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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED AUGUST 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 33-68412
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AVONDALE INCORPORATED
(Exact name of registrant as specified in its charter)
GEORGIA 58-0477150
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
506 SOUTH BROAD STREET 30655
MONROE, GEORGIA (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 267-2226
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 requirements for the past 90 days. YES __ NO X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant as of November 12, 1996 (based upon the book
value per share of Class A Common Stock as of October 4, 1996) was $13,603,913.
As of November 12, 1996, the registrant had 12,312,034 and 978,939 shares
of Class A Common Stock and Class B Common Stock outstanding, respectively.
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INDEX TO FORM 10-K
AVONDALE INCORPORATED
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PAGE
REFERENCE
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PART I
Item 1. Business..................................................................
Item 2. Properties................................................................
Item 3. Legal Proceedings.........................................................
Item 4. Submission of Matters to a Vote of Security Holders.......................
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.....
Item 6. Selected Financial Data...................................................
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..............................................................
Item 8. Financial Statements and Supplementary Data...............................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..............................................................
Part III
Item 10. Directors and Executive Officers of the Registrants.......................
Item 11. Executive Compensation....................................................
Item 12. Security Ownership of Certain Beneficial
Owners and Management.....................................................
Item 13. Certain Relationships and Related Transactions............................
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K..........
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PART I
Unless the context otherwise requires, references herein to the Company
refer to Avondale Incorporated and its subsidiaries and any reference to a
"fiscal" year of the Company refers to the Company's fiscal year ending on the
last Friday in August in such year.
ITEM 1. BUSINESS
GENERAL
The Company's predecessor was founded in 1895 by the family of G. Stephen
Felker, the Company's Chairman, President and Chief Executive Officer. Prior to
1986, the Company's predecessor primarily manufactured and marketed greige
fabrics. In July 1986, the Company's predecessor, together with Mr. Felker and
certain other investors, acquired Avondale Mills, Inc., now a wholly owned
subsidiary of the Company ("Avondale Mills"). The acquisition of Avondale Mills
expanded the Company's product line to include yarns and finished fabrics and
significantly increased the Company's revenue base.
In April 1996, pursuant to an asset purchase agreement with Triarc
Companies, Inc. and Graniteville Company, the Company acquired the assets and
certain of the liabilities of the textile business of Graniteville Company and
its subsidiaries ("Graniteville"). Graniteville, founded in 1845, is a leading
manufacturer and marketer of cotton and cotton-blend finished fabrics. The
Company acquired Graniteville for aggregate consideration of $242.8 million in
cash plus the assumption of certain liabilities other than long-term debt (the
"Graniteville Acquisition").
DESCRIPTION OF THE BUSINESS
Products
Denim. The Company is a leading manufacturer of indigo-dyed denim fabrics
used in the production of branded and private label men's, women's and
children's fashion apparel as well as casual jeans, sportswear and outerwear.
The Company develops and manufactures new and innovative colors, textures,
weaves and finishes for its customers, which has helped make the Company's denim
fabrics leaders in the branded and private label, fashion-oriented segment of
the apparel market. Denim sales accounted for 31%, 35% and 37% of the Company's
net sales in fiscal 1994, 1995 and 1996, respectively.
Utility Wear Fabrics. The Company is one of the largest domestic
manufacturers and marketers of fabrics used in the manufacture of utility wear
(principally uniforms and other occupational apparel) for the U.S. rental and
retail markets. The Company's utility wear fabric customers require durable
fabrics characterized by long wear and easy care. The Company works closely with
customers to develop fabrics with these and other enhanced performance
characteristics. Utility wear fabric sales accounted for 11% of the Company's
net sales in fiscal 1996, reflecting the Company's entry into this market as a
result of the Graniteville Acquisition in April 1996.
Sportswear Fabrics. The Company is a leading manufacturer and marketer of
woven cotton piece-dyed fabrics used in the manufacture of men's, women's and
children's sportswear, casual wear and outerwear. Fabrics are produced for
customers in a wide variety of styles, colors, textures and weights according to
individual customer specifications. The Company's product design staff develops
fabric designs that are presented to customers and, once approved, are produced
into fabrics to meet customers' specifications.
Greige Fabrics. The Company produces undyed, unfinished cotton and
cotton-blend fabrics that are marketed to apparel, home furnishing and
industrial products manufacturers. The Company capitalizes on its manufacturing
flexibility by altering its overall product mix to meet changing customer needs
while maintaining high production efficiencies. The Company's product design
staff works with greige fabric customers to create new fabric styles and
constructions.
Specialty Fabrics. The Company produces a variety of fabrics that are
marketed to recreational, industrial and military products manufacturers. The
Company's specialty products include coated fabrics for
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awnings, tents, boat covers and life vests. The Company also finishes customers'
fabrics on a commission basis, which enables customers to meet short delivery
schedules while minimizing inventories.
Yarns. The Company is one of the largest domestic producers and marketers
of cotton and cotton-blend yarns, which are used internally in the production of
woven fabrics or marketed to customers in the knitting and weaving industries.
The Company's yarns are used in the manufacture of a broad range of items,
including apparel (primarily T-shirts, underwear, hosiery, knitted outerwear,
denim, and woven and fleece sportswear) and home furnishings. Yarn sales
accounted for approximately 54%, 55% and 37% of the Company's net sales in
fiscal 1994, 1995 and 1996, respectively.
Sales and Marketing
The Company sold apparel fabrics (including denim, utility wear fabrics and
sportswear fabrics), greige and specialty fabrics, and yarns to approximately
1,000, 200 and 600 customers, respectively, in fiscal 1996. The Company believes
it is the leading supplier of denim to V.F. Corporation (the maker of Lee(@),
Rider(@), Wrangler(@), Rustler(@), Girbaud(@) and HealthTex brand jeans), with
sales to V.F. Corporation accounting for 20% of the Company's net sales in
fiscal 1996. The Company believes that it has a strong working relationship with
VF Corporation. Other than VF Corporation, none of the Company's customers
accounted for 10% or more of the Company's net sales in fiscal 1996.
The Company targets customers who demand a high level of customer service.
The Company's three yarn sales offices are located geographically to be close to
customers' manufacturing facilities, and its six fabrics sales offices are
generally located near the headquarters of key customers. Sales associates visit
their customers on a regular basis and are primarily responsible for
interpreting customers' needs, processing customer orders and interacting with
the Company's production scheduling personnel. The Company's sales associates
are paid a base salary plus sales incentives to the extent certain performance
targets are met. The Company's independent sales representatives are paid on a
commission basis.
Manufacturing
The Company is a vertically integrated manufacturer of yarns and fabrics.
Through modernizing its manufacturing facilities, the Company has sought to
reduce lead times, minimize inventory levels and maximize flexibility to respond
to changes in customer demand.
Manufacturing Process. The Company's manufacturing processes involve
producing yarn, dyeing yarn, weaving yarn into fabrics and dyeing and finishing
fabrics. The Company's manufacturing plants employ computer-aided control
systems to monitor the manufacturing process and computer-aided product testing
equipment to measure the quality of the Company's yarns and fabrics.
The Company's yarn manufacturing operations involve spinning raw cotton and
synthetic fibers into cotton and cotton-blend yarns. The Company uses advanced
carding, drawing, combing and open-end spinning equipment. Open-end spinning
produces high quality yarns at higher speeds with fewer imperfections and
eliminates several labor-intensive steps in the production process, requiring
fewer operators than traditional ring spinning. The Company also maintains ring
spinning capability to offer a full line of yarns and to respond to customer
demand for both types of yarn. Yarn produced by the Company is either sold to
outside customers or used internally in the production of woven fabrics.
Yarn to be used in the manufacture of apparel fabrics may be dyed using
either "range" or "vat" dyeing techniques. The Company then weaves dyed or
undyed yarn into fabric, piece-dyes greige fabrics and finishes the woven
fabrics according to customer specifications. The Company uses modern,
high-speed looms in its weaving plants which enable the Company to manufacture
fabrics that have a variety of widths and weaves. The Company's dyeing and
finishing facilities use a wide range of technologies, including sophisticated
computer-based monitoring and control systems. These systems allow the Company
to continuously monitor and control each phase of the dyeing and finishing
process, which helps to improve productivity, efficiency, consistency and
quality.
