-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K4+4tXKmG9m6K2ul50/zSb+pgDmt48Wsiua3vo567Qsr2fDDNnIPSID4rdbBuRk8 twv2AO4j4NOKHQ3gqqQWGA== 0000950144-01-003132.txt : 20010228 0000950144-01-003132.hdr.sgml : 20010228 ACCESSION NUMBER: 0000950144-01-003132 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOMASTON MILLS INC CENTRAL INDEX KEY: 0000097931 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 580460470 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-01915 FILM NUMBER: 1554810 BUSINESS ADDRESS: STREET 1: 115 E MAIN ST STREET 2: P O BOX 311 CITY: THOMASTON STATE: GA ZIP: 30286 BUSINESS PHONE: 4046477131 MAIL ADDRESS: STREET 1: PO BOX 311 STREET 2: 115 EAST MAIN STREET CITY: THOMASTON STATE: GA ZIP: 30286-0311 FORMER COMPANY: FORMER CONFORMED NAME: THOMASTON COTTON MILLS DATE OF NAME CHANGE: 19790610 10-Q/A 1 g67296e10-qa.txt THOMASTON MILLS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT NO. 1) QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 30, 2000 Commission File No. 0-1915 THOMASTON MILLS, INC. - -------------------------------------------------------------------------------- GEORGIA 58-0460470 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 115 East Main Street, P.O. Box 311, Thomaston, Georgia 30286 - ------------------------------------------------------------------------------- (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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 INDEX THOMASTON MILLS, INC. AND SUBSIDIARY PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - December 30, 2000 and July 1, 2000 Condensed consolidated statements of operations - thirteen weeks ended December 30, 2000 and thirteen weeks ended January 1, 2000 and twenty-six weeks ended December 30, 2000 and twenty-six weeks ended January 1, 2000 Consolidated statements of cash flows - twenty-six weeks ended December 30, 2000 and twenty-six weeks ended January 1, 2000 Notes to condensed consolidated financial statements - December 30, 2000 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K 2 3 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) THOMASTON MILLS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
DECEMBER 30, 2000 ----------------- July 1, 2000 (UNAUDITED) (Note A) ASSETS CURRENT ASSETS Cash & cash equivalents $ 799 $ 1,415 Accounts receivable, less allowance of $928 at December 30, 2000 and $621 at July 1, 2000 23,943 29,218 Inventories--Note C 25,175 37,236 Other current assets 1,756 604 -------- -------- TOTAL CURRENT ASSETS 51,673 68,473 PROPERTY, PLANT AND EQUIPMENT 171,852 170,600 Less allowance for depreciation 128,129 124,366 -------- -------- 43,723 46,234 Assets held for sale 3,835 5,628 Deferred income taxes 2,645 2,709 Other assets 6,646 8,367 -------- -------- $108,522 $131,411 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 16,638 $ 19,857 Accrued liabilities 9,867 9,533 Current portion of long-term debt, 4,147 4,147 Long-term debt callable under covenant provisions 26,780 0 Revolving credit 27,066 34,525 -------- -------- TOTAL CURRENT LIABILITIES 84,498 68,062 OBLIGATIONS UNDER CAPITAL LEASE - less current portion 355 564 LONG-TERM DEBT - less $4,147 in current maturities and $26,780 callable classified as current at December 30, 2000 0 29,876 OTHER LIABILITIES 1,784 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 9,045 18,580 -------- -------- 27,305 36,840 Less treasury stock - at cost 5,420 5,420 -------- -------- 21,885 31,420 -------- -------- $108,522 $131,411 ======== ========
NOTE: The Balance Sheet at July 1, 2000 has been derived from the Audited Financial Statements at that date. See Notes to Condensed Consolidated Financial Statements. 3 4 THOMASTON MILLS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in Thousands except Share and Per Share Data)
13 WEEKS 13 Weeks 26 WEEKS 26 Weeks ENDED Ended ENDED Ended DECEMBER 30, 2000 January 1, 2000 DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- ----------------- --------------- Net sales $ 37,152 $ 37,195 $ 73,785 $ 77,919 Cost of sales 37,469 33,348 72,470 69,573 ----------- ----------- ----------- ----------- Gross profit (317) 3,847 1,315 8,346 Selling, general and administrative expenses 3,379 3,741 6,765 7,798 Other expense (income), net (49) (289) (84) (405) ----------- ----------- ----------- ----------- Operating profit (loss) (3,647) 395 (5,366) 953 Interest expense 2,002 2,241 4,156 4,309 Amortization of credit agreement fees 164 100 315 174 ----------- ----------- ----------- ----------- Loss from continuing operations before income tax provision (5,813) (1,946) (9,837) (3,530) Provision for income taxes 64 0 64 0 ----------- ----------- ----------- ----------- Loss from continuing operations (5,877) (1,946) (9,901) (3,530) Income (loss) from discontinued operations (55) (238) 366 (244) ----------- ----------- ----------- ----------- Net loss $ (5,932) $ (2,184) $ (9,535) $ (3,774) =========== =========== =========== =========== 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 $ (0.90) $ (0.30) $ (1.52) $ (0.54) Discontinued operations (0.01) (0.04) 0.06 (0.04) ----------- ----------- ----------- ----------- Net loss per share $ (0.91) $ (0.34) $ (1.46) $ (0.58) =========== =========== =========== ===========
