<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 September 30, 2000 Commission File No. 0-1915
THOMASTON MILLS, INC.
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GEORGIA 58-0460470
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (706) 647-7131.
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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 - September 30, 2000 and
July 1, 2000
Condensed consolidated statements of operations -- thirteen
weeks ended September 30, 2000 and thirteen weeks ended
October 2, 1999
Consolidated statements of cash flows - thirteen weeks ended
September 30, 2000 and thirteen weeks ended October 2, 1999
Notes to condensed consolidated financial statements
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
SIGNATURES
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
THOMASTON MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 July 1, 2000
------------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 1,081 $ 1,415
Accounts receivable, less allowance of
$706 at September 30, 2000 and $621 at July 1, 2000 22,615 29,218
Inventories--Note B 34,049 37,236
Other current assets 1,550 573
---------- ----------
TOTAL CURRENT ASSETS 59,295 68,442
PROPERTY, PLANT AND EQUIPMENT 171,476 170,600
Less allowance for depreciation 126,247 124,366
---------- ----------
45,229 46,234
Assets held for sale 5,431 5,628
Deferred income taxes 2,709 2,709
Other assets 7,149 8,398
---------- ----------
$ 119,813 $ 131,411
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 17,185 $ 19,857
Accrued liabilities 10,667 9,533
Current portion of long-term debt
and capital lease obligations 4,545 4,147
Revolving credit 28,280 34,525
---------- ----------
TOTAL CURRENT LIABILITIES 60,677 68,062
OBLIGATIONS UNDER CAPITAL LEASE -
less current portion 460 564
LONG-TERM DEBT, less current portion 29,228 29,876
OTHER LIABILITIES 1,631 1,489
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 10,766
Retained earnings 14,977 18,580
---------- ----------
33,237 36,840
Less treasury stock - at cost 5,420 5,420
---------- ----------
27,817 31,420
---------- ----------
$ 119,813 $ 131,411
========== ==========
</TABLE>
NOTE: The Balance Sheet at July 1, 2000 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
ENDED Ended
SEPTEMBER 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
Net sales $ 36,633 $ 40,724
Cost of sales 35,001 36,225
---------- ----------
Gross profit 1,632 4,499
Selling, general and administrative expenses 3,386 4,057
Other expense (income), net (35) (116)
---------- ----------
Operating profit (loss) (1,719) 558
Interest expense 2,154 2,068
Amortization of credit agreement fees 151 74
---------- ----------
Loss from continuing operations (4,024) (1,584)
Income (loss) from discontinued operations 421 (6)
---------- ----------
Net loss $ (3,603) $ (1,590)
========== ==========
Weighted Average Number of Shares - Basic and Diluted 6,540,046 6,540,046
Basic and diluted loss per share:
Continuing operations $ (0.62) $ (0.24)
Discontinued operations 0.07 (0.00)
---------- ----------
Net loss per share $ (0.55) $ (0.24)
========== ==========
</TABLE>
See accompanying notes
<PAGE> 5
THOMASTON MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
13 WEEKS 13 Weeks
ENDED Ended
SEPTEMBER 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,603) $ (1,590)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 2,221 2,493
Gains on sales of property, plant
and equipment 0 (18)
Changes in operating assets and liabilities:
Accounts receivable 6,603 6,057
Inventories 3,187 5,535
Other assets (69) 166
Assets held for sale 197 300
Accounts payable and accrued expenses (998) (4,128)
Reserve for discontinued operations 0 (5,276)
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,538 3,539
INVESTING ACTIVITIES
Purchases of property, plant and equipment (875) (562)
---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (875) (562)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term debt 226 5,836
Principal payments on revolving lines of
credit, long-term debt and capital lease obligations (7,223) (6,451)
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (6,997) (615)
---------- ----------
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (334) 2,362
Cash and cash equivalents at beginning
of period 1,415 353
---------- ----------
Cash and cash equivalents at end
of period $ 1,081 $ 2,715
========== ==========
</TABLE>
See accompanying notes
<PAGE> 6
THOMASTON MILLS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 three month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2001. Certain fiscal 2000 balances have been reclassified
to conform with the fiscal 2001 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 1, 2000.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
SEPTEMBER 30, 2000 July 1, 2000
------------------ ------------
<S> <C> <C>
Raw materials $ 3,522 $ 3,936
Work in process 16,101 18,946
Finished products 21,373 21,301
LIFO reserve (6,947) (6,947)
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$34,049 $37,236
======= =======
</TABLE>
NOTE C -- DISCONTINUED OPERATIONS
In June 1999, the Company made the decision to discontinue the denim and
industrial yarn operations which were unprofitable in recent years. These
operations have been treated as discontinued operations in the thirteen week
consolidated financial statements.