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Manufacturing Facilities. The Company currently operates 25 manufacturing
facilities in the U.S. Of the Company's manufacturing facilities, nine are used
for the production of yarns, seven are integrated yarn and fabric manufacturing
facilities, six are dyeing facilities and three are fabric finishing facilities.
Expansion and Modernization. The Company has expanded its operations
through acquisitions, an ongoing capital improvements program and management's
efforts to optimize the productive output of the Company's manufacturing
facilities. As part of its expansion and modernization efforts, the Company has
also redeployed capital by closing certain manufacturing facilities and, in some
cases, moving manufacturing equipment to other locations. The Company's
expansion and modernization efforts over the past five fiscal years have
included, among others, the following principal initiatives:
- 1991, 1992 and 1993 -- Replaced earlier generation open-end spinning
equipment (which generally was less than 10 years old) in the yarns
division with the most technologically advanced equipment available
- 1992 and 1993 -- Replaced all remaining fly shuttle looms in the greige
fabrics division, replaced some earlier generation projectile looms with
technologically advanced, high speed looms, and began construction of a
new state-of-the-art indigo-dye range in the denim division
- 1994, 1995 and 1996 -- Replaced earlier generation projectile looms with
high speed airjet looms, completed construction of the additional
indigo-dye range, installed two integrated finishing ranges, replaced
carding equipment at two plants with modern carding and drawing systems,
and replaced older winders at a third plant with fully automated winders
- 1996 -- Acquired Graniteville, which consisted of four integrated yarn
and fabric weaving plants, three indigo-dyeing facilities, two
indigo-finishing facilities, one piece-dyeing and finishing facility, one
coating facility, and one garment-dyeing facility
Raw Materials
The Company believes that it is the largest U.S. consumer of raw cotton,
the principal raw material used in the Company's manufacturing processes.
Consequently, the Company's results of operations may be impacted significantly
due to fluctuations in the price of cotton. Since cotton is an agricultural
product, its supply and quality, which affect prevailing prices, are subject to
forces of nature. Significant increases in cotton prices due to any material
shortage or interruption in the supply or variations in the quality of cotton by
reason of weather, disease or other factors could have a material adverse effect
on the Company's results of operations.
Because the importation of cotton into the U.S. has generally been
prohibited, historically imbalances between the domestic and world price of
cotton have occurred. In recent years, Congress has passed a series of
legislative initiatives to ensure that U.S. cotton was priced competitively with
world markets. The Food, Agriculture, Conservation and Trade Act of 1990 (the
"1990 Trade Act") and the regulations promulgated thereunder established a
three-step competitiveness program designed to make domestic cotton prices
approximate world cotton prices. This program includes a mechanism that triggers
tariff free quotas for the importation of cotton if U.S. prices exceed world
prices for an extended period of time. This legislation and the increased
availability of cotton worldwide has improved the imbalance between world and
domestic cotton prices, but there can be no assurance that this will continue to
be the case. Congress recently adopted the Federal Agricultural Improvement and
Reform Act of 1996, which establishes certain support programs that, among other
things, continue the three-step competitiveness program established under the
1990 Trade Act through 2002.
The Company closely monitors the cotton market and manages its
cotton-buying practices. The Company's Chief Executive Officer is a member of
the board of directors of the National Cotton Council, a trade organization that
spearheads initiatives to implement U.S. cotton industry policy, which helps the
Company stay abreast of developments in the cotton market. The Company attempts
to purchase cotton as necessary to produce customers' orders, although the
Company's purchases may be short of or in excess of the quantity needed to
produce customers' orders depending on the Company's outlook for the cotton
market. The
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Company generally enters into cotton purchase contracts several months in
advance of the scheduled date of delivery. Prices for such purchases are fixed
either on the date of the contract or thereafter on a date prior to delivery
and, as a result, the Company may be favorably or adversely affected if cotton
prices fluctuate during the contract period.
The principal man-made fiber purchased by the Company is polyester. The
Company currently purchases substantially all of the man-made fibers used in its
products from one supplier, but such fibers are readily available from other
suppliers. The Company maintains a limited supply of such fibers in inventory.
The Company has never experienced difficulty in obtaining sufficient quantities
of man-made fibers. The Company also purchases dyes and chemicals used in its
dyeing and finishing processes, and these dyes and chemicals normally have been
available in adequate supplies through a number of suppliers. In connection with
the Graniteville Acquisition, the Company entered into a 10-year supply
agreement (the "Supply Agreement") with C.H. Patrick & Co., Inc. ("Patrick").
The Supply Agreement generally stipulates that Patrick will have the opportunity
to provide certain dyes and chemicals utilized by the Company if Patrick meets
certain conditions, including competitive pricing and the ability to provide the
applicable dyes and chemicals in accordance with the Company's specifications
and delivery requirements. The Supply Agreement is terminable by the Company
prior to the end of the 10-year term in the event of a pattern of repeated,
material failures by Patrick to satisfy its obligations with respect to product
specifications, delivery schedules or other material terms.
Competition
The textile industry is highly competitive, and no single company is
dominant. Management believes that the Company is one of the largest domestic
manufacturers of indigo-dyed denims, piece-dyed fabrics for utility wear and
sportswear, and cotton and cotton-blend yarns. The Company's competitors include
large, vertically integrated textile companies and numerous smaller companies.
In recent years there has been a trend toward consolidation within certain
markets of the textile industry and, within the Company's markets, increases in
manufacturing capacity. The primary competitive factors in the textile industry
are price, product styling and differentiation, quality, manufacturing
flexibility, delivery time and customer service. The importance of these factors
is determined by the needs of particular customers and the characteristics of
particular products. The failure of the Company to compete effectively with
respect to any of these key factors or to keep pace with rapidly changing
markets could have a material adverse effect on the Company's results of
operations and financial condition.
Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic
textile manufacturers. The U.S. government attempts to regulate the growth of
certain textile and apparel imports by establishing quotas on imports from
countries that historically account for significant shares of U.S. imports.
Although imported apparel represents a significant portion of the U.S. apparel
market, in recent years, a significant portion of import growth has been
attributable to imports of apparel products manufactured outside the U.S. of (or
using) domestic textile components. In addition, the rate of import growth has
slowed considerably in recent years.
The extent of import protection afforded by the U.S. government to domestic
textile producers has been, and is likely to remain, subject to considerable
domestic political deliberation and foreign considerations. In January 1995, a
new multilateral trade organization, the World Trade Organization (the "WTO")
was formed by the members of the General Agreement on Tariffs and Trade ("GATT")
to replace GATT. This new body has set forth the mechanisms by which world trade
in textiles and clothing will be progressively liberalized with the elimination
of quotas and the reduction of duties. The implementation began in January 1995
with the phasing-out of quotas and the reduction of duties to take place over a
10-year period. The selection of products at each phase is made by each
importing country and must be drawn from each of the four main textile groups:
yarns, fabrics, made-up textiles and apparel. As it implements the WTO
mechanisms, the U.S. government is negotiating bilateral trade agreements with
developing countries (which generally are exporters of textile products) that
are members of the WTO for the purpose of reducing their tariffs on imports of
textiles and apparel. The elimination of quotas and reduction of tariffs under
the WTO may result in increased
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imports of certain textile products and apparel into North America. These
factors could make the Company's products less competitive against low cost
imports from third world countries.
The North American Free Trade Agreement among the United States, Canada and
Mexico ("NAFTA"), which became effective on January 1, 1994, has created the
world's largest free-trade zone. The agreement contains safeguards sought by the
U.S. textile industry, including a rule of origin requirement that products be
processed in one of the three countries in order to benefit from NAFTA. NAFTA
will phase out all trade restrictions and tariffs on textiles and apparel among
the three countries. In addition, NAFTA requires merchandise to be made from
yarns and fabrics originating in North America in order to avoid trade
restrictions. Thus, not only must apparel be made from North American fabric but
the fabric must be woven from North American spun yarn. Based on experience to
date, NAFTA has had a favorable impact on the Company's business.