See accompanying notes 4 5 THOMASTON MILLS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
26 WEEKS 26 Weeks ENDED Ended DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- OPERATING ACTIVITIES Net loss $ (9,535) $ (3,774) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 4,461 5,047 Gains on sales of property, plant and equipment (9) (266) Changes in operating assets and liabilities: Accounts receivable 5,275 9,887 Inventories 12,061 3,047 Other assets (65) (429) Assets held for sale 1,793 1,029 Accounts payable and accrued expenses (2,590) (3,604) Reserve for discontinued operations 0 (5,533) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,391 5,404 INVESTING ACTIVITIES Purchases of property, plant and equipment (1,252) (926) Proceeds from sale of property, plant and equipment 9 237 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,243) (689) FINANCING ACTIVITIES Proceeds from revolving lines of credit and long-term debt 447 6,936 Principal payments on revolving lines of credit, long-term debt and capital lease obligations (11,211) (11,712) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (10,764) (4,776) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (616) (61) Cash and cash equivalents at beginning of period 1,415 353 -------- -------- Cash and cash equivalents at end of period $ 799 $ 292 ======== ========
See accompanying notes 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 2000 NOTE A -- MANAGEMENT PLANS AND BASIS OF PRESENTATION The Company reported a net loss of $9,535,000 and cash on hand decreased $616,000 for the six months ended December 30, 2000. This compares to a net loss of $3,774,000 in the six months ended January 1, 2000. Additionally, on February 13, 2001, the Company received waivers from its lenders for certain financial and other covenants as to which the Company was not in compliance as of November 25, 2000 and December 30, 2000. Because a precondition to the effectiveness of the February 13, 2001 waivers and amendments (relating to the payment of fees to the Company's lenders) remained unsatisfied as of February 22, 2001, the lenders under the Loan Agreement notified the Company that (1) specified defaults had occurred and continued to occur under the Loan Agreement; (2) any further advances under the Loan Agreement would only be made in the lenders' discretion; (3) until further notice, all obligations outstanding under the Loan Agreement would bear interest at a default rate from February 22, 2001; and (4) the lenders were reserving all of their rights to assert and exercise remedies with respect to any default in connection with the Loan Agreement. In addition to strict compliance with the Loan Agreement, the lenders have required that the Company provide to the lenders cash flow projections and other specified information, and engage no later than March 7, 2001 a "crisis manager" acceptable to the lenders. As a result of the defaults under the Loan Agreement, the Company has classified all of its indebtedness as a short-term obligation on the accompanying Balance Sheet as of December 30, 2000. As a result of the occurrence of the foregoing events of default, the lenders under the Company's other credit facilities are not obligated to make additional advances; are entitled to declare all amounts outstanding under the credit facilities in default, including accrued interest or other obligations, to be immediately due and payable; have the right to block payments on substantially all of the Company's other long-term debt; and are entitled to proceed against the collateral granted to them to secure the applicable debt. Cross defaults under all of the Company's credit facilities have been triggered such that substantially all of the Company's other long-term debt could be declared immediately due and payable. In this event, the Company may not have sufficient assets to repay in full all of its long-term debt. As a result of the operating results and the covenant defaults described above, the Company's ability to respond to changing business and economic conditions is significantly restricted and its ability to secure additional financing is unlikely. Management is unable