Current portion of long-term debt
and capital lease obligations 4,398 4,398
Reserve for discontinued operations 0 5,533
-------- --------
TOTAL CURRENT LIABILITIES 25,980 35,220
OBLIGATIONS UNDER CAPITAL LEASE -
less current portion 767 963
LONG-TERM DEBT, less current portion 62,116 66,696
OTHER LIABILITIES 1,445 1,342
SHAREHOLDERS' EQUITY
Class A Common Stock--5,620,518 shares
outstanding including 710,838 treasury shares 5,621 5,621
Class B Common Stock--1,873,506 shares
outstanding including 243,140 treasury shares 1,873 1,873
Additional paid-in capital 10,766 8,904
Retained earnings 29,448 33,222
-------- --------
47,708 49,620
Less treasury stock - at cost 5,420 5,420
-------- --------
42,288 44,200
-------- --------
$132,596 $148,421
======== ========
</TABLE>
NOTE: The Balance Sheet at July 3, 1999 has been derived from the Audited
Financial Statements at that date. See Notes to Condensed Financial Statements.
<PAGE> 4
THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands except Share and Per Share Data)
<TABLE>
<CAPTION>
13 WEEKS 13 Weeks 26 WEEKS 27 Weeks
ENDED Ended ENDED Ended
JANUARY 1, 2000 January 2, 1999 JANUARY 1, 2000 January 2, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 37,195 $ 37,954 $ 77,919 $ 81,024
Cost of sales 33,586 38,509 69,817 80,206
----------- ----------- ----------- -----------
Gross profit (loss) 3,609 (555) 8,102 818
Selling, general and administrative expenses 3,741 3,739 7,798 8,215
----------- ----------- ----------- -----------
Operating profit (loss) (132) (4,294) 304 (7,397)
Interest expense 2,241 1,613 4,309 3,198
Amortization of credit agreement fees 100 0 174 0
Other income 289 315 405 459
----------- ----------- ----------- -----------
Loss from continuing operations before income tax (2,184) (5,592) (3,774) (10,136)
benefit
Benefit for income taxes 0 (3,304) 0 (5,751)
----------- ----------- ----------- -----------
Loss from continuing operations (2,184) (2,288) (3,774) (4,385)
Loss from discontinued operations 0 (3,102) 0 (4,997)
----------- ----------- ----------- -----------
Net loss $ (2,184) $ (5,390) $ (3,774) $ (9,382)
=========== =========== =========== ===========
Weighted Average Number of Shares - Basic and Diluted 6,540,046 6,540,046 6,540,046 6,540,046
Basic and diluted loss per share:
Continuing operations $ (0.33) $ (0.35) $ (0.58) $ (0.67)
Discontinued operations 0.00 (0.47) 0.00 (0.76)
----------- ----------- ----------- -----------
Net loss per share $ (0.33) $ (0.82) $ (0.58) $ (1.43)
Dividends paid per share $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0375
</TABLE>
<PAGE> 5
THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
26 WEEKS 27 Weeks
ENDED Ended
JANUARY 1, 2000 January 2, 1999
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,774) $ (9,382)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 5,047 7,538
Gain on sale of property, plant
and equipment (266) (35)
Changes in operating assets and liabilities:
Accounts receivable 9,887 16,069
Inventories 3,047 (4,358)
Other assets (429) (3,473)
Assets held for sale 1,029 0
Accounts payable, accrued
liabilities and
other liabilities (3,604) 2,549
Reserve for discontinued operations (5,533) 0
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 5,404 8,908
INVESTING ACTIVITIES
Purchases of property, plant and equipment (926) (2,009)
Proceeds from sales of property, plant
and equipment 237 35
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (689) (1,974)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 6,936 3,500
Principal payments on revolving lines of
credit, long-term debt and capital
lease obligations (11,712) (8,899)
Cash dividends paid 0 (245)
-------- --------
NET CASH USED IN
FINANCING ACTIVITIES (4,776) (5,644)
-------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (61) 1,290
Cash and cash equivalents at beginning
of period 353 1,122
-------- --------
Cash and cash equivalents at end
of period $ 292 $ 2,412
-------- --------
</TABLE>
<PAGE> 6
THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 2000
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 1, 2000
are not necessarily indicative of the results that may be expected for the year
ending July 1, 2000. Certain fiscal 1999 balances have been reclassified to
conform with the fiscal 2000 classifications. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended July 3, 1999.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
JANUARY 1, 2000 July 3, 1999
--------------- ------------
<S> <C> <C>
Raw materials $ 4,844 $ 5,304
Work in process 20,309 24,245
Finished products 20,153 19,813
LIFO reserve (7,982) (8,991)
------- -------
$37,324 $40,371
======= =======
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
In June 1999, the Company made the decision to discontinue its denim and
industrial yarn operations, which have been unprofitable in recent years. These
operations have been treated as discontinued operations in the thirteen and
twenty-seven week consolidated financial statements.
