<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 April 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.
<TABLE>
<S> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- April 1, 2000 and
July 3, 1999
Condensed consolidated statements of operations -- thirteen
weeks ended April 1, 2000 and thirteen weeks ended April 3,
1999 and thirty-nine weeks ended April 1, 2000 and forty
weeks ended April 3, 1999
Consolidated statements of cash flows -- thirty-nine weeks
ended April 1, 2000 and forty weeks ended April 3, 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 and Use of Proceeds
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
</TABLE>
SIGNATURES
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
APRIL 1, 2000 July 3, 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 970 $ 353
Accounts receivable, less allowance of
$722 at April 1, 2000 and $950 at July 3, 1999 30,482 35,237
Inventories--Note B 35,569 40,371
Other current assets 1,264 1,038
---------- ----------
TOTAL CURRENT ASSETS 68,285 76,999
PROPERTY, PLANT AND EQUIPMENT 169,009 166,339
Less allowance for depreciation 122,060 114,679
---------- ----------
46,949 51,660
Assets held for sale 9,037 10,709
Deferred income taxes 3,116 3,116
Other assets 7,796 5,937
---------- ----------
$ 135,183 $ 148,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,603 $ 17,950
Accrued liabilities 8,145 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 28,146 35,220
OBLIGATIONS UNDER CAPITAL LEASE -
less current portion 666 963
LONG-TERM DEBT, less current portion 64,824 66,696
OTHER LIABILITIES 1,152 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 8,904 8,904
Retained earnings 29,417 33,222
---------- ----------
45,815 49,620
Less treasury stock - at cost 5,420 5,420
---------- ----------
40,395 44,200
---------- ----------
$ 135,183 $ 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 39 WEEKS 40 Weeks
ENDED Ended ENDED Ended
APRIL 1, 2000 April 3, 1999 APRIL 1, 2000 April 3, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 45,688 $ 47,994 $ 123,607 $ 129,018
Cost of sales 41,757 44,974 111,574 125,180
------------ ------------ ------------ ------------
Gross profit 3,931 3,020 12,033 3,838
Selling, general and administrative expenses 3,506 4,222 11,304 12,437
Other expense (income), net (105) (47) (510) (506)
------------ ------------ ------------ ------------
Operating profit (loss) 530 (1,155) 1,239 (8,093)
Interest expense 2,319 1,723 6,628 4,921
Amortization of credit agreement fees 104 0 278 0
------------ ------------ ------------ ------------
Loss from continuing operations before income tax
benefit (1,893) (2,878) (5,667) (13,014)
Benefit for income taxes 0 0 0 (5,751)
------------ ------------ ------------ ------------
Loss from continuing operations (1,893) (2,878) (5,667) (7,263)
Loss from discontinued operations 0 (2,653) 0 (7,650)
------------ ------------ ------------ ------------
Net loss $ (1,893) $ (5,531) $ (5,667) $ (14,913)
============ ============ ============ ============
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 $ (0.29) $ (0.44) $ (0.87) $ (1.11)
Discontinued operations 0.00 (0.41) 0.00 (1.17)
------------ ------------ ------------ ------------
Net loss per share $ (0.29) $ (0.85) $ (0.87) $ (2.28)
Dividends paid per share $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0375
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE> 5
THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
39 WEEKS 40 Weeks
ENDED Ended
APRIL 1, 2000 April 3, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,667) $ (14,913)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 7,728 11,134
Gains on sales of property, plant
and equipment (347) (48)
Changes in operating assets and liabilities:
Accounts receivable 4,755 6,173
Inventories 4,802 (1,862)
Other assets (1,029) (3,632)
Accounts payable and accrued expenses (1,732) 5,646
Reserve for discontinued operations (5,533) 0
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,977 2,498
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,469) (2,921)
Proceeds from sales of property, plant
and equipment 318 50
Proceeds from assets held for sale 1,960 0
---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (191) (2,871)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 6,018 9,975
Principal payments on revolving lines of
credit, long-term debt and capital
lease obligations (8,187) (8,993)
Cash dividends paid 0 (245)
---------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (2,169) 737
---------- ----------
INCREASE IN CASH
AND CASH EQUIVALENTS 617 364
Cash and cash equivalents at beginning
of period 353 1,122
---------- ----------
Cash and cash equivalents at end
of period $ 970 $ 1,486
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE> 6
THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 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 April 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)
APRIL 1, 2000 July 3, 1999
------------- ------------
<S> <C> <C>
Raw materials $ 4,857 $ 5,304
Work in process 20,195 24,245
Finished products 18,619 19,813
LIFO reserve (8,102) (8,991)
------- -------
$35,569 $40,371
======= =======
</TABLE>
NOTE C - 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 thirteen and
forty week consolidated financial statements.