to conclude that the Company's cash flows from operations will be adequate to meet its anticipated cash requirements for the foreseeable future. Management is exploring additional sources of capital and seeking other accommodations from its lenders and suppliers to aid its short-term cash requirements. However, there can be no assurance that other sources of capital will be available or that the Company's lenders and suppliers will accommodate the Company, or, if such alternate sources of capital are available or such accommodations are offered, that they will be on terms acceptable to the Company. If the Company is unable to obtain additional or 6 7 alternative financing or financial accommodations from its lenders and suppliers, there can be no assurance that the Company will be able to continue to meet its cash requirements, which may result in materially adverse consequences on the Company's business, financial conditions or operations. Under such circumstances, the Company would be required to substantially reduce or discontinue its operations, file for bankruptcy or both. In the fourth quarter of fiscal 1999, the Company began a comprehensive restructuring of the Company's operations and businesses with a view towards enhancing and focusing on the Company's operations that 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 was in the best interest of the Company. 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 has completed a personnel and operational realignment of these businesses to improve their future profit margins. Also, at the request of its lenders, the Company engaged consultants in January of 2001 to provide consulting services relating to the Company's turnaround and cost reduction initiatives. The Company believes that the initiatives discussed above will result in improved margins and future profitability; however, such plans require management to make estimates and assumptions regarding future operations. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern that contemplates continuity of operations and realization of assets and liquidation of liabilities in the normal course of business. As a result of the Company's debt structure, operating results and current economic conditions, realization of assets and liquidation of liabilities are subject to significant uncertainty. These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern. Also, the Company's 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 and twenty-six weeks ended December 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. 7 8 NOTE B -- ACCOUNTING POLICIES ADOPTED IN CURRENT FISCAL YEAR In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 draws upon the existing accounting rules and explains those rules, by analogy, to other transactions that the existing rules do not specifically address. SAB 101 is effective for all of the Company's fiscal quarters of fiscal year 2001. Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which the Company adopted effective July 1, 2000, requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. The adoptions of SAB 101, effective October 1, 2000, and SFAS 133, effective July 1, 2000, did not have a material effect on the Company's financial position or operating results. NOTE C -- INVENTORIES The components of inventory consist of the following: (Dollars in Thousands) DECEMBER 30, 2000 July 1, 2000 ----------------- ------------ Raw materials $ 3,475 $ 3,936 Work in process 13,302 18,946 Finished products 15,180 21,301 LIFO reserve (6,782) (6,947) ------- ------- $25,175 $37,236 ======= ======= 8 9 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:
(Dollars in Thousands except Share and Per Share Data) 13 WEEKS 13 Weeks 26 WEEKS 26 Weeks ENDED Ended ENDED Ended DECEMBER 30, 2000 January 1, 2000 DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- ----------------- --------------- Numerator for basic and diluted earnings per share $ (5,877) $ (1,946) $ (9,901) $ (3,530) ----------- ------------ ----------- ------------ Denominator: Denominator for basic earnings per share - Weighted average shares 6,540,046 6,540,046 6,540,046 6,540,046 Basic and diluted loss per share $ (0.90) $ (0.30) $ (1.52) $ (0.54) ----------- ------------ ----------- ------------ Potentially dilutive common shares related to options and warrants outstanding: Not considered in calculation due to net loss 730,618 736,956 732,082 644,383 ---------- ----------- ---------- ----------- Not considered in calculation due to exercise price of options exceeding average price of Company's common stock 747,613 710,750 754,730 760,632 ---------- ----------- ---------- -----------
9 10 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.