The results of operations for the denim and industrial yarn businesses have been
classified as loss from discontinued operations in the prior periods as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
13 Weeks 27 Weeks
Ended Ended
January 2, 1999 January 2, 1999
--------------- ---------------
<S> <C> <C>
Revenues $ 9,806 $ 27,724
Cost of sales 12,136 31,060
-------- --------
Gross profit (loss) (2,330) (3,336)
Other expenses, net 772 1,661
-------- --------
Loss before income tax benefit (3,102) (4,997)
Income tax (benefit) 0 0
-------- --------
Loss from discontinued operations $ (3,102) $ (4,997)
======== ========
</TABLE>
<PAGE> 7
NOTE D -- NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of the numerator and denominator
used in the calculation of basic and diluted earnings (loss) per share from
continuing operations:
<TABLE>
<CAPTION>
(Dollars in Thousands except Share and Per Share Data)
13 WEEKS 13 Weeks 26 WEEKS 27 Weeks
ENDED Ended ENDED Ended
JANUARY 1, 2000 January 2, 1999 JANUARY 1, 2000 January 2, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations $ (2,184) $ (2,288) $ (3,774) $ (4,385)
----------- ----------- ----------- -----------
Numerator for basic and diluted earnings (loss) per
share $ (2,184) $ (2,288) $ (3,774) $ (4,385)
----------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares
6,540,046 6,540,046 6,540,046 6,540,046
Dilutive effect of potential common shares -
Employee stock options N/A N/A N/A N/A
Warrants N/A N/A N/A N/A
----------- ----------- ----------- -----------
Denominator for diluted earnings (loss) per share -
adjusted weighted-average shares and
assumed conversions 6,540,046 6,540,046 6,540,046 6,540,046
----------- ----------- ----------- -----------
Basic earnings (loss) per share $ (0.33) $ (0.35) $ (0.58) $ (0.67)
----------- ----------- ----------- -----------
Diluted earnings (loss) per share (0.33) (0.35) (0.58) $ (0.67)
----------- ----------- ----------- -----------
Potentially dilutive common shares related to options
and warrants outstanding:
Not considered in calculation due to net loss 736,956 0 644,383 0
----------- ----------- ----------- -----------
Not considered in calculation due to exercise
price of options exceeding average price of
exercise price of options 710,750 892,025 760,632 900,666
----------- ----------- ----------- -----------
</TABLE>
<PAGE> 8
NOTE E -- 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 premium threadcount products for the
bedroom, including fashion-coordinated bedding sets and comforters marketed
under the Thomaston label, and offers home furnishing fabrics for sale to other
manufacturers of home furnishings. The Apparel Fabrics line is directed toward
dyeing and finishing heavier fabrics such as twill and other value-added
fabrics.
The profit performance measure for the Company's segments is defined as Internal
EBIT (earnings before interest and taxes). The aggregate of Internal EBIT for
the reportable segments differs from the Company's consolidated earnings before
interest and taxes by costs that are deemed to be non-operating in nature.
Allocations of corporate general and administrative expenses are used in the
determination of segment profit performance.