The results of operations for the denim and industrial yarn businesses have
been classified as loss from discontinued operations as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
13 Weeks 40 Weeks
Ended Ended
April 3, 1999 April 3, 1999
------------- -------------
<S> <C> <C>
Revenues $ 12,746 $ 40,470
Cost of sales 14,527 45,587
---------- ----------
Gross profit (loss) (1,781) (5,117)
Other expenses, net 872 2,533
---------- ----------
Loss before income tax benefit (2,653) (7,650)
Income tax (benefit) 0 0
---------- ----------
Loss from discontinued operations $ (2,653) $ (7,650)
========== ==========
</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 39 WEEKS 40 Weeks
ENDED Ended ENDED Ended
APRIL 1, 2000 April 3, 1999 APRIL 1, 2000 April 3, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations $ (1,893) $ (2,878) $ (5,667) $ (7,263)
------------ ------------ ------------ ------------
Numerator for basic and diluted earnings per share $ (1,893) $ (2,878) $ (5,667) $ (7,263)
------------ ------------ ------------ ------------
Denominator:
Denominator for basic earnings 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 per share -
adjusted weighted-average shares and
assumed conversions 6,540,046 6,540,046 6,540,046 6,540,046
------------ ------------ ------------ ------------
Basic loss per share $ (0.29) $ (0.44) $ (0.87) $ (1.11)
------------ ------------ ------------ ------------
Diluted loss per share $ (0.29) $ (0.44) $ (0.87) $ (1.11)
------------ ------------ ------------ ------------
Potentially dilutive common shares related to options
and warrants outstanding:
Not considered in calculation due to net loss 737,047 0 675,271 257
------------ ------------ ------------ ------------
Not considered in calculation due to exercise
price of options exceeding average price of
Company's common stock 744,528 861,104 755,263 887,502
------------ ------------ ------------ ------------
</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)
NET SALES PROFIT PERFORMANCE
13 WEEKS 13 Weeks 13 WEEKS 13 Weeks
ENDED Ended ENDED Ended
APRIL 1, 2000 April 3,1999 APRIL 1, 2000 April 3, 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Reportable segments:
Consumer products $32,066 $29,472 $ 573 $ (864)
Apparel fabrics 13,622 18,522 (43) (291)
------- ------- ------- -------
Segment total $45,688 $47,994 530 (1,155)
======= =======
Interest expense 2,319 1,723
Other non-segment 104 0
------- -------
Loss from continuing operations
before income tax benefit $(1,893) $(2,878)
======= =======
</TABLE>
<TABLE>
<CAPTION>
NET SALES PROFIT PERFORMANCE
39 WEEKS 40 Weeks 39 WEEKS 40 Weeks
ENDED Ended ENDED Ended
APRIL 1, 2000 April 3,1999 APRIL 1, 2000 April 3, 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Reportable segments:
Consumer products $ 81,374 $ 78,935 $ 133 $ (8,240)
Apparel fabrics 42,233 50,083 1,106 147
-------- -------- ------- --------
Segment total $123,607 $129,018 1,239 (8,093)
======== ========
Interest expense 6,628 4,921
Other non-segment 278 0
------- --------
Loss from continuing operations
before income tax benefit $(5,667) $(13,014)
======= ========
</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
April 1, 2000 includes assets held for sale in the amount of $7,883,000. 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 third fiscal quarter ended April 1,
2000 were down 4.8% to $45,688,000 from third quarter sales last year of
$47,994,000. For the thirty-nine weeks ended April 1, 2000, sales were down
4.2% to $123,607,000 when compared to sales of $129,018,000 for the forty weeks
ended April 3, 1999. Sales in the Consumer Products area of the Company
increased 8.8% for the third fiscal quarter and 3.1% for the thirty-nine weeks
ended April 1, 2000 when compared to Consumer Products sales for the comparable
periods last year. 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 of 26.5% for the third fiscal quarter and 15.7%
for the thirty-nine weeks ended April 1, 2000 when compared to Apparel Fabrics
sales for the comparable periods last year.