(Dollars in Thousands) NET SALES PROFIT PERFORMANCE 13 WEEKS 13 Weeks 13 WEEKS 13 Weeks ENDED Ended ENDED Ended DECEMBER 30, 2000 January 1, 2000 DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- ----------------- --------------- Reportable segments: Consumer products $ 25,323 $ 21,927 $ (3,000) $ (684) Apparel fabrics 11,829 15,268 (647) 1,079 ---------- ----------- ----------- ----------- Segment total $ 37,152 $ 37,195 (3,647) 395 ========== =========== Interest expense 2,002 2,241 Other non-segment 164 100 ---------- ----------- Consolidated (loss) before taxes from continuing operations $ (5,813) $ (1,946) =========== ============ NET SALES PROFIT PERFORMANCE 26 WEEKS 26 Weeks 26 WEEKS 26 Weeks ENDED Ended ENDED Ended DECEMBER 30, 2000 January 1, 2000 DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- ----------------- --------------- Reportable segments: Consumer products $ 49,745 $ 49,308 $ (4,400) $ (440) Apparel fabrics 24,040 28,611 (966) 1,393 ---------- ----------- ----------- ----------- Segment total $ 73,785 $ 77,919 (5,366) 953 ========== =========== Interest expense 4,156 4,309 Other non-segment 315 174 ---------- ----------- Consolidated (loss) before taxes from continuing operations $ (9,837) $ (3,530) =========== ============
10 11 ITEM 2. 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 December 30, 2000 includes assets held for sale in the amount of $2,684,000. 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 second fiscal quarter ended December 30, 2000 were $37,152,000 compared to sales of $37,195,000 for the second fiscal quarter last year. For the twenty-six weeks ended December 30, 2000, sales were down 5.3% to $73,785,000 when compared to sales of $77,919,000 for the twenty-six weeks ended January 1, 2000. Sales in the Consumer Products area of the Company were up slightly to $49,745,000 compared to sales of $49,308,000 for the twenty-six weeks ended January 1, 2000. 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 $28,611,000 for the twenty-six weeks ended January 1, 2000 to $24,040,000 for the twenty-six weeks ended December 30, 2000. Cost of sales for the quarter just ended increased to 100.9% of sales or $37,469,000. For the second quarter fiscal year 2000, cost of sales were 89.7% of sales or $33,348,000. For the twenty-six weeks ended December 30, 2000, cost of sales increased to 98.2% of sales or $72,470,000 compared to cost of sales of 89.3% of sales or $69,573,000 for the twenty-six weeks ended January 1, 2000. During the twenty-six weeks ended December 30, 2000, the Company selectively idled certain manufacturing facilities in order to better match inventory levels with orders. Inventories have been reduced $12,061,000, or 32.4%, during the twenty-six weeks ended December 30, 2000. However, this slowdown of manufacturing also resulted in decreased manufacturing capacity utilization and plant productivity and increased volume related negative operating variances. Raw material prices have also increased during the twenty-six weeks ended December 30, 2000 as compared to raw material prices during the twenty-six weeks ended January 1, 2000. Gross profit for the twenty-six weeks ended December 30, 2000 was 1.8% of sales compared to 10.7% of sales for the twenty-six weeks ended January 1, 2000. 11 12 Selling, general and administrative expenses were 9.1% of sales for the thirteen weeks and 9.2% of sales for the twenty-six weeks ended December 30, 2000. For the thirteen weeks and twenty-six weeks ended January 1, 2000, selling, general and administrative expenses were 10.1% and 10.0% of sales, respectively. 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 December 30, 2000 was $49,000 and $84,000, respectively, compared to $289,000 and $405,000 for the comparable periods last year. Other income relates 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 totaled $2,166,000 during second quarter fiscal year 2001 and $4,471,000 for the twenty-six weeks ended December 30, 2000. For the quarter and twenty-six weeks ended January 1, 2000, interest expense and amortization of credit agreement fees totaled $2,341,000 and $4,483,000, respectively. This decrease was the result of lower borrowings under the Company's various credit agreements. Excluding capitalized leases, total debt at December 30, 2000 was $57,993,000, down $10,555,000 from total debt at July 1, 2000 of $68,548,000. Although the Company recorded a pre-tax loss from continuing operations for the second quarter of