Backlog
The Company's order backlog was approximately $329.0 million at August 30,
1996, as compared to approximately $378.6 million at August 25, 1995. Orders on
hand are not necessarily indicative of total future sales. Substantially all of
the orders outstanding at August 30, 1996 are expected to be filled by the end
of fiscal 1997.
Governmental Regulation
The Company is subject to various federal, state and local environmental
laws and regulations limiting the discharge, storage, handling and disposal of a
variety of substances and wastes used in or resulting from its operations and
potential remediation obligations thereunder, particularly the Federal Water
Pollution Control Act, the Clean Air Act, the Resource Conservation and Recovery
Act (including amendments relating to underground tanks) and the Comprehensive
Environmental Response, Compensation and Liability Act, commonly referred to as
"Superfund" or "CERCLA". The Company has obtained, and is in compliance in all
material respects with, all material permits required to be issued by federal,
state or local law in connection with the operation of the Company's business as
described herein.
The Company's operations also are governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Safety and
Health Act and regulations thereunder which, among other things, establish
cotton dust, formaldehyde, asbestos and noise standards, and regulate the use of
hazardous chemicals in the workplace. The Company uses resins containing
formaldehyde in processing some of its products. Although the Company does not
use asbestos in the manufacture of its products, some of its facilities contain
some structural asbestos that management believes is properly contained.
Many of the Company's manufacturing facilities have been in operation for
several decades. Historical waste disposal and hazardous substance releases and
storage practices may have resulted in on-site and off-site remediation
liability for which the Company would be responsible. In addition, certain
wastewater treatment facilities and air emission sources may have to be upgraded
to meet more stringent environmental requirements in the future. The Company
cannot with certainty assess at this time the impact of future emission
standards or enforcement practices under the foregoing environmental laws and
regulations and, in particular, under the 1990 Clean Air Act, upon its
operations or capital expenditure requirements. The Company believes it is
currently in compliance in all material respects with the foregoing
environmental and health and safety laws and regulations.
In 1987, Graniteville Company was notified by the South Carolina Department
of Health and Environmental Control ("DHEC") that it had discovered certain
contamination of a pond near Graniteville, South Carolina and that Graniteville
may be one of the responsible parties. In 1990 and 1991, Graniteville Company
provided reports to DHEC summarizing its required study and investigation of the
alleged pollution and its sources which concluded that pond sediments should be
left undisturbed and that other remediation alternatives either provided no
significant benefit or themselves involved adverse effects. In 1995,
Graniteville Company submitted a proposal regarding periodic monitoring of the
site, to which DHEC responded with a request for additional information.
Graniteville Company provided such information to DHEC in Febru-
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ary 1996. The Company is unable to predict at this time whether any further
actions will be required with respect to the site or what the cost thereof may
be. The Company has provided a reserve for management's estimate of the cost of
monitoring the site and believes the ultimate outcome of this matter will not
have a material adverse effect on its results of operations or financial
condition.
As a result of the Graniteville Acquisition, the Company owns a nine acre
property in Aiken County, South Carolina, which was operated jointly by
Graniteville Company and Aiken County (prior to the Graniteville Acquisition) as
a landfill from approximately 1950 through 1973. The United States Environmental
Protection Agency conducted an Expanded Site Inspection ("ESI") in January 1994
and Graniteville Company conducted a supplemental investigation in February
1994. In response to ESI, DHEC has indicated its desire to have an investigation
of the landfill performed. On August 22, 1995, DHEC requested that Graniteville
Company enter into a consent agreement to conduct an investigation. Graniteville
Company responded to DHEC that a consent agreement was inappropriate considering
Graniteville's demonstrated willingness to cooperate with DHEC requests and
asked DHEC to approve the conceptual investigative approach presented earlier.
The cost of the study proposed by Graniteville Company is estimated to be
between $125,000 and $150,000. Since an investigation has not yet commenced, the
Company is currently unable to predict what further actions, if any, will be
necessary to remediate the landfill. The Company has provided a reserve for
management's estimate of the costs of investigating and remediating the site and
believes the ultimate outcome will not have a material adverse effect on its
results of operations or financial condition.
Associates
At August 30, 1996, the Company had approximately 7,500 associates. None of
the Company's associates is covered by a collective bargaining agreement, and
management believes that the Company's relations with its associates are good.
ITEM 2. PROPERTIES
The Company currently operates 25 manufacturing facilities in the U.S., of
which eight are located in Alabama, three are located in North Carolina, four
are located in Georgia and ten are located in South Carolina. The Company owns
23 of these facilities and leases two facilities in connection with its prior
issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
nine are used for the production of yarns, seven are integrated yarn and fabric
manufacturing facilities, six are dyeing facilities, and three are fabric
finishing facilities. The Company also operates five warehouses. The Company's
plants generally operate 24 hours a day, seven days a week throughout the year.
The Company considers its plants and equipment to be in good condition and
adequate for its current operations. The Company's principal executive offices
are located in Monroe, Georgia in a building owned by the Company. The Company
also has executive offices in Sylacauga, Alabama, and Graniteville, South
Carolina, which are located in buildings owned by the Company. All of the
Company's sales offices are leased from unrelated third parties.
ITEM 3. LEGAL PROCEEDINGS
On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould
against the Alabama Power Company, the Company and certain other parties. The
complaint alleges that the Company and such other parties negligently or
willfully discharged industrial waste water containing hazardous materials,
which allegedly damaged the plaintiffs' riparian rights. The complaint seeks an
award of unspecified damages. The Company is vigorously defending this case and
believes that it has a number of defenses available to it. The Company currently
cannot predict whether the plaintiffs will prevail on their claims or the
magnitude of their potential recovery, if any. Based on currently available
information, although there can be no assurance, the Company does not believe
that this case will have a material adverse effect on its results of operations
or financial condition. The Company is also a party to litigation incidental to
its business from time to time. The Company is not currently a party to any
litigation that management believes, if determined adversely to the Company,
would have a material adverse effect on the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's Class A
Common Stock or Class B Common Stock (collectively, "Common Stock"). As of
August 30, 1996 there were 123 and one holders of record of Class A Common Stock
and Class B Common Stock, respectively. The Company paid dividends aggregating
$3.1 million and $3.4 million in respect of its outstanding Common Stock during
fiscal 1995 and 1996, respectively. The Company has issued and outstanding
$125,000,000 aggregate principal amount of 10 1/4% Senior Subordinated Notes due
2006 (the "Notes") under an Indenture dated as of April 23, 1996 among the
Company, Avondale Mills and The Bank of New York, as trustee (the "Indenture").
The Indenture contains certain covenants that could indirectly restrict the
Company's ability to pay dividends. The Company maintains a $225 million
revolving credit facility under a loan agreement among Avondale Mills and a
syndicate of banks (the "Credit Facility"). The Credit Facility contains certain
covenants that could indirectly restrict the Company's ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statement of income
data and selected consolidated balance sheet data of the Company for each of the
five fiscal years in the period ended August 30, 1996. Such data were derived
from the Consolidated Financial Statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors. The audited Consolidated
Financial Statements and Notes thereto of the Company for each of the three
fiscal years in the period ended August 30, 1996 are included elsewhere in this
Annual Report. The selected consolidated financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company included elsewhere in this Annual Report.