The Company finalized its estimate of the impact of its discontinued operations
on its employee benefit plans. The curtailment income of approximately $518,000
resulting from the discontinued operations is reflected in the results of
discontinued operations for the thirteen week period ended September 30, 2000.
The results of operations for the denim and industrial yarn businesses have been
classified as income (loss) from discontinued operations as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
13 WEEKS 13 Weeks
ENDED Ended
SEPTEMBER 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
Revenues $ 0 $ 0
Cost of sales (421) 6
------ ------
Gross profit (loss) 421 (6)
Other operating income (expenses), net 0 0
------ ------
Income (loss) from discontinued operations $ 421 $ (6)
====== ======
</TABLE>
<PAGE> 7
NOTE D -- NET 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
ENDED Ended
SEPTEMBER 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C>
Numerator:
Net income (loss) from continuing operations $ (4,024) $ (1,584)
---------- ----------
Numerator for basic and diluted earnings per share $ (4,024) $ (1,584)
---------- ----------
Denominator:
Denominator for basic earnings per share -
Weighted average shares 6,540,046 6,540,046
Dilutive effect of potential common shares -
Employee stock options N/A N/A
Warrants N/A N/A
---------- ----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 6,540,046 6,540,046
---------- ----------
Basic loss per share $ (0.62) $ (0.24)
---------- ----------
Diluted loss per share $ (0.62) $ (0.24)
---------- ----------
Potentially dilutive common shares related to
options and warrants outstanding:
Not considered in calculation due to net loss 733,545 551,810
---------- ----------
Not considered in calculation due to exercise
price of options exceeding average price of
Company's common stock 762,063 810,871
---------- ----------
</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
SEPTEMBER 30, 2000 October 2, 1999 SEPTEMBER 30, 2000 October 2, 1999
------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Reportable segments:
Consumer products $ 24,422 $ 27,381 $ (1,400) $ 244
Apparel fabrics 12,211 13,343 (319) 314
---------- ----------- --------- ---------
Segment total $ 36,633 $ 40,724 (1,719) 558
========== ===========
Interest expense 2,154 2,068
Other non-segment 151 74
--------- ---------
Consolidated (loss) from
continuing operations $ (4,024) $ (1,584)
========= =========
</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
September 30, 2000 includes assets held for sale in the amount of $4,280,000.
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 furnishings 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 completed a
personnel and operational realignment of these businesses which it believes will
improve their future profit margins.
RESULTS OF OPERATIONS
Sales from continuing operations for the first fiscal quarter ended September
30, 2000 were down 10% to $36,633,000 from first quarter sales last year of
$40,724,000. Sales in the Company's Consumer Products area were down as a result
of fewer orders being called out by the Company's retail customers. A weakness
in the demand for lighter-weight apparel fabrics and commission finishing also
contributed to the sales decline.
Cost of sales for the quarter just ended increased to 95.5% of sales compared to
89% of sales for the quarter ended October 2, 1999. During the first quarter of
fiscal year 2001, the Company selectively idled certain manufacturing facilities
in order to better match inventory levels with orders. This slowdown of
manufacturing resulted in decreased manufacturing capacity utilization and plant
productivity. Raw material prices have also increased during the quarter ended
September 30, 2000 as compared to raw material prices during the first quarter
of fiscal year 2000.