Cost of sales for the quarter just ended decreased to 91.4% of sales or
$41,757,000. For the third quarter fiscal year 1999, cost of sales were 93.7%
of sales or $44,974,000. For the thirty-nine weeks ended April 1, 2000, cost of
sales decreased to 90.3% of sales or $111,574,000 compared to cost of sales of
97.0% of sales or $125,180,000 for the forty weeks ended April 3, 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 third quarter and the thirty-nine weeks ended April 1,
2000 was 8.6% and 9.7% of sales, respectively. For the third quarter and forty
weeks ended April 3, 1999, gross profit was 6.3% and 3.0%, respectively.
Selling, general and administrative expenses for the quarter just ended
decreased to 7.7% of sales or $3,506,000. For the third quarter fiscal year
1999, selling, general and administrative expenses were 8.8% of sales or
$4,222,000. For the thirty-nine weeks ended April 1, 2000, selling, general and
administrative expenses decreased to 9.1% of sales or $11,304,000 compared to
selling, general and administrative expenses of 9.6% of sales or $12,437,000
for the forty weeks ended April 3, 1999. The Company's realignment of its
operations, which began in the fourth quarter of fiscal year 1999, has resulted
in reductions in certain selling, general and administrative expenses.
Improvements have also been realized in the cost of bringing new product
samples to the market.
Other income for the quarter and thirty-nine weeks ended April 1, 2000 was
$105,000 and $510,000, respectively, compared to $47,000 and $506,000 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 $700,000
from $1,723,000 during third quarter fiscal year 1999 to $2,423,000 during
third quarter fiscal year 2000. For the thirty-nine weeks ended April 1, 2000,
interest expense and amortization of credit agreement fees increased $1,985,000
compared to the forty weeks ended April 3, 1999. This increase was the result
of higher interest rates under the Company's various credit agreements.
Excluding capitalized leases, total debt at April 1, 2000 was $68,824,000, down
$7,351,000 from total debt at April 3, 1999 of $76,175,000.
The Company has recorded an income tax benefit of $5,751,000 for the forty
weeks ended April 3, 1999. This future anticipated benefit was
<PAGE> 10
recorded based on tax planning strategies as to the realization of the deferred
tax benefit. Management does not believe it has additional tax planning
strategies and as a result has not recorded an income tax benefit for fiscal
year 2000.
For the third quarter fiscal year 2000, the Company sustained a loss from
continuing operations of $1,893,000 or $.29 per basic and diluted share as
compared to a third quarter fiscal year 1999 loss from continuing operations of
$2,878,000 or $.44 per basic and diluted share. For the thirty-nine weeks
ended April 1, 2000, the Company sustained a loss from continuing operations of
$5,667,000 or $.87 per basic and diluted share as compared to a loss from
continuing operations of $7,263,000 or $1.11 per basic and diluted share for
the forty weeks ended April 3, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At April 1, 2000, working capital was $40,139,000 as compared to $66,740,000 at
April 3, 1999. The ratio of current assets to current liabilities was 2.4:1 at
April 1, 2000 and 3.4:1 at April 3, 1999. Changes in working capital are
primarily the result of lower levels of inventory and accounts receivable.
Improvements in supply-chain inventory control systems and the selling of
inventories associated with discontinued operations have resulted in decreased
inventory levels at April 1, 2000 as compared to inventory levels at April 3,
1999. The collection of receivables associated with discontinued operations and
reduced sales during the thirty-nine weeks ended April 1, 2000 have resulted in
a reduction in accounts receivable.