<TABLE>
<CAPTION>
(Dollars in Thousands except Share and Per Share Data)
NET SALES PROFIT PERFORMANCE
13 WEEKS 13 Weeks 13 WEEKS 13 Weeks
ENDED Ended ENDED Ended
JANUARY 1, 2000 January 2, 1999 JANUARY 1, 2000 January 2, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Reportable segments:
Consumer products 21,927 20,996 (684) (5,414)
Apparel fabrics 15,268 16,958 841 1,435
-------- -------- ----- -----
Segment total 37,195 37,954 157 (3,979)
======== ========
Interest expense 2,241 1,613
Other non-segment 100 0
----- -----
Consolidated (loss) before
taxes from continuing operations (2,184) (5,592)
====== ======
</TABLE>
<TABLE>
<CAPTION>
NET SALES PROFIT PERFORMANCE
26 WEEKS 27 Weeks 26 WEEKS 27 Weeks
ENDED Ended ENDED Ended
JANUARY 1, 2000 January 2, 1999 JANUARY 1, 2000 January 2, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Reportable segments:
Consumer products 49,308 49,463 (440) (7,376)
Apparel fabrics 28,611 31,561 1,149 438
-------- -------- ------ ------
Segment total 77,919 81,024 709 (6,938)
======== ========
Interest expense 4,309 3,198
Other non-segment 174 0
------ ------
Consolidated (loss) before
taxes from continuing operations (3,774) (10,136)
====== ======
</TABLE>
<PAGE> 9
THOMASTON MILLS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In the fourth quarter of fiscal 1999, the Company began a comprehensive
restructuring of its 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 were
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 at
January 1, 2000 includes assets held for sale in the amount of $8,526,000. Any
proceeds from the sale of these assets will be applied against outstanding term
loan obligations.
The Company has concluded that it will focus on the manufacturing and marketing
of home furnishing as well as dyeing and finishing fabrics for casual and career
apparel. The Company believes that these operations offer the most viable
opportunity for improving future profitability. Discussions below pertaining to
the operating results exclude the Company's discontinued operations.
RESULTS OF OPERATIONS
Sales from continuing operations for the second fiscal quarter ended January 1,
2000 were down slightly to $37,195,000 from second quarter sales last year of
$37,954,000. For the twenty-six weeks ended January 1, 2000, sales were down
3.8% to $77,919,000 when compared to sales of $81,024,000 for the twenty-seven
weeks ended January 2, 1999. Sales in the Consumer Products area of the Company
were relatively unchanged for the twenty-six weeks ended January 1, 2000
compared to the twenty-seven weeks ended January 2, 1999. In the Apparel Fabrics
area, a shift in customer demand from heavier, bottom-weight, cotton fabrics to
lighter-weight, blended fabrics resulted in a sales decrease from $31,561,000
for the twenty-seven weeks ended January 2, 1999 to $28,611,000 for the
twenty-six weeks ended January 1, 2000.
Cost of sales for the quarter just ended decreased to 90.3% of sales or
$33,586,000. For the second quarter fiscal year 1999, cost of sales were 101.5%
of sales or $38,509,000. For the twenty-six weeks ended January 1, 2000, cost of
sales decreased to 89.6% of sales or $69,817,000 compared to cost of sales of
99.0% of sales or $80,206,000 for the twenty-seven weeks ended January 2, 1999.
Improved manufacturing capacity utilization, improved plant productivity and
decreases in raw material costs have contributed to the decline in cost of
sales.
Gross profit for the second quarter and the twenty-six weeks ended January 1,
2000 was 9.7% and 10.4% of sales, respectively. For the second quarter and
twenty-seven weeks ended January 2, 1999, gross profit was (1.5)% and 1.0%,
respectively.
Although sales were down for the quarter and twenty-six weeks ended January 1,
2000 when compared to the comparable periods last year, selling, general and
administrative expenses have remained relatively constant at approximately 10.0%
of sales for all periods reported. The Company's realignment of its operations
has contributed to reductions in certain selling, general and administrative
expenses.
Other income for the quarter and twenty-six weeks ended January 1, 2000 was
$289,000 and $405,000, respectively, compared to $315,000 and $459,000 for the
comparable periods last year. Other income relates to miscellaneous equipment
sales, royalties earned on the Company's sale of the Rattlers Brand(R) and
interest earned on the Company's short-term investments of cash.