Gross profit for the first quarter of fiscal year 2001 was 4.5% of sales as
compared to 11% of sales for the first quarter of last year.
Selling, general and administrative expenses decreased to $3,386,000 from
$4,057,000 for the first quarter of last year. 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 (net) for the quarter ended September 30, 2000 was $35,000 compared
to $116,000 for the comparable period last year. Other income related to
miscellaneous equipment sales, royalties and interest earned on the Company's
short-term investments of cash.
Interest expense and amortization of credit agreement fees increased from
$2,142,000 during first quarter of fiscal year 2000 to $2,305,000 during first
quarter fiscal year 2001. The increase was the result of higher interest rates
and fees under the Company's various credit agreements. Total debt at September
30, 2000 was $61,655,000, down $8,523,000 from total debt at October 2, 1999 of
$70,178,000.
The Company has not recorded an income tax benefit as a result of its operating
loss carry forward position.
For the first quarter of fiscal year 2001, the Company sustained a loss from
continuing operations of $4,024,000 , or $ .62 per basic and diluted share, as
compared to a loss of $1,584,000, or $0.24 per basic and diluted share for the
first quarter of fiscal year 2000.
Discontinued operations income was $421,000 for the first quarter of 2001 and
included curtailment income from its employee benefit plans. The Company
recognized curtailment income of approximately $518,000. This income resulted
from finalizing the calculations of the impact of the terminated employees from
discontinued operations upon the benefit plans obligations.
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided cash of $7,538,000 for the quarter ended September
30, 2000 and $3,539,000 for the quarter ended October 2, 1999. Net cash used in
investing activities amounted to $875,000 in capital expenditures in the first
quarter of fiscal year 2001 compared to $562,000 in capital expenditures in the
first quarter of fiscal year 2000. During the first quarter of fiscal year 2001,
financing activities used cash of $6,997,000 as a result of net repayments of
indebtedness. During first quarter of fiscal year 2000, the financing activities
used cash in the amount of $615,000.
The Company's Loan and Security Agreement (the Loan Agreement) 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 September 30, 2000, $28,280,000 was outstanding
and $1,996,000 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 through July 27, 2004 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 27, 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
under the previous Credit and Security Agreement 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 monthly 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.
On May 31, 2000, the Company entered into a Promissory Note with a bank in the
amount of $10,000,000. Interest is paid monthly at a rate equal to the Prime
Rate plus 1.5%. Borrowings under the Promissory Note are payable monthly
beginning July 1, 2000 through May 31, 2020, unless repaid prior to that date.
Borrowings under this Promissory Note were used to reduce the amount outstanding
under the Credit Agreement by $9,043,000 and to repay $525,000 of the balance
outstanding under the Loan Agreement.
Borrowings under the Loan Agreement and Credit Agreement and Promissory Note are
secured by all assets and properties of the Company. The Loan Agreement, the
Credit Agreement and the Promissory Note contain various restrictions relating
to, among other things, maintaining a certain level of tangible net worth, a
minimum current ratio, a minimum debt to equity ratio, attainment of certain
amounts of earnings before interest, taxes, depreciation and amortization and
restrictions on capital expenditures.
On September 12, 2000, the Company obtained waivers for certain financial
covenants as to which the Company was not in compliance as of May 31, 2000 and
July 1, 2000. On September 12, 2000, the Company also obtained an amendment that
established certain financial covenants covering the period ending June 30,
2001. At September 30, 2000, the Company was in compliance with these financial
covenants. The Company is subject to changing business and economic conditions
(many of which are beyond the Company's control), including a general
deterioration in the domestic textile industry, which may affect its ability to
comply with the covenants in the near term and there can be no assurance of such
compliance. If the Company is unable to comply with these covenants, there can
be no assurance that the Company's creditors will provide any additional waivers
or amendments with respect to any such non-compliance.