Operating activities provided cash of $2,977,000 during the thirty-nine weeks
ended April 1, 2000. During the forty weeks ended April 3, 1999, operating
activities provided cash of $2,498,000. Net cash used in investing activities
amounted to $191,000 during the first nine months of fiscal 2000 compared to
$2,871,000 used during the first nine months of fiscal 1999. Capital
expenditures have been reduced as a result of the Company's realignment of its
operations. Financing activities used cash of $2,169,000 during the first nine
months of fiscal year 2000 as a result of net repayments of indebtedness. During
the first nine months of fiscal year 1999, financing activities provided funds
of $737,000.
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 April 1, 2000, $33,425,000 was outstanding and
$3,748,000 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. As of April 1, 2000, the Company is in
compliance with its various debt covenants.
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.
<PAGE> 11
WARRANTS TO LENDERS
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 would
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 $9,037,000 could be realized from
the sale of these assets, including $7,883,000 from the assets related to
discontinued operations. However, actual results could differ significantly from
these estimates.
INVENTORIES
Inventories at April 1, 2000 and April 3, 1999 were $35,569,000 and
$48,447,000, 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 April 1, 2000 as
compared to inventory levels at April 3, 1999. Total inventory turns on an
average annualized rate were 4.2 times for the first nine months of fiscal 2000
and 3.4 times for the first nine 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 (GATT) 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 Chinese market share
of apparel imports is expected to increase significantly over the phase-in
period.
Although the WTO agreement may reduce the cost of certain imported textiles,
the Company believes that upgraded technology resulting in increased
productivity and lower costs will enable it to compete in a global market.
<PAGE> 12
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 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 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 April 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 AND USE OF PROCEEDS
(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. On March 16, 2000, the Company's
Class A Common Stock began trading on the Nasdaq
Smallcap Market under the ticker symbol TMSTA. The
Company's 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
13.1 Quarterly Report to Shareholders dated April
28, 2000.
27.0 Financial Data Schedule (for SEC purposes only)
(b) The Company filed a report on Form 8-K on February 2,
2000 relating to the approval by the Company's Board of
Directors of a Senior Executive Management and Directors
Incentive Plan.
<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: May 11, 2000 Executive Officer
/s/ A. William Ott
-------------------------------
A. William Ott
Treasurer and Chief
Date: May 11, 2000 Financial Officer
<PAGE> 1
EXHIBIT 13.1
[LOGO]
NEWS
RELEASE
THIRD QUARTER REPORT
2000
TO THE SHAREHOLDERS:
Thomaston Mills continued to make progress in the third fiscal quarter ended
April 1, 2000. The Company had an operating profit of $530,000, compared to an
operating loss of $1,155,000 the year before. Sales for the quarter were
$45,688,000 down approximately 5% due to lower volume for piece dyed fabrics in
the quarter. Consumer products sales increased 9% in the quarter. Sales volume
for both apparel fabrics and consumer products is expected to improve in the
fourth fiscal quarter.
EBITDA (earnings before interest, taxes, depreciation and amortization) from
continuing operations was $8,689,000 for the nine months ended April 1, 2000,
compared to $255,000 the year before. There was a $13,298,000 improvement in
EBITDA year to year when discontinued operations are included in the
comparison. The net loss for the quarter was reduced to $1,893,000, compared to
a loss of $5,531,000 the year before.
The Company still has a long way to go, but the trend is up. Tremendous changes
have taken place here at Thomaston Mills. We are operating in a new global
environment, and these changes in product line and personnel were necessary to
prepare the Company to compete and prosper in this new environment.
We are making good progress, and we will continue our efforts to accelerate the
return to profitability.