Interest expense and amortization of credit agreement fees increased $728,000
from $1,613,000 during second quarter fiscal year 1999 to $2,341,000 during
second quarter fiscal year 2000. For the twenty-six weeks ended January 1, 2000,
interest expense and amortization of credit agreement fees increased $1,285,000
compared to the twenty-seven weeks ended January 2, 1999. This increase was the
result of higher interest rates under the Company's various credit agreements.
Excluding capitalized leases, total debt at January 1, 2000 was $66,116,000,
down $3,584,000 from total debt at January 2, 1999 of $69,700,000.
The Company has not recorded an income tax benefit for fiscal year 2000 as a
result of its operating loss carry forward position. The Company recorded an
income tax benefit of $3,102,000 for second quarter 1999 and $4,997,000 for the
twenty-seven weeks ended January 2, 1999. This future anticipated benefit was
recorded based on tax planning strategies as to the realization of the deferred
tax benefit.
<PAGE> 10
For the second quarter fiscal year 2000, the Company sustained a loss from
continuing operations of $2,184,000 or $ .33 per basic and diluted share as
compared to a second quarter fiscal year 1999 loss from continuing operations of
$2,288,000 or $ .35 per basic and diluted share. For the twenty-six weeks ended
January 1, 2000, the Company sustained a loss from continuing operations of
$3,774,000 or $ .58 per basic and diluted share as compared to a loss from
continuing operations of $4,385,000 or $ .67 per basic and diluted share for the
twenty-seven weeks ended January 2, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At January 1, 2000, working capital was $38,083,000 as compared to $66,072,000
at January 2, 1999. The ratio of current assets to current liabilities was 2.5:1
at January 1, 2000 and 3.8:1 at January 2, 1999. Changes in working capital are
primarily the result of lower levels of inventory and accounts receivable.
Although inventories increased from first quarter to second quarter of fiscal
year 2000 in anticipation of third quarter shipments, improvements in
supply-chain inventory control systems and the selling off of inventories
associated with discontinued operations have resulted in decreased inventory
levels at January 1, 2000 as compared to inventory levels at January 2, 1999.
The collection of receivables associated with discontinued operations and
reduced sales during the twenty-six weeks ended January 1, 2000 have resulted in
a reduction in accounts receivable.
Operating activities provided cash of $5,404,000 during the twenty-six weeks
ended January 1, 2000. During the twenty-seven weeks ended January 2, 1999,
operating activities provided cash of $8,908,000. Net cash used in investing
activities amounted to $689,000 during the first half of fiscal 2000 compared to
$1,974,000 used in the first half of fiscal 1999. Capital expenditures have been
reduced as a result of the Company's realignment of its operations. Financing
activities used cash of $4,776,000 during the first half of fiscal year 2000 as
a result of net repayments of indebtedness. During the first half of fiscal year
1999, financing activities used funds of $5,644,000.
On July 27, 1999, the Company entered into a new Loan and Security Agreement
(the Loan Agreement) which provides for borrowing as follows:
- - Revolving advances equal to the lesser of $70,000,000 or a specified
percentage of certain accounts receivable and inventory as defined in
the Loan Agreement. At January 1, 2000, $29,081,000 was outstanding and
$3,968,000 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 previously
outstanding senior notes payable and industrial revenue bonds.
On July 27, 1999, the Company entered into an Amended and Restated Credit and
Security Agreement (the Credit Agreement) which reduced the existing borrowings
to $15,000,000. Interest is accrued at a rate of 15% increasing at the rate of
1% per month to a rate of 20% effective January 1, 2000. Interest is payable at
the Euro-dollar Rate plus 3.5% or the Base Rate plus 1.5%. The difference in the
interest accrued and the interest paid is added to the balance of the
borrowings. Borrowings under the Credit Agreement are due July 24, 2004, unless
repaid prior to that date.