fiscal year 2001, an income tax expense of $64,000 was also recorded during this quarter. This expense is the result of a change in deferred income taxes valuation allowance. During the twenty-six weeks ended January 1, 2000, the Company did not record an income tax benefit as a result of its operating loss carry forward position. For the second quarter fiscal year 2001, the Company sustained a loss from continuing operations of $5,877,000 or $ .90 per basic and diluted share as compared to a second quarter fiscal year 2000 loss from continuing operations of $1,946,000 or $ .30 per basic and diluted share. For the twenty-six weeks ended December 30, 2000, the Company sustained a loss from continuing operations of $9,901,000 or $1.52 per basic and diluted share as compared to a loss from continuing operations of $3,530,000 or $ .54 per basic and diluted share for the twenty-six weeks ended January 1, 2000. Discontinued operations income was $366,000 for the twenty-six weeks ended December 30, 2000 and included curtailment income from the Company's employee benefit plans. The Company recognized curtailment income of approximately $518,000 during the first quarter of 2001 that resulted from finalizing the calculations of the impact of the terminated employees from discontinued operations upon the benefit plans obligations. For the twenty-six weeks ended January 1, 2000, discontinued operations loss was $244,000, primarily as a result of shutdown costs associated with closed facilities. LIQUIDITY AND CAPITAL RESOURCES Operating activities provided cash of $11,391,000 during the twenty-six weeks ended December 30, 2000. During the twenty-six weeks ended January 1, 2000, operating activities provided cash 12 13 of $5,404,000. Net cash used in investing activities amounted to $1,243,000 during the first half of fiscal 2001 compared to $689,000 used in the first half of fiscal 2000. Capital expenditures are closely monitored as a result of the Company's realignment of its operations. Financing activities used cash of $10,764,000 during the first half of fiscal year 2001 as a result of net repayments of indebtedness. During the first half of fiscal year 2000, financing activities used funds of $4,776,000. 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 December 30, 2000, $27,066,000 was outstanding and $1,200,000 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. The revolving advances are reduced by collections made through a lock box arrangement required under the terms and conditions of 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 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. 13 14 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. The Company paid a portion of its real property tax obligations due on December 27, 2000. As a result, the Company is subject to interest on the unpaid amount of these real property taxes. In addition to interest charges, any property taxes remaining unpaid after March 27, 2001, will be subject to a late payment penalty. If the Company does not pay in full its real property tax obligations, the Company's applicable real properties may become encumbered by tax liens. At the request of its lenders, the Company engaged in January of 2001 the firm of Arthur Andersen to provide consulting services relating to the Company's turnaround and cost reduction initiatives. Arthur Andersen has reported its findings and recommendations to the Company's management, and at a recent meeting of the board of directors, the Company's directors decided to implement some of these recommendations by accepting the resignations of Neil H. Hightower, President and Chief Executive Officer of the Company, George H. Hightower, Jr., Executive Vice President and President of the Apparel Fabrics Division, and H. Stewart Davis, Executive Vice President and President of the Consumer Products Division. The board also elected A. William Ott as the acting President and Chief Executive Officer of the Company. Mr. Hightower, Mr. Hightower, Jr. and Mr. Davis continue to serve as directors of the Company. The Company's management is studying other recommendations contained in Arthur Andersen's report in the context of the Company's default on its credit facilities and its discussions with its lenders. DEFAULTS ON CREDIT FACILITIES On February 13, 2001, the Company received waivers executed by its lenders relating to certain financial and other covenants as to which the Company was not in compliance as of December 30, 2000. Because