Sincerely,
/s/ Neil H. Hightower
- --------------------------
Neil H. Hightower
President and CEO
April 28, 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 13 WEEKS 13 WEEKS
ENDED ENDED ENDED ENDED
APRIL 1, 2000 APRIL 3,1999 APRIL 1, 2000 APRIL 3, 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales ................................................... $ 45,688 $ 47,994 $ 123,607 $ 129,018
Cost of sales ............................................... 41,757 44,974 111,574 125,180
------------ ------------ ------------ ------------
Gross profit ........................................... 3,931 3,020 12,033 3,838
Selling, general and administrative expenses ................ 3,506 4,222 11,304 12,437
Other expense (income), net ................................. (105) (47) (510) (506)
------------ ------------ ------------ ------------
Operating profit (loss) ................................ 530 (1,155) 1,239 (8,093)
Interest expense ............................................ 2,319 1,723 6,628 4,921
Amortization of credit agreement fees ....................... 104 0 278 0
------------ ------------ ------------ ------------
Loss from continuing operations before income tax benefit ... (1,893) (2,878) (5,667) (13,014)
Income tax benefit .......................................... 0 0 0 (5,751)
------------ ------------ ------------ ------------
Loss from continuing operations ............................. (1,893) (2,878) (5,667) (7,263)
Loss from discontinued operations ........................... 0 (2,653) 0 (7,650)
------------ ------------ ------------ ------------
Net loss .................................................... $ (1,893) $ (5,531) $ (5,667) $ (14,913)
============ ============ ============ ============
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 ..................................... $ (0.29) $ (0.44) $ (0.87) $ (1.11)
Discontinued operations ................................... 0.00 (0.41) 0.00 (1.17)
------------ ------------ ------------ ------------
Net loss per share .......................................... $ (0.29) $ (0.85) $ (0.87) $ (2.28)
------------ ------------ ------------ ------------
Dividends paid per share .................................... $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0375
============ ============ ============ ============
</TABLE>
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 1, 2000 APRIL 3, 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................................. $ 970 $ 1,486
Accounts receivable less allowance of $722 in 2000 and
$563 in 1999 ............................................. 30,482 40,095
Inventories ................................................ 35,569 48,447
Other current assets ....................................... 1,264 4,150
---------- ----------
Total current assets .............................. 68,285 94,178
Property, Plant and Equipment ................................ 169,009 253,728
Less allowance for depreciation ............................ (122,060) (179,120)
---------- ----------
49,949 74,608
Assets held for sale ......................................... 9,037 0
Deferred income taxes ........................................ 3,116 0
Other assets ................................................. 7,796 12,851
---------- ----------
Total assets ...................................... $ 135,183 $ 181,637
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................... $ 15,603 $ 17,953
Accrued liabilities ........................................ 8,145 7,446
Current portion of capital lease obligations ............... 398 372
Current portion of long-term debt .......................... 4,000 1,667
---------- ----------
Total current liabilities .......................... 28,146 27,438
Obligations under capital leases ............................. 666 1,084
Long-term debt ............................................... 64,824 74,508
Deferred income taxes ........................................ 0 4,907
Other liabilities ............................................ 1,152 2,642
Shareholders' Equity ......................................... 40,395 71,058
---------- ----------
Total liabilities and shareholders' equity ......... $ 135,183 $ 181,637
========== ==========
</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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THOMASTON MILLS INC. FOR THE NINE MONTHS ENDED APRIL 1,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUL-04-1999
<PERIOD-END> APR-01-2000
<CASH> 970
<SECURITIES> 0
<RECEIVABLES> 31,204
<ALLOWANCES> 722
<INVENTORY> 35,569
<CURRENT-ASSETS> 68,285
<PP&E> 169,009
<DEPRECIATION> 122,060
<TOTAL-ASSETS> 135,183
<CURRENT-LIABILITIES> 28,146
<BONDS> 0
0
0
<COMMON> 7,494
<OTHER-SE> 32,901
<TOTAL-LIABILITY-AND-EQUITY> 135,183
<SALES> 123,607
<TOTAL-REVENUES> 124,117
<CGS> 111,574
<TOTAL-COSTS> 111,574
<OTHER-EXPENSES> 11,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,628
<INCOME-PRETAX> (5,667)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,667)
<EPS-BASIC> (.87)
<EPS-DILUTED> (.87)
</TABLE>