Borrowings under the Loan Agreement and Credit Agreement are secured by all
assets and properties of the Company. The Loan Agreement and the Credit
Agreement contain various restrictions relating to, among other things,
maintaining a certain level of tangible net worth, attainment of certain amounts
of earnings before interest, taxes, depreciation and amortization and
restrictions on capital expenditures. Capital expenditures for fiscal year 2000
are projected to approximate $4,000,000.
<PAGE> 11
Management believes that cash provided by operating activities and the Loan
Agreement will be sufficient to finance capital requirements and operating needs
of the Company for fiscal year 2000.
WARRANTS TO LENDERS
As previously disclosed, the Company has issued warrants to its lenders in
connection with the Credit Agreement. The warrants permit the lenders to
purchase Class A and Class B common shares of the Company for nominal
consideration. The warrants are currently exercisable and may be exercised
through December 31, 2004. Although the lenders have not indicated to the
Company that they intend to exercise the warrants, if they elect to exercise
all of their warrants, the lenders will receive an interest equal to 10% of the
outstanding equity of the Company in each class, on a fully diluted basis.
ASSETS HELD FOR SALE
The Company's management intends to utilize the proceeds from the sale of the
assets held for sale to reduce outstanding term loan obligations. Management
believes, based on current appraisals, that $9,680,000 could be realized from
the sale of these assets, including $8,526,000 from the assets related to
discontinued operations. However, actual results could differ significantly from
these estimates.
INVENTORIES
Inventories at January 1, 2000 and January 2, 1999 were $37,324,000 and
$50,943,000, respectively. Improvements in supply-chain inventory control
systems and the selling off of inventories associated with discontinued
operations have resulted in decreased inventory levels at January 1, 2000 as
compared to inventory levels at January 2, 1999. Total inventory turns on an
average annualized rate were 3.7 times for the first six months of fiscal 2000
and 3.1 times for the first six months of fiscal 1999.
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 difficulty in obtaining
cotton.
In order to assure a continuous supply of cotton, the Company enters into cotton
purchase contracts for several months in advance of delivery which either
provide for (1) fixed quantities to be purchased at a pre-determined price or
(2) fixed quantities to be purchased at a price to be determined (at a later
date). When the Company sells its product to its customers, the cost of cotton
under existing cotton purchase contracts is taken into account in calculating
the price for the Company's product. The Company generally attempts to match
product sales contracts with fixed price cotton purchase contracts and uses
market price cotton contracts to anticipate future needs and subsequent product
sales contracts. To the extent prices are sometimes fixed in advance of
shipment, the Company may benefit from its cotton purchase contracts to the
extent prices thereafter rise, or incur increased cost to the extent prices
thereafter fall.
GATT
In December 1993, 117 countries reached an agreement under the General Agreement
on Tariffs and Trade that would cover new areas of trade, further cut tariffs
and strengthen multilateral free-trade rules by creating a World Trade
Organization (WTO) as its successor. This agreement was ratified by the United
States Congress and went into effect on July 1, 1995. As part of this new
agreement, the Multifiber Arrangement (MFA) under which textile and apparel
trade had been controlled, will be phased out along with its import quotas over
a 10-year period. Tariffs on textiles will be cut by an average of 11.6% over 10
years. Under the agreement, quotas on the least sensitive import products will
be phased out over the first five years and quotas on the most sensitive import
products will not be affected until the latter part of the ten-year period.
The WTO agreement contains some provisions which may have a favorable impact on
the textile industry. An assembly rule of origin amendment makes it illegal for
a non-WTO member country to assemble garments from pieces cut in a member
country and then export the garments as originating in the country where they
were cut. Additionally, the agreement preserves the authority of the President
of the United States to control imports from non-WTO countries such as Taiwan or
China. In the event China is admitted to the WTO, the U.S. apparel industry
could be adversely affected.
Although the WTO agreement may reduce the cost of certain imported textiles, the
Company believes that upgraded technology resulting in increased productivity
and lower costs will enable it to compete in a global market.