A breach of any of the covenants contained in the Company's Loan Agreement,
Credit Agreement or Promissory Note could result in a default or event of
default under the terms of these credit facilities. Upon the occurrence of an
event of default, the Company's lenders would not be obligated to make
additional advances under the credit facility that is in default; would be
entitled to declare all amounts outstanding under the credit facilities in
default, including accrued interest or other obligations, to be immediately due
and payable; would have the rights to block payment on substantially all of the
Company's other long-term debt; would be entitled to proceed against the
collateral granted to them to secure the applicable debt. In these
circumstances, cross defaults could occur making
<PAGE> 11
substantially all of the Company's other long-term debt due, in which event the
Company cannot be certain that its assets would be sufficient to repay in full
all of its long-term debt.
As a result of the covenants described above, the Company's ability to respond
to changing business and economic conditions and to secure additional financing,
if needed, is significantly restricted.
Based upon current and anticipated levels of operations, management anticipates
that its cash flow from operations, together with amounts available under its
current borrowings, will be adequate to meet its anticipated cash requirements
in the foreseeable future. However, the Company's cash requirements during the
month of December are traditionally higher than those of other months due to
various factors, including the payment of vacation and holiday payrolls and the
payment of property taxes. The Company also expects a continuing slowdown in the
retail market during the December quarter. In the event that cash flows and
available borrowings are not sufficient to meet future cash requirements, the
Company may be required to seek additional or alternative financing. There can
be no assurances that additional financing would be available or, if available,
offered on terms acceptable to the Company.
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 $5,431,000 could be realized from
the sale of these assets, including $4,280,000 from the assets related to
discontinued operations. However, actual results could differ significantly from
these estimates. In October 2000, the Company completed the sale of its Pike
facility with the proceeds of approximately $1.4 million being used to reduce
the amount outstanding under the Credit Agreement.
INVENTORIES
Inventories at September 30, 2000 and October 2, 1999 were $34,049,000 and
$34,837,000, respectively. Total inventory turns on an average annualized rate
were 4.1 times for first quarter 2001 and 4.2 times for first quarter 2000.
NEW ACCOUNTING STANDARDS
The Company has adopted Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and for Hedging Activities," effective in the first
quarter of fiscal year 2001. The adoption of SFAS No. 133 did not affect results
of operations or financial position.
RAW MATERIALS
The Company's primary raw material is cotton. As a commodity, cotton is traded
on established markets and periodically experiences price fluctuations. The
Company monitors the cotton 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.
<PAGE> 12
INTERNATIONAL TRADE
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. China is currently negotiating its membership application with the WTO,
and if the application is accepted and 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.
The recently enacted amendment to the Caribbean Basin Economic Recovery Act
accords, for a specified transition period, the same preferential tariff and
quota treatment given certain textile and apparel articles imported from North
American Free Trade Agreement (NAFTA) countries to such articles that are
imported from certain Caribbean countries. In order to qualify for the
preferential tariff and quota treatment, however, apparel goods that are shipped
back to the United States must be sewn in eligible Caribbean countries using U.
S. yarn and fabrics. The Company believes that this new legislation will allow
it to compete favorably with Asian countries for market share in the apparel
area.
RECENT DEVELOPMENTS
The Company's Class A Common Stock has not maintained the minimum bid price
criteria set forth by the Marketplace Rules of the Nasdaq SmallCap Market (the
"Rules"), and the Company's Class B Common Stock has not maintained the minimum
market value of public float criteria set forth by the Rules. As a result, The
Nasdaq Stock Market ("Nasdaq") has informed the Company that if the Company is
unable to regain compliance with the Rules on or before November 16, 2000, each
of the Company's Class A or Class B Common Stock which continues to be in
non-compliance as of that date will be delisted at the opening of business on
November 20, 2000. As the trading prices of the Company's Class A and Class B
Common Stock are beyond the Company's control, the Company cannot assure that
either of its Class A or Class B Common Stock will be able to regain compliance
with the Rules prior to the deadline set forth by Nasdaq. If the Company's
Common Stock is delisted from the Nasdaq SmallCap Market, the Company's shares
will no longer be traded on the SmallCap Market, but will instead be traded on
the over-the-counter bulletin board system.