<TABLE>
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FISCAL YEAR
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1992 1993 1994 1995 1996
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(IN MILLIONS, EXCEPT PER SHARE DATA)
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Statement of Income Data:
Net sales....................................... $528.4 $495.5 $481.6 $538.7 $706.2
Gross profit.................................... 107.2 99.5 51.0 71.2 76.9
Operating income................................ 85.9 76.8 28.9 47.6 44.9
Interest expense, net........................... 4.5 2.1 6.5 14.3 18.5
Discount and expenses on sale of receivables.... -- -- -- -- 3.7
Other (income) expense, net..................... (0.1) 0.5 (0.2) (0.8) --
Income before income taxes and extraordinary
item......................................... 81.5 74.2 22.6 34.0 22.7
Provision for income taxes...................... 31.1 29.0 8.5 13.1 9.0
Income before extraordinary item................ 50.4 45.2 14.0 20.9 13.6
Net income...................................... 50.4 42.4 14.0 20.9 13.6
Per Share Data:
Income before extraordinary item................ $ 2.40 $ 2.20 $ .85 $ 1.88 $ 1.15
Net income...................................... 2.40 2.06 .85 1.88 1.15
Dividends declared.............................. .32 .96 .28 .28 .28
Weighted average number of shares outstanding... 21.0 20.6 16.6 11.1 11.9
Balance Sheet Data (at period end):
Total assets.................................... $267.0 $255.8 $267.6 $257.4 $493.1
Long-term debt, including current portion....... 57.0 37.1 200.0 169.9 303.1
Shareholders' equity............................ 132.4 154.1 0.1 18.0 67.5
</TABLE>
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<TABLE>
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FISCAL YEAR
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1992 1993 1994 1995 1996
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(IN MILLIONS, EXCEPT PER SHARE DATA)
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Other Data:
Capital expenditures............................ $ 25.2 $ 36.4 $ 17.6 $ 15.8 $ 33.4
Depreciation and amortization................... 20.3 22.4 23.3 23.9 30.4
EBITDA(1)....................................... 101.8 98.3 57.8 75.1 73.4
Ratio of EBITDA to interest expense, net and
discount and expenses on sale of
receivables.................................. 22.6x 46.8x 8.9x 5.2x 3.3x
Ratio of earnings to fixed charges(2)........... 19.0x 37.2x 4.5x 3.4x 2.0x
</TABLE>
- ---------------
(1) EBITDA is defined as net income plus (i) extraordinary item, (ii) provision
for income taxes, (iii) interest expense, net, (iv) discount and expenses
on sale of receivables, (v) depreciation and amortization and (vi) plus or
minus, as the case may be, adjustments to cost of goods sold made under the
LIFO inventory valuation method. EBITDA is presented not as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), but because it
is a widely accepted financial indicator of a company's ability to incur
and service debt.
(2) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income before
income taxes and extraordinary item plus fixed charges. Fixed charges
include interest, whether expensed or capitalized, amortization of deferred
financing costs, the discount and expenses on sale of receivables and the
portion of rental expense that is representative of the interest factor in
these rentals.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto of the Company included
elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated statement of income
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales....................................................... 100.0% 100.0% 100.0%
Apparel fabric sales.......................................... 38.4 37.9 55.1
Greige and specialty fabric sales............................. 7.8 7.6 7.5
Yarn sales.................................................... 53.8 54.5 37.4
Cost of goods sold:
Raw materials................................................. 46.8 49.2 50.4
Conversion costs.............................................. 37.8 33.2 34.4
Total................................................. 84.6 82.4 84.8
Depreciation.................................................... 4.8 4.4 4.3
Selling and administrative expenses............................. 4.6 4.4 4.5
Operating income................................................ 6.0 8.8 6.4
Interest expense, net........................................... 1.4 2.7 2.6
Discount and expenses on sale of receivables.................... -- -- 0.5
Provision for income taxes...................................... 1.8 2.4 1.4
Net income...................................................... 2.9 3.9 1.9
</TABLE>
10
<PAGE> 12
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales increased 31.1% to $706.2 million in fiscal 1996 from
$538.7 million in fiscal 1995, primarily as a result of the Company's
acquisition of Graniteville in April 1996.
Apparel fabric sales increased 90.8% to $389.1 million in fiscal 1996 from
$204.0 million in fiscal 1995. This increase in sales reflected a 96.3% increase
in yards sold, which was partially offset by a 2.8% decline in average selling
prices. The increase in yards sold was primarily attributable to the acquisition
of Graniteville in April 1996. The decline in average selling prices resulted
from the inclusion of net sales attributable to Graniteville, which generally
were at lower average selling prices than the Company's other apparel fabric
sales.
Greige and specialty fabric sales increased 27.9% to $52.7 million in
fiscal 1996 from $41.2 million in fiscal 1995. This increase in sales resulted
from a 22.5% increase in yards sold and a 4.4% increase in average selling
prices. These increases were primarily due to the inclusion of net sales
attributable to Graniteville, which was acquired in April 1996.
Yarn sales decreased 9.9% to $264.4 million in fiscal 1996 from $293.4
million in fiscal 1995. This decrease reflected a 6.8% decrease in pounds sold
and a 3.3% decrease in average selling prices. These decreases reflected weak
demand in the knitted apparel market and excess production capacity within the
yarn industry during fiscal 1996.
Cost of Goods Sold. Cost of goods sold increased 35.0% to $599.1 million
in fiscal 1996 from $443.7 million in fiscal 1995. Cost of goods sold as a
percentage of net sales increased to 84.8% in fiscal 1996 from 82.4% in fiscal
1995, primarily due to increased cotton costs during fiscal 1996. Raw material
costs as a percentage of net sales increased to 50.4% in fiscal 1996 from 49.2%
in fiscal 1995, while conversion costs as a percentage of net sales increased to
34.4% in fiscal 1996 from 33.2% in fiscal 1995.
Selling and Administrative Expenses. Selling and administrative expenses
increased 35.6% to $32.0 million in fiscal 1996 from $23.6 million in fiscal
1995. This increase was primarily the result of additional expenses attributable
to Graniteville, which was acquired in April 1996.
Interest Expense, Net. Interest expense, net increased 29.2% to $18.5
million in fiscal 1996 from $14.3 million in fiscal 1995. This increase
reflected a higher level of outstanding borrowings during fiscal 1996 as a
result of the Graniteville Acquisition, which was offset somewhat by lower
interest rates during the majority of fiscal 1996.
Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables was $3.7 million for fiscal 1996, which related to the
Receivables Securitization Facility (as hereinafter defined) established by the
Company.
Provision for Income Taxes. Provision for income taxes decreased 31.0% to
$9.0 million for fiscal 1996 from $13.1 million for fiscal 1995, reflecting the
decline in operating income. The Company's effective tax rate was 39.8% in
fiscal 1996 compared to 38.5% in fiscal 1995.
Fiscal 1995 Compared to Fiscal 1994
Net Sales. Net sales increased 11.9% to $538.7 million in fiscal 1995 from
$481.6 million in fiscal 1994, primarily reflecting higher average selling
prices as a result of the Company's ability to pass on to customers higher raw
material costs and strong demand for high-end denim, other apparel fabrics and
home furnishings fabrics.
Apparel fabric sales increased 10.2% to $204.0 million in fiscal 1995 from
$185.1 million in fiscal 1994. This increase resulted primarily from a 3.0%
increase in average selling prices and a 7.0% increase in yards sold due to
increased consumer demand for denim and other apparel fabrics during fiscal
1995.
Greige fabric sales increased 10.7% to $41.2 million in fiscal 1995 from
$37.2 million in fiscal 1994. This increase resulted primarily from a 7.1%
increase in average selling prices and a 3.4% increase in yards sold,
11
<PAGE> 13
reflecting price increases in the apparel and home furnishings markets and a
shift in the Company's product mix to serve those markets.
Yarn sales increased 13.2% to $293.4 million in fiscal 1995 from $259.2
million in fiscal 1994 due to a 13.1% increase in average selling prices. This
increase resulted from strong consumer demand in the knit and woven apparel
markets and the ability of the Company to pass on higher raw material costs to
its customers during fiscal 1995.
Cost of Goods Sold. Cost of goods sold increased 8.9% to $443.7 million in
fiscal 1995 from $407.4 million in fiscal 1994. This increase reflected a
substantial increase in cotton costs, which were partially offset by improved
absorption of fixed manufacturing costs due to high levels of capacity
utilization during fiscal 1995. Cost of goods sold as a percentage of net sales
declined to 82.4% in fiscal 1995 from 84.6% in fiscal 1994. Raw material costs
as a percentage of net sales increased to 49.2% in fiscal 1995 from 46.8% in
fiscal 1994 as average cotton costs increased 15.7% during fiscal 1995. Total
conversion costs as a percentage of net sales decreased to 33.2% in fiscal 1995
from 37.8% in fiscal 1994.