a precondition to the effectiveness of the February 13, 2001 waivers and amendments (relating to the payment of fees to the Company's lenders) remained unsatisfied as of February 22, 2001, the lenders under the Loan Agreement notified the Company that (1) specified defaults had occurred and continued to occur under the Loan Agreement; (2) any further advances under the Loan Agreement would only be made in the lenders' discretion; (3) until further notice, all obligations outstanding under the Loan Agreement would bear interest at a default rate from February 22, 2001; and (4) the lenders were reserving all of their rights to assert and exercise remedies with respect to any default in connection with the Loan Agreement. In addition to strict compliance with the Loan Agreement, the lenders have required that the Company provide to the lenders cash flow projections and other specified information, and engage no later than March 7, 2001 a "crisis manager" acceptable to the lenders. As a result of the defaults under the Loan Agreement, the Company has classified all of its indebtedness as a short-term obligation on the Company's balance sheet as of December 30, 2000. As a result of the occurrence of the foregoing events of default, the lenders under the Company's other credit facilities are not obligated to make additional advances; are entitled to declare all amounts outstanding under the credit facilities in default, including accrued interest or other obligations, to be immediately due and payable; have the right to block payments on substantially all of the Company's other long-term debt; and are entitled to proceed against the collateral granted to them to secure the applicable debt. Cross defaults under all of the 14 15 Company's credit facilities have been triggered such that substantially all of the Company's other long-term debt could be declared immediately due and payable. In this event, the Company may not have sufficient assets to repay in full all of its long-term debt. As a result of the defaults described above, the Company's ability to respond to changing business and economic conditions and to secure additional financing is unlikely. Management is unable to conclude that the Company's cash flow from operations will be adequate to meet its anticipated cash requirements for the foreseeable future. Management is exploring additional sources of capital and seeking other accommodations from its lenders and suppliers to aid its short-term cash requirements. However, there can be no assurance that other sources of capital will be available or that the Company's lenders and suppliers will accommodate the Company, or, if such alternate sources of capital are available or such accommodations are offered, that they will be on terms acceptable to the Company. If the Company is unable to obtain additional or alternative financing or financial accommodations from its lenders and suppliers, there can be no assurance that the Company will be able to continue to meet its cash requirements, which may result in materially adverse consequences on the Company's business, financial conditions or operations. Under such circumstances, the Company would be required to substantially reduce or discontinue its operations, file for bankruptcy or both. 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 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 $3,835,000 could be realized from the sale of these assets, including $2,684,000 from the assets related to discontinued operations. However, actual results could differ significantly from these estimates. During the twenty-six weeks ended December 30, 2000, the Company sold $1,596,000 of assets held for sale and used the proceeds to reduce outstanding term loan obligations. INVENTORIES Inventories at December 30, 2000 and July 1, 2000 were $25,175,000 and $37,236,000, respectively. Improvements in supply-chain inventory control systems, the selective idling of certain manufacturing facilities and the selling off of inventories associated with discontinued operations have resulted in decreased inventory levels at December 30, 2000 as compared to inventory levels at July 1, 2000. Total inventory turns on an average annualized rate were 5.7 15 16 times for the first six months of fiscal 2001 as compared to 3.7 times for the first six months of fiscal 2000. 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. 