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.
<PAGE> 13
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 1, 2000. There have
been no significant developments with respect to derivatives or exposure to
market risk.
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As of September 30, 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) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The election of directors and selection of Ernst & Young
LLP as the Company's independent auditors were approved
by the holders of the Company's Class B Common Stock at
the Annual Meeting of Shareholders held on October 5,
2000. Set forth below are the results of the voting:
<TABLE>
<CAPTION>
VOTES
FOR VOTES AGAINST WITHHELD
----------------- ----------------- -----------------
<S> <C> <C> <C>
ELECTION OF DIRECTORS
Thomas D. Adams, Jr. 1,403,663 34,270 30,590
C. Ronald Barfield 1,439,433 0 29,090
Archie H. Davis 1,437,933 0 30,590
H. Stewart Davis 1,439,433 0 29,090
George H. Hightower 1,439,433 0 29,090
George H. Hightower, Jr. 1,439,433 0 29,090
Neil H. Hightower 1,439,433 0 29,090
Rosser R. Raines 1,439,433 0 29,090
Dr. Jerry M. Williamson 1,437,933 0 30,590
Dom H. Wyant 1,439,433 0 29,090
SELECTION OF ERNST & YOUNG LLP 1,468,468 0 55
</TABLE>
ITEM 5. OTHER INFORMATION
(a) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Second Amendment to Amended and Restated
Credit and Security Agreement, dated as of
September 1, 2000, to the Amended and
Restated Credit and Security Agreement,
dated as of July 27, 1999, among the
Company, its subsidiary, Bank of America,
N.A., SunTrust Bank, Atlanta and Wachovia
Bank, N.A., as lenders; SunTrust Bank,
Atlanta, as agent; Wachovia Bank, N.A., as
agent; and SunTrust Equitable Securities
Corporation, as arranger and lead manager,
incorporated by reference to Exhibit 10.10.1
of Registrant's Annual Report on Form 10-K
for the fiscal year ended July 1, 2000 (the
"2000 10-K").
<PAGE> 15
10.2 Fifth Waiver and Amendment dated as of
September 12, 2000 and Sixth Waiver and
Amendment dated as of September 12, 2000 to
the Loan and Security Agreement dated as of
July 27, 1999 among Thomaston Mills, Inc.,
as Borrower, the lenders party thereto,
Foothill Capital Corporation and General
Electric Capital Corporation, as Co-Agents,
and Foothill Capital Corporation, as Agent,
each incorporated by reference to Exhibit
10.12.1 of the 2000 10-K.
10.3 Seventh Waiver and Amendment dated as of
September 29, 2000 to the Loan and Security
Agreement, dated as of July 27, 1999 among
the Company, as Borrower, the lenders party
thereto, Foothill Capital Corporation and
General Electric Capital Corporation, as
Co-Agents, and Foothill Capital Corporation,
as Agent.
13.1 Quarterly Report to Shareholders dated
November 3, 2000.
27.0 Financial Data Schedule (for SEC purposes
only)
(b) The Company filed a report on Form 8-K on July 17,
2000 relating to the refinancing of a portion of the
Company's existing long term debt.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Thomaston Mills, Inc.
/s/ Neil H. Hightower
----------------------
Neil H. Hightower
President and Chief
Date: November 3, 2000 Executive Officer
------------------
/s/ A. William Ott
----------------------
A. William Ott
Treasurer and Chief
Date: November 3, 2000 Financial Officer
------------------