Selling and Administrative Expenses. Selling and administrative expenses
increased 7.0% to $23.6 million in fiscal 1995 from $22.1 million in fiscal
1994, reflecting higher profit sharing and incentive payments.
Interest Expense, Net. Net interest expense increased 119.1% to $14.3
million in fiscal 1995 from $6.5 million in fiscal 1994. This increase reflected
the substantial increase in aggregate borrowings outstanding during fiscal 1995
due to the repurchase of outstanding common stock in March 1994.
Provision for Income Taxes. Provision for income taxes increased to $13.1
million in fiscal 1995 from $8.5 million in fiscal 1994. The Company's effective
tax rate was 38.5% in fiscal 1995 compared to 37.8% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company has funded its working capital requirements and capital
expenditures with cash generated from operations, borrowings under its bank
credit facilities, proceeds received in connection with sales of trade
receivables and proceeds received in connection with the issuance of equity and
debt securities. At August 30, 1996, the Company had borrowings of $161.1
million outstanding under the Credit Facility and $63.9 million of borrowing
availability thereunder. Such borrowings bore interest at a weighted average
rate of 7.2% per annum. In addition, at August 30, 1996, $125,000,000 aggregate
principal amount of the Notes was outstanding.
Credit Facility
The Credit Facility consists of a five-year revolving line of credit of up
to $225 million. Borrowings under the Credit Facility include revolving loans to
be provided by the lenders ("Revolver Loans") and up to $5 million of revolving
swing loans to be provided by Wachovia Bank of Georgia, N.A. ("Wachovia")
("Swing Revolver Loans"). Interest accrues on Revolver Loans (i) at the
Company's option at either LIBOR (adjusted for reserves) plus a specified number
of basis points or the base rate, which is the higher of Wachovia's prime rate
and the overnight federal funds rate plus 0.5%, or (ii) if the Company and the
lenders under the Credit Facility (the "Lenders") agree, at the "set" rate,
which shall be an interest rate agreed to by the Company and the Lenders at the
time such Revolver Loan is made. In addition, the Company is required to pay
certain structuring, administration and funding fees under the Credit Facility.
The Credit Facility is secured by substantially all of the Company's assets and
is guaranteed by the Company. The Credit Facility contains customary covenants,
including requirements to maintain certain financial ratios.
Swap Agreements
The Company has used interest rate swap agreements to effectively fix the
interest rate with respect to a portion of the borrowings outstanding under the
Credit Facility, which otherwise bear interest at floating rates.
12
<PAGE> 14
Such agreements involve the receipt of floating rate amounts in exchange for
fixed rate interest payments during the term of such agreements without an
exchange of the underlying principal amounts. The differential to be paid or
received is accrued as interest rates change and recognized as an adjustment to
interest expense related to the borrowings outstanding under the Credit
Facility. The related amount payable to or receivable from counter parties is
included in other liabilities or assets. At August 30, 1996, the Company had
swap agreements with notional amounts aggregating $125.0 million, providing an
effective interest rate of 7.4% on that equivalent portion of the outstanding
Revolver Loans.
Receivables Securitization Facility
Pursuant to an agreement between Avondale Mills and The First National Bank
of First Chicago ("First Chicago"), First Chicago has provided to the Company,
through a special purpose vehicle administered by it, a securitization facility
("Receivables Securitization Facility") of up to $120 million for the
securitization of certain trade receivables (the "Receivables") originated by
the Company. The Company acts as the initial servicer for the Receivables. The
Company received $104.0 million in proceeds under the Receivables Securitization
Facility concurrently with the consummation of the Graniteville Acquisition in
April 1996.
Under the Receivables Securitization Facility, the Company transfers
Receivables to a wholly owned, limited-purpose subsidiary of the Company (the
"Receivables Company"), which sells the Receivables to a trust (the "Trust").
The Trust issues variable funding certificates to lending or financial
institutions or other investors evidencing undivided interests in the assets of
the Trust (the "Certificates"). The Receivables Securitization Facility permits
draws and repayments on a revolving basis prior to May 1, 2001 or such earlier
time as certain events occur (the "Amortization Commencement Date"). The
Certificates, which represent beneficial interests in the Trust, entitle the
holders thereof to (i) receipt of collections from the Receivables, (ii) all
rights of the Company or the Receivables Company in goods the sale of which gave
rise to the Receivables, (iii) all collateral and other arrangements supporting
the Receivables, (iv) all rights to proceeds of any of the foregoing held in
lock-boxes and bank accounts of the Company or the Receivables Company, (v)
rights and interests of the Receivables Company under the documents for the
Receivables Securitization Facility and (vi) all collections and other proceeds
of the assets described above. The Certificates represent beneficial interests
in the Trust only, and do not represent obligations or interests in, and are not
guaranteed or insured by, the Receivables Company or the Company.
The rate of interest on the Receivables Securitization Facility is the
Eurodollar rate (adjusted for any reserves) plus 0.625% or First Chicago's
alternate base rate. A commitment fee calculated on the unused portion of the
Receivables Securitization Facility is payable quarterly by the Company,
accruing from the closing date. The final maturity of the Certificates is
expected to occur six months after the Amortization Commencement Date. All
collections attributable to the Certificates will be set aside commencing on the
Amortization Commencement Date to repay the Certificates in full. Amounts set
aside will be applied on a monthly basis to repay the Certificates in full.
In connection with the Receivables Securitization Facility, the Company
paid (or will pay, as the case may be) to First Chicago Capital Markets, Inc.,
an affiliate of First Chicago, certain commitment fees relating to the
Receivables Securitization Facility on the closing date and, subject to certain
conditions, on or before January 31, 1997.
The Receivables Securitization Facility contains covenants, representations
and warranties customary for such facilities and consistent with those that
First Chicago reasonably believes are required to obtain an "A" rating from the
rating agencies. Financial covenants are not included in the documentation
relating to the Receivables Securitization Facility nor are any provisions
relating to cross defaults to any other obligations of the Company.
Capital Expenditures and Cash Flows Analysis
The Company's capital expenditures aggregated $33.4 million for fiscal
1996. These expenditures were primarily for the expansion of the Company's denim
manufacturing operations and a loom modernization program within the greige
fabrics division. The expansion of the Company's denim operations involved the
13
<PAGE> 15
replacement of earlier generation projectile looms with high speed air jet looms
and the addition of two integrated finishing ranges. The Company anticipates
these improvements will increase the capacity of its denim operations by 25%.
The Company also acquired and installed new high speed rapier looms in the
greige fabrics division and completed other modernization projects at other
manufacturing facilities. Management estimates that capital expenditures for
fiscal 1997 will be approximately $60.0 million, and that such amounts will be
used primarily to upgrade weaving equipment and to improve fabric finishing
facilities.
Net cash provided by operating activities was $25.5 million in the fiscal
1996. Principal working capital changes included a $21.9 million increase in
accounts receivable, a $2.4 million increase in inventories (net of
acquisitions) and a $7.4 million increase in accounts payable. The changes in
working capital were primarily attributable to the substantial increase in net
sales resulting from the Graniteville Acquisition and an increase in raw
material inventories. The Company's investing activities included the
Graniteville Acquisition, the capital improvements described above, the sale of
certain real estate for an aggregate purchase price of $12.1 million and a $7.5
million subordinated loan to Oneita Industries, Inc. ("Oneita"), a yarn customer
of the Company. Pursuant to an agreement with Oneita, on August 27, 1996, the
Company converted the Oneita note (principal plus accrued interest), which bore
interest at 10% per annum and would have matured in February 1999, into
2,270,833 shares of common stock of Oneita (representing a conversion price of
$3.50 per share, which approximated fair market value). On such date, such
shares represented approximately 24.8% of Oneita's outstanding common stock. Net
cash provided by financing activities aggregated $264.2 million, which was used
primarily to finance the Graniteville Acquisition.