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, the least import-sensitive products are now quota-free, and from now until 2005, products which will have more of an effect on the U. S. market will be on the phase-out schedule. 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. 16 17 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 did not maintain 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 did not maintain the minimum market value of public float criteria set forth by the Rules. As a result, the Nasdaq Stock Market ("Nasdaq") delisted the Company's Class A and Class B Common Stock on December 4, 2000. As a result of the delisting, the Company's shares are no longer traded on the SmallCap Market, but instead are 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. 17 18 PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K On December 4, 2000, the Company's Class A and Class B Common Stock began trading on the Over the Counter Bulletin Board. The Common Stocks had previously traded on the Nasdaq Smallcap Market, but no longer met certain of the listing criteria, including the minimum public float requirement. (a) Exhibits: 4.1 Notice of Existing Defaults and Reservations of Rights, dated as of February 22, 2001, from Foothill Capital Corporation, General Electric Capital Corporation and Back Bay Capital Funding LLC to Thomaston Mills, Inc. 10.1* Eighth Waiver and Amendment, dated as of February 13, 2001, to the Loan and Security Agreement dated as of July 27, 1999 among the Company, as Borrower, the lender parties thereto, Foothill Capital Corporation and General Electric Capital Corporation, as Co-Agents, and Foothill Capital Corporation. 10.2* Fourth Waiver, dated February 13, 2001, 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. 13.1* Quarterly Report to Shareholders dated February 13, 2001 (b) The Company did not file any reports on Form 8-K during the three months ended December 30, 2000. ---------------------- * Previously filed 18 19 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/ A. William Ott ------------------- A. William Ott President and Chief Date: February 26, 2001 Executive Officer /s/ A. William Ott ------------------- A. William Ott Treasurer and Chief Date: February 26, 2001 Financial Officer 19 20 EXHIBIT INDEX DOCUMENT NUMBER AND DESCRIPTION 4.1 Notice of Existing Defaults and Reservations of Rights, dated as of February 22, 2001, from Foothill Capital Corporation, General Electric Capital Corporation and Back Bay Capital Funding LLC to Thomaston Mills, Inc. 20 EX-4.1 2 g67296ex4-1.txt NOTICE OF EXISTING DEFAULTS 1 EXHIBIT 4.1 February 22, 2001 VIA TELEFAX AND OVERNIGHT DELIVERY - ---------------------------------- THOMASTON MILLS, INC. 115 East Main Street Thomaston, Georgia 30286 Attention: Mr. Bill Ott Re: 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, as modified and amended by that certain Waiver and Consent dated as of September 16, 1999, as further modified and amended by that certain Second Waiver and Amendment dated as of December 31, 1999, as further modified and amended by that certain Third Waiver and Amendment dated as of February 9, 2000, as further modified and amended by that certain Fourth Waiver and Amendment dated as of May 31, 2000, as further modified and amended by that certain Fifth Waiver and Amendment dated as of September 12, 2000, as further modified and amended by that certain Sixth Waiver and Amendment dated as of September 12, 2000, as further modified and amended by that certain Seventh Waiver and Amendment dated as of September 29, 2000 (the "Loan Agreement'; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement) Ladies and Gentlemen: With respect to the above Loan Agreement, and specifically, that certain Eighth Waiver and Amendment thereto dated as of February 13, 2001 (the "Eighth Waiver and Amendment"), you are hereby notified that certain preconditions to the effectiveness of such Eighth Waiver and Amendment remain unsatisfied at this time. As a result, certain Defaults and Events of Default referenced and described more fully therein remain outstanding and continuing at this time. Please be further advised that one or more additional Defaults or Events of Default have occurred and continue to occur 2 under the Loan Agreement and the other Loan Documents, including but not limited to (a) the occurrence of an Overadvance which has not been paid as required by Sections 2.5(b) and 2.6 of the Loan Agreement and (b) the Borrower's failure to pay personal property taxes, as required by Section 8.8 of the Loan Agreement (collectively, the "Events of Default"). As a result of the Events of Default, the Agent and Co-Agents on behalf of the Lenders have a right to accelerate and make demand for payment of Obligations due and owing and outstanding under the Loan Agreement, to terminate the credit facility, and to cease making Advances to the Borrower. At this time, the Agent and Co-Agents on behalf of the Lenders are not making demand for payment of the Obligations (other than the payment of the Overadvance which is to be paid in accordance with Section 2.6 of the Loan Agreement) under the Loan Agreement or otherwise accelerating such claims, however, any Advances which may be hereafter made available to the Borrower shall be in the Agent's and Co-Agents' sole and absolute discretion until further notice. Until further notice, all Obligations outstanding under the Loan Agreement shall bear interest as provided for at the Default Rate under the Loan Agreement from February 22, 2001. This letter confirms that neither the Agent, the Co-Agents nor any Lender has waived any right to assert and exercise remedies with respect to any Default or the Events of Default arising out of or in connection with the Loan Agreement and the other Loan Documents. Accordingly, the Agent, the Co-Agents and the Lenders each hereby reserves all rights and remedies available under the Loan Documents as a result of the occurrence of any Default or Events of Default, including, without limitation, those reference above. Except to the extent of the Agent's and Co-Agents' reservations of rights on behalf of the Lenders as set forth herein the Agent, the Co-Agents and the Lenders also confirm their requiring strict compliance with all of the terms and conditions of the Loan Agreement and each of the Loan Documents. It is expressly understood that the Agent, the Co-Agents and the Lenders are not entering into a mutual disregard of the terms and provisions of the Loan Agreement or any other Loan Document or any course of dealing in variance with the terms and provisions of the Loan Agreement or any other Loan Documents and nothing contained herein or within the Eighth Waiver and Amendment shall operate as a waiver of any Default or the Events of Default or any such right or remedy under the Loan Agreement. In addition to strict compliance with the Loan Agreement and the Loan Documents, the Lenders also require that the Borrower, as the Borrower has agreed, provide to the Lenders on a weekly basis, no later than Monday, February 26, 2001 a 60 day cash flow projections for the period after March 2, 2001. The format shall be the same as the format of the projections recently delivered to the Agent for the period through March 2, 2001, which format showed projected receipts, disbursements and availability. In addition, the Borrower is to provide to the Lenders, as it previously 2 3 agreed, promptly upon receipt thereof or upon the preparation thereof by the Borrower, (a) copies of all material correspondence, offers and counter-offers related to the sale of all or any part of the Borrower or its assets and (b) notice of all parties that have requested or received a copy of the Confidential Memorandum prepared for the Borrower. Moreover, the Borrower will provide to the Lenders on a weekly basis (with the first such report being delivered on Monday, February 26, 2001) a "backlog" report, in form satisfactory to the Agent, summarizing all outstanding purchase orders from customers of the Borrower as of the immediately preceding Friday. Finally, the Borrower is to engage no later than March 7, 2001 a "crisis manager" which is acceptable to the Lenders and on terms and conditions acceptable to the Lenders. This letter shall be considered a Loan Document for all purposes. Very truly yours, FOOTHILL CAPITAL CORPORATION, a California corporation with an office in Atlanta, Georgia, as Agent, a Co-Agent and a Lender By: /s/ ----------------------------------------- Title: Vice President ------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation with an office in Atlanta, Georgia, as a Lender and a Co-Agent By: /s/ ----------------------------------------- Title: -------------------------------------- BACK BAY CAPITAL FUNDING LLC, a Delaware limited liability company, as a Lender By: /s/ ----------------------------------------- Title: Vice President/K.K. O'Connor ------------------------------------- cc: Jesse H. Austin, III, Esq. Lizanne Thomas, Esq. 3 -----END PRIVACY-ENHANCED MESSAGE-----