YEAR 2000
In 1996, the Company established a task force to address and assess Year 2000
(Y2K) compliance for the Company's computer systems and software applications,
manufacturing facilities and suppliers providing both goods and services. The
Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its on-going business as a result of the
<PAGE> 12
Y2K issue. However, it is possible that the full impact of the date change,
which was of concern due to computer programs that use two digits instead of
four digits to define years, has not been fully recognized. For example, it is
possible that Y2K or similar issues such as leap year-related problems may occur
with billing, payroll, or financial closings at month, quarterly or year end.
The Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively impacted if its
customers or suppliers are adversely affected by the Y2K or similar issues. The
Company currently is not aware of any significant Y2K or similar problems that
have arisen for its customers and suppliers.
The Company estimates that it has incurred approximately $450,000 in cost
related to the Y2K project, all of which has been expensed and funded through
operating cash flows.
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, volatility of commodities markets, ability to
control operating costs, developing successful new products and maintaining
effective pricing and promotion of its products. Additionally, there can be no
assurance that the Company (i) will have access to financial capital in the
future or that it can obtain such capital on terms that are favorable to the
Company or otherwise reasonably acceptable to it, or (ii) will be able to
generate profits from, or continue the growth of, the lines of businesses and
operations that the Company has retained subsequent to its restructuring
efforts. A failure by the Company to obtain capital in the future on terms that
are favorable to it or a failure by the Company to generate profits from, or
grow, its remaining business lines may have a material adverse effect on the
Company's business, financial condition or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of certain market risks related to the Company, see Part I Item
7 "Quantitative and Qualitative Disclosures about Market Risks" in the Company's
Annual Report on Form 10-K for the fiscal year ended July 3, 1999. There have
been no significant developments with respect to derivatives or exposure to
market risk.
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As of January 1, 2000, 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.
(a) Exhibits:
13.1 Quarterly Report to Shareholders dated January
25, 2000.
27.0 Financial Data Schedule (for SEC purposes only)
(b) The Company did not file any reports on Form 8-K during
the three months ended January 1, 2000.
<PAGE> 14
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 14, 2000 Executive Officer
-----------------
/s/ A. William Ott
--------------------------
A. William Ott
Treasurer and Chief
Date: February 14, 2000 Financial Officer
-----------------
<PAGE> 1
EXHIBIT 13.1
[LOGO]
NEWS
RELEASE
SECOND QUARTER REPORT
2000
TO THE SHAREHOLDERS:
Thomaston Mills continued to make progress in the second fiscal quarter ended
January 1, 2000. Sales from continuing operations were about even with the year
before at $37,195,000. The loss before taxes for the quarter was reduced to
$2,184,000, compared to a before tax loss of $5,592,000 the year before.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the
quarter was $2,610,000 compared to a negative EBITDA of $1,414,000 the year
before. For the six month period ending on January 1, 2000, EBITDA was
$5,600,000 compared to a negative EBITDA of $1,320,000 for the same period the
year before.
As predicted in our last report, inventories increased during the last quarter
in anticipation of heavier consumer products shipments. Capacity utilization
has continued to improve in consumer products and piece dyed fabrics. The new
organization is functioning as planned. Solid relationships are being formed
with targeted major retailers and piece dyed customers.
Customer service is benefiting from an improved scheduling organization and
systems. Our goal is to be 100% on time with service second to none.
In looking ahead, we expect increased sales volume in the consumer products
area. Such an increased volume and better capacity utilization would continue
the turnaround trend. The entire Thomaston team is working hard to return the
Company to profitability. We believe that the recent organizational changes
that the Company has implemented will continue to yield positive results that
we hope will lead to a profitable fourth fiscal quarter.