In April 1996, in connection with the Graniteville Acquisition, the Company
completed an equity private placement of 2,222,223 shares of Class A Common
Stock for an aggregate purchase price of $40.0 million (the "1996 Private
Placement"). Such shares were purchased by affiliates of Clipper Capital
Partners, L.P. ("Clipper"). In connection with the 1996 Private Placement, the
Company paid a closing fee of $600,000 to Clipper. In addition, Avondale Mills
issued $125 million aggregate principal amount of Notes in April 1996 in
connection with the Graniteville Acquisition. The Notes were issued under the
Indenture, which contains certain covenants that, among other things, restrict
the ability of Avondale Mills to incur debt, pay dividends on or redeem or
retire capital stock, make certain investments, enter into transactions with
affiliates, sell assets or consummate certain business combinations. The Company
fully and unconditionally guaranteed the Notes.
Net cash provided by operating activities was $50.4 million in fiscal 1995.
Principal working capital changes included a $6.1 million decrease in accounts
receivable, a $4.9 million increase in inventories and a $2.0 million decrease
in prepaid expenses. The Company's investing activities included the investment
of $15.8 million in capital improvements, as well as the receipt of proceeds
from the sale of equipment that was replaced in connection with the ongoing
modernization of the Company's manufacturing facilities and a non-refundable
deposit in connection with the anticipated sale of undeveloped beach property on
the Florida Gulf owned by the Company. Net cash used in financing activities
aggregated $35.5 million, including $32.4 million used to repay long-term
indebtedness and $3.1 million used to pay dividends on outstanding capital
stock.
Net cash provided by operating activities was $22.9 million in fiscal 1994.
Principal working capital changes included a $18.1 million increase in accounts
receivable and a $3.5 million reduction in inventories. The Company's investing
activities included the investment of $17.6 million in capital improvements and
the receipt of proceeds from the sale of property and equipment relating to
equipment being replaced in the ongoing modernization of the Company's
manufacturing facilities. Net cash used in financing activities aggregated $5.5
million, including $124.7 million used to repurchase an aggregate of 9,413,080
shares of Class A Common Stock of the Company in March 1994 in a negotiated
transaction from Metropolitan Life Insurance Company, certain affiliates of CS
First Boston Corporation and certain other shareholders, $2.0 million used to
repay outstanding long-term indebtedness and $3.8 million used to pay dividends
on outstanding capital stock.
Management believes that cash generated from operations, together with
borrowings available under the Credit Facility and proceeds received in
connection with sales of trade receivables, will be sufficient to meet the
Company's working capital and capital expenditure needs in the foreseeable
future. The Company will also
14
<PAGE> 16
continue to consider other options available to it in connection with future
working capital and capital expenditure needs, including the issuance of
additional debt and equity securities.
SEASONALITY
The Company's sales are broadly distributed over markets with staggered
seasonality and, therefore, generally do not exhibit significant seasonal
trends.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company will adopt
Statement No. 121 in the first quarter of fiscal 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
The Company accounts for its stock option plan described in Note 9 of Notes
to the Consolidated Financial Statements under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
intends to continue to do so.
15
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
16
<PAGE> 18
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 30, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ 2
Consolidated Balance Sheets........................................................... 3
Consolidated Statements of Income..................................................... 4
Consolidated Statements of Shareholders' Equity....................................... 5
Consolidated Statements of Cash Flows................................................. 6
Notes to Consolidated Financial Statements............................................ 7
</TABLE>
F-1
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Avondale Incorporated
We have audited the accompanying consolidated balance sheets of Avondale
Incorporated as of August 25, 1995 and August 30, 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three fiscal years in the period ended August 30, 1996. Our audits also
included the financial statement schedule listed in the Index at item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Avondale
Incorporated at August 25, 1995 and August 30, 1996, and the consolidated
results of its operations and its cash flows for each of the three fiscal years
in the period ended August 30, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Atlanta, Georgia
October 18, 1996
F-2
<PAGE> 20
AVONDALE INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 30,
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash............................................................. $ 1,335 $ 7,253
Accounts receivable, less allowance for doubtful accounts of
$2,239 in 1995 and $4,920 in 1996............................. 82,129 84,428
Due from Triarc.................................................. -- 7,250
Inventories...................................................... 36,391 127,698
Prepaid expenses................................................. 412 2,792
--------- ---------
Total current assets..................................... 120,267 229,421
Real estate held for sale.......................................... 11,485 --
Property, plant and equipment
Land............................................................. 971 8,532
Buildings........................................................ 36,827 64,694
Machinery and equipment.......................................... 244,287 357,406
--------- ---------
282,085 430,632
Less accumulated depreciation.................................... (161,592) (190,838)
--------- ---------
120,493 239,794
Other assets....................................................... 5,177 23,864
--------- ---------
$ 257,422 $ 493,079
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................. $ 19,352 $ 47,045
Accrued compensation, benefits and related expenses.............. 11,274 20,182
Other accrued expenses........................................... 6,570 26,530
Long-term debt due in one year................................... 4,000 3,250
Income taxes payable............................................. 352 88
Deferred income taxes............................................ 2,352 --
--------- ---------
Total current liabilities................................ 43,900 97,095
Long-term debt..................................................... 165,918 299,850
Deferred income taxes and other long-term liabilities.............. 29,630 28,622
Commitments and contingencies
Shareholders' equity
Preferred Stock
$.01 par value; 10,000 shares authorized...................... -- --
Common Stock
Class A, $.01 par value; 100,000 shares authorized; issued and
outstanding -- 10,090 shares in 1995 and 12,312 shares in
1996......................................................... 101 123
Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding -- 979 shares in 1995 and 1996................... 10 10
Capital in excess of par value................................... 2,566 41,844
Retained earnings................................................ 15,297 25,535
--------- ---------
Total shareholders' equity............................... 17,974 67,512
--------- ---------
$ 257,422 $ 493,079
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 21
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 26, AUGUST 25, AUGUST 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales...................................................... $ 481,580 $ 538,652 $ 706,232
Operating costs and expenses
Cost of goods sold........................................... 407,352 443,726 599,149
Depreciation................................................. 23,269 23,709 30,139
Selling and administrative expenses.......................... 22,069 23,606 32,018
-------- -------- --------
Operating income..................................... 28,890 47,611 44,926
Interest expense............................................... 6,541 14,333 18,512
Discount and expenses on sale of receivables................... -- -- 3,718
Other (income) expense, net.................................... (227) (761) 13
-------- -------- --------
Income before income taxes................................... 22,576 34,039 22,683
Provision for income taxes..................................... 8,535 13,100 9,035
-------- -------- --------
Net income........................................... $ 14,041 $ 20,939 $ 13,648
======== ======== ========
Net income per common share.................................... $ .85 $ 1.88 $ 1.15
======== ======== ========
Weighted average shares outstanding............................ 16,609 11,133 11,919
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 22
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
ISSUED IN EXCESS
--------------- OF PAR RETAINED
SHARES AMOUNT VALUE EARNINGS
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Balance at August 27, 1993............................... 20,544 $205 $ 4,770 $ 149,088
Net income............................................. -- -- -- 14,041
Cash dividends ($0.28 per share)....................... -- -- -- (3,758)
Purchase and retirement of treasury stock.............. (9,475) (94) (2,204) (161,914)
------ ---- ------- ---------
Balance at August 26, 1994............................... 11,069 111 2,566 (2,543)
Net income............................................. -- -- -- 20,939
Cash dividends ($0.28 per share)....................... -- -- -- (3,099)
------ ---- ------- ---------
Balance at August 25, 1995............................... 11,069 111 2,566 15,297
Net income............................................. -- -- -- 13,648
Cash dividends ($0.28 per share)....................... -- -- -- (3,410)
Shares issued in connection with the acquisition of the
Textile Business.................................... 2,222 22 39,278 --
------ ---- ------- ---------
Balance at August 30, 1996............................... 13,291 $133 $41,844 $ 25,535
====== ==== ======= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 23
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 26, AUGUST 25, AUGUST 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net income................................................. $ 14,041 $ 20,939 $ 13,648
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 23,318 23,849 30,411
Provision for (benefit of) deferred income taxes........ 1,639 (85) (5,632)
Interest expense on payment-in-kind notes............... -- 2,337 2,671
Gain on sale of equipment............................... (207) (738) (696)
Changes in operating assets and liabilities:
Accounts receivable................................... (18,107) 6,142 (21,898)
Inventories........................................... 3,531 (4,924) 1,888
Prepaid expenses...................................... (1,716) 2,032 (2,380)
Other assets.......................................... (1,342) (643) (1,016)
Accounts payable and accrued expenses................. 1,635 (24) 7,401
Income taxes payable.................................. (334) 352 (265)
Other liabilities..................................... 447 1,211 1,326
--------- -------- ---------
Net cash provided by operating activities.......... 22,905 50,448 25,458
Investing activities
Acquisition of Textile Business of Graniteville............ -- -- (247,956)
Sale of real estate........................................ -- -- 11,484
Due from Triarc............................................ -- -- (7,250)
Investment in Oneita securities............................ -- -- (7,500)
Purchase of property, plant and equipment.................. (17,605) (15,823) (33,439)
Proceeds from sale of property, plant and equipment........ 433 1,298 904
--------- -------- ---------
Net cash used in investing activities.............. (17,172) (14,525) (283,757)
Financing activities
Principal payments on long-term debt....................... (2,000) (3,000) (4,000)
Net borrowings (payments) on revolving line of credit...... 84,875 (29,375) 54,525
Issuance of subordinated notes............................. 40,000 -- 125,000
Deferred financing costs................................... -- -- (6,184)
Sale of accounts receivable................................ -- -- 104,000
Issuance of common stock................................... -- -- 39,300
Retirement of subordinated notes........................... -- -- (45,014)
Purchase and retirement of treasury stock.................. (124,656) -- --
Dividends paid............................................. (3,758) (3,099) (3,410)
--------- -------- ---------
Net cash (used in) provided by financing
activities....................................... (5,539) (35,474) 264,217
--------- -------- ---------
Increase in cash and cash equivalents........................ 194 449 5,918
Cash and cash equivalents at beginning of year............... 692 886 1,335
--------- -------- ---------
Cash and cash equivalents at end of year........... $ 886 $ 1,335 $ 7,253
========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 24
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 30, 1996
1. Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Avondale Incorporated and its wholly owned
subsidiaries, Avondale Mills, Inc. and Avondale Receivables Company
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated. Unless otherwise stated, all references to
years relate to the Company's fiscal year, which ends on the last Friday in
August, rather than calendar years.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Avondale Incorporated is a holding company and has no operations,
liabilities or assets other than those related to its investment in Avondale
Mills, Inc. At August 30, 1996, the consolidated financial positions of Avondale
Incorporated and Avondale Mills, Inc. were identical. At August 25, 1995,
Avondale Mills, Inc.'s total assets and shareholders' equity were $8.4 million
in excess of the consolidated assets and shareholders' equity of Avondale
Incorporated due to an intercompany loan which was settled in 1996. The
consolidated results of operations of Avondale Incorporated and Avondale Mills,
Inc. in 1994, 1995 and 1996 were substantially identical.
The Company operates in a single business segment, manufacturing cotton and
cotton-blend yarns and fabrics, which are marketed primarily to the apparel
market and, to a lesser extent, the home furnishings and industrial products
markets.
Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or market value.
Except for certain supply inventories valued on an average cost basis, cost is
determined on a last-in, first-out (LIFO) basis.
Periodically, the Company purchases cotton futures and options contracts to
hedge exposure to price fluctuations in the cotton acquired from various
suppliers. Gains and losses on these hedging contracts are deferred as an
adjustment to the carrying value of inventories and recognized when these
inventories are sold. At August 30, 1996, the Company had no such contracts
outstanding.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost and depreciated over the estimated useful lives of the related assets.
Depreciation is calculated primarily using the straight-line method.
Associate Benefit Plans: The Company has a discretionary profit sharing
plan covering substantially all associates. Annual contributions by the Company
are made to the plan in amounts determined by the board of directors. In
addition, the plan has 401(k) savings options that are available to all
associates. The Company matches 25% of the first 3% of compensation contributed
by each associate. The Company also has a deferred compensation plan for certain
key personnel. The related expense for these profit sharing and deferred
compensation plans is charged to operations currently and totaled $2,840,000,
$4,310,000, and $5,960,000 for 1994, 1995, and 1996, respectively.
Other Assets and Other Long-Term Liabilities: Other assets consist
primarily of unamortized loan fees, goodwill, cash surrender value of life
insurance, deposits on machinery and equipment purchases, and investments in
securities. Other long-term liabilities consist of accrued postretirement and
workers' compensation benefits and deferred compensation for certain key
management personnel.
F-7
<PAGE> 25
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share: Earnings per share are based on the weighted average
number of shares of common stock and dilutive common stock equivalents (for
stock options using the treasury stock method) outstanding during each year.
Recent Accounting Pronouncements: In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt Statement 121 in the first fiscal quarter of
1997 and, based on current circumstances, does not believe the effect of
adoption will be significant.
The Company accounts for its stock option plan described in Note 9 under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and intends to continue to do so.
Revenue Recognition: The Company records revenues principally when
products are shipped to customers. Consistent with recognized practice in the
textile industry, the Company also records revenues to a lesser extent (13%, 8%
and 14% of total revenues in 1994, 1995, and 1996, respectively), on a bill and
hold basis under which the goods are complete, packaged and ready for shipment.
These goods are effectively segregated from inventory which is available for
sale, the risks of ownership of the goods have passed to the customer, and the
underlying customer orders are supported by contracts or written confirmations.
The credit status of each customer is approved and monitored by the Company.
Sales to V.F. Corporation and its affiliates represented 28% of net sales for
fiscal 1994 and 1995, and 20% of net sales for fiscal 1996.
2. Purchase of the Textile Business of Graniteville Company: On April 29,
1996, the Company acquired substantially all of the textile assets (the "Textile
Business") of Graniteville Company from Triarc Companies, Inc. ("Triarc"), for
cash consideration of $242,750,000 plus the assumption of certain liabilities
other than long term debt.
The funds used to acquire the Textile Business were provided by the
issuance of senior subordinated notes, the sale of accounts receivable under a
securitization facility, the sale of the Company's Class A common stock and
borrowings against the Company's amended revolving credit facility.
The acquisition was accounted for as a purchase; accordingly, the results
of operations of the Textile Business have been included in the Company's
operating results since the date of acquisition. The excess of the aggregate
purchase price, including acquisition related expenses, over the fair market
value of tangible assets acquired and liabilities assumed of approximately $6.7
million, has been recognized as goodwill and is being amortized over 20 years.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company and the Textile Business as if
the Textile Business had been acquired as of the beginning of the fiscal years
presented, after including the impact of certain adjustments on depreciation,
interest expense and amortization of intangibles, and the elimination of Triarc
management fees and intercompany transactions (in millions, except per share
data).
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net sales........................................................ $1,040 $1,036
Net income....................................................... $ 25 $ 1
Net income per share............................................. $ 1.90 $ .10
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
F-8
<PAGE> 26
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. Receivables securitization facility: On April 29, 1996, the Company
entered into a 5-year agreement with a bank (the "Agreement") under which it may
sell an undivided interest in a defined pool of revolving trade accounts
receivable (the "Receivables") held by Avondale Receivables Company. Under the
bank facility, the Receivables are transferred to a trust at a discount. The
trust sells variable funding certificates to lending institutions or other
investors representing undivided ownership interests in a defined portion of the
Receivables. Such certificates do not represent obligations of or interests in,
and are not guaranteed or insured by, the Company. The proceeds from the
issuance of the certificates are remitted to the Company.
The Company retains a residual interest in the Receivables in an amount
equal to the excess of the Receivables over the certificates sold. Such residual
interest is included in Accounts receivable in the Consolidated Balance Sheet.
All losses, credits or other adjustments relating to the Receivables constitute
deductions applicable to the Company's residual interest in the Receivables.
Accordingly, the Company maintains an allowance for such deductions based upon
the expected collectibility of the Receivables. At August 30, 1996, an allowance
of $6.2 million related to the Receivables is included in Other accrued expenses
in the Consolidated Balance Sheet.