Sincerely,
/s/ Neil H. Hightower
--------------------
Neil H. Hightower
President and CEO
January 25, 2000
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 26 WEEKS 27 WEEKS
ENDED ENDED ENDED ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 1, 2000 JANUARY 2, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 37,195 $ 37,954 $ 77,919 $81,024
Cost of sales...................................... 33,586 38,509 69,817 80,206
---------- ---------- ---------- ----------
Gross profit (loss)........................... 3,609 (555) 8,102 818
Selling, general and administrative expenses....... 3,741 3,739 7,798 8,215
---------- ---------- ---------- ----------
Operating profit (loss)....................... (132) (4,294) 304 (7,397)
Interest expense................................... 2,241 1,613 4,309 3,198
Amortization of credit agreement fees.............. 100 0 174 0
Other income ...................................... 289 315 405 459
---------- ---------- ---------- ----------
Loss from continuing operations before income
tax benefit...................................... (2,184) (5,592) (3,774) (10,136)
Income tax benefit................................. 0 (3,304) 0 (5,751)
---------- ----------- ---------- ----------
Loss from continuing operations.................... (2,184) (2,288) (3,774) (4,385)
Loss from discontinued operations.................. 0 (3,102) 0 (4,997)
---------- ----------- ---------- ----------
Net loss........................................... $ (2,184) $ (5,390) $ (3,774) $ (9,382)
========== ========== ========== ==========
Weighted average number of shares.................. 6,540,046 6,540,046 6,540,046 6,540,046
Basic and diluted loss per share:
Continuing operations............................ $ (0.33) $ (0.35) $ (0.58) $ (0.67)
Discontinued operations.......................... 0.00 (0.47) 0.00 (0.76)
---------- ---------- ---------- ----------
Net loss per share................................. $ (0.33) $ (0.82) $ (0.58) $ (1.43)
---------- ---------- ---------- ----------
Dividends paid per share........................... $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0375
========== ========== ========== ==========
</TABLE>
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ........................ $ 293 $ 2,412
Accounts receivable less allowance of $724 in
2000 and $761 in 1999 .......................... 25,350 30,198
Inventories ...................................... 37,324 50,943
Other current assets ............................. 1,096 6,478
--------- ---------
Total current assets .................... 64,063 90,031
Property, Plant and Equipment ...................... 167,273 253,110
Less allowance for depreciation .................. (119,268) (175,816)
--------- ---------
48,005 77,294
Assets held for sale ............................... 9,680 0
Deferred income taxes .............................. 3,116 0
Other assets ....................................... 7,732 10,364
--------- ---------
Total assets ............................ $ 132,596 $ 177,689
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ................................. $ 12,490 $ 14,943
Accrued liabilities .............................. 9,092 6,977
Current portion of capital lease obligations ..... 398 372
Current portion of long-term debt ................ 4,000 1,667
--------- ---------
Total current liabilities ................ 25,980 23,959
Obligations under capital leases ................... 767 1,178
Long-term debt ..................................... 62,116 68,033
Deferred income taxes .............................. 0 4,907
Other liabilities .................................. 1,445 3,024
Shareholders' Equity ............................... 42,288 76,588
--------- ---------
Total liabilities and shareholders' equity $ 132,596 $ 177,689
========= =========
</TABLE>
<PAGE> 3
RECLASSIFICATIONS: CERTAIN RECLASSIFICATIONS WERE MADE TO THE 1999 CONSOLIDATED
FINANCIAL STATEMENTS IN ORDER TO CONFORM TO THE 2000 PRESENTATION.
FORWARD-LOOKING STATEMENTS: CERTAIN OF THE ABOVE STATEMENTS CONTAINED HEREIN
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 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, 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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUL-04-1999
<PERIOD-END> JAN-01-2000
<CASH> 293
<SECURITIES> 0
<RECEIVABLES> 26,074
<ALLOWANCES> 724
<INVENTORY> 37,324
<CURRENT-ASSETS> 64,063
<PP&E> 167,273
<DEPRECIATION> 119,268
<TOTAL-ASSETS> 132,596
<CURRENT-LIABILITIES> 25,980
<BONDS> 0
0
0
<COMMON> 7,494
<OTHER-SE> 34,794
<TOTAL-LIABILITY-AND-EQUITY> 132,596
<SALES> 77,919
<TOTAL-REVENUES> 78,324
<CGS> 69,817
<TOTAL-COSTS> 69,817
<OTHER-EXPENSES> 7,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,309
<INCOME-PRETAX> (3,774)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,774)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,774)
<EPS-BASIC> (.58)
<EPS-DILUTED> (.58)
</TABLE>