The Agreement requires the Company to maintain sufficient levels of
Receivables to collateralize the outstanding certificates. The Agreement also
contains various covenants, representations and warranties customary to the
operation of such securitization programs, but does not include financial
covenants or cross defaults to any other obligations of the Company. The
Company, as agent for the trust, is responsible for the collection and
administrative processing of the Receivables.
Under the Agreement, the trust may issue certificates of up to $120
million. Certificates of $104 million were outstanding at August 30, 1996.
Accounts receivable in the Consolidated Balance Sheet have been reduced by
approximately $105 million, representing the face amount of the receivables
sold.
For the fiscal year ended August 30, 1996, the discount on the initial sale
of Receivables of $1,178,000, fees and expenses of $620,000 to establish the
facility, and subsequent discounts of $1,920,000 on additional sales of
Receivables have been included in Discount and expenses on sale of receivables
in the Consolidated Statement of Income. The Company considers selling the
Receivables in this manner as an alternative to incurring additional debt.
Viewed on this basis, the Company's ongoing cost of the facility is equal to the
Eurodollar rate (adjusted for any reserves) plus .625% or the bank's base rate.
A commitment fee of .375% per annum is payable quarterly on the unused portion
of the facility.
4. Inventories: Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 30,
1995 1996
---------- ----------
<S> <C> <C>
Finished goods................................................... $ 7,101 $ 35,746
Work in process.................................................. 9,769 56,826
Raw materials.................................................... 22,949 26,817
Dyes and chemicals............................................... 1,905 9,119
------- -------
Inventories at FIFO.............................................. 41,724 128,508
Less allowance to reduce carrying value to LIFO basis............ (9,693) (7,725)
------- -------
32,031 120,783
Supplies at average cost......................................... 4,360 6,915
------- -------
$ 36,391 $ 127,698
======= =======
</TABLE>
5. Real estate held for sale: On June 7, 1996, the Company sold its real
estate held for sale for approximately $12 million in cash. Based on the
underlying book and tax bases of this property, the Company recorded a pretax
book gain of $557,000 and a taxable gain of $11.8 million. Proceeds from the
sale, net of
F-9
<PAGE> 27
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related current income taxes of $4.8 million, were used to reduce amounts
borrowed under the revolving credit facility.
6. Investment in securities: In January 1996, the Company purchased a $7.5
million subordinated note due February 26, 1999, having convertible features,
from Oneita Industries, Inc. ("Oneita"). On August 27, 1996, the Company
converted the subordinated note plus accrued interest into 2,270,833 shares of
common stock of Oneita, representing ownership of 24.8% of Oneita's outstanding
shares. This investment, which will be accounted for under the equity method, is
included in Other assets in the Consolidated Balance Sheet. The fair market
value of the investment approximated carrying value at August 30, 1996.
7. Income Taxes: Provision for income taxes is composed of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ 5,924 $11,376 $12,784
State................................................. 972 1,809 1,883
------- ------- -------
6,896 13,185 14,667
Deferred:
Federal............................................... 1,565 (86) (4,901)
State................................................. 74 1 (762)
------- ------- -------
1,639 (85) (5,632)
------- ------- -------
$ 8,535 $13,100 $ 9,035
======= ======= =======
</TABLE>
The following table shows the reconciliation of federal income tax expense
at the statutory rate on income before income taxes to reported income tax
expense (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- ------
<S> <C> <C> <C>
Taxes on earnings at 35%.................................. $7,901 $11,914 $7,939
State income taxes, net of federal tax benefit............ 680 1,177 729
Other..................................................... (46) 9 367
------ ------- ------
$8,535 $13,100 $9,035
====== ======= ======
</TABLE>
The Company made income tax payments of $6,923,000, $12,620,000 and
$14,344,000 during fiscal 1994, 1995 and 1996, respectively.
F-10
<PAGE> 28
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are provided for temporary differences in financial
and income tax reporting. Significant components of the Company's year-end
deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 30,
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................................... $ 19,499 $ 22,206
Inventory valuation............................................ 6,295 7,088
Goodwill....................................................... -- 1,591
Other.......................................................... 3,030 1,781
------- -------
Deferred tax liabilities............................... 28,824 32,666
Deferred tax assets:
Employee benefit programs...................................... 4,859 8,430
Receivable reserves............................................ 832 4,382
Other.......................................................... 616 2,969
------- -------
Deferred tax assets.................................... 6,307 15,781
------- -------
Net deferred tax liabilities..................................... $ 22,517 $ 16,885
======= =======
</TABLE>
8. Long Term Debt: Long term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 30,
1995 1996
---------- ----------
<S> <C> <C>
Revolving credit facility, interest tied to banks' base rate or
alternative rates, 6.32% - 8.75% in 1996, due April 2001....... $ 106,575 $ 161,100
Industrial Revenue Bonds, floating rate, 3.20% - 5.35% in 1996,
due in various installments through 2004....................... 21,000 17,000
Senior subordinated notes, 10.25%, due May 1, 2006............... -- 125,000
Subordinated payment-in-kind notes, 5.65%, due March 1998........ 42,343 --
-------- --------
169,918 303,100
Less current portion............................................. (4,000) (3,250)
-------- --------
$ 165,918 $ 299,850
======== ========
</TABLE>
The Company maintains a secured revolving credit facility with a group of
banks which provides aggregate borrowing availability of a maximum of $225
million through April 2001. Under the terms of this agreement, the Company can
designate an interest rate tied to the banks' base rate or alternative rates
negotiated with the banks, for specified time periods. A commitment fee of 3/8
of 1% per annum is payable quarterly on the average daily unused portion of the
revolving credit commitment. The revolving credit facility is secured by
substantially all of the Company's assets. Covenants of the credit agreement
require the Company to maintain certain cash flow ratios and debt to equity
ratios, and contain restrictions on payment of dividends. Under the most
restrictive of these covenants, $3.6 million of retained earnings were available
for payment of dividends at August 30, 1996.
The Company uses interest rate swap agreements to effectively convert a
portion of its outstanding revolving credit facility to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. These agreements
involve the receipt of floating rate amounts in exchange for fixed rate interest
payments over the lives of the agreements without an exchange of the underlying
principal amounts. The differential to be paid or received is accrued as
interest rates change and recognized as an adjustment to interest expense
related to the debt. The related amount payable to or receivable from
counterparties is included in other liabilities or assets. At August 30, 1996,
the Company had interest rate swap agreements
F-11
<PAGE> 29
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with notional amounts aggregating $125 million providing an effective interest
rate of 7.4% on that equivalent portion of the revolving credit facility. These
interest rate swap agreements had no significant market value at August 30,
1996, as their interest rates in aggregate were substantially equal to current
market rates.
Two of the industrial revenue bonds which were issued to acquire property,
plant and equipment represent capital lease obligations. These lease obligations
plus the other industrial revenue bonds are secured by letter of credit
agreements with a bank. The letter of credit agreements are, in turn, secured by
the property, plant and equipment at three plant locations, which had a carrying
value of approximately $35 million at August 30, 1996. Covenants of the letter
of credit agreements substantially adopt the restrictive covenant provisions of
the revolving credit facility.
In conjunction with the acquisition discussed in note 2, the Company issued
$125 million of 10.25% senior subordinated notes which mature on May 1, 2006.
The notes are unsecured and subordinate to all existing and future senior
indebtedness of the Company. Interest on the notes is due on May 1 and November
1 of each year, commencing November 1, 1996.
The senior subordinated notes contain a redemption feature allowing the
Company, at any time prior to May 1, 1999, to redeem up to an aggregate of $25
million of the principal amount of the notes with the proceeds of one or more
public equity offerings, at a redemption price of 110% plus accrued interest to
the redemption date, provided that at least $100 million aggregate principal
amount of the notes remains outstanding after such redemption. On or after May
1, 2001, the notes will be redeemable at the Company's option, in whole or in
part, at a scheduled redemption price of 105.125% in 2001 declining to 100% in
2004 and thereafter.
The indenture under which the senior subordinated notes were issued
contains, among other things, certain restrictive covenants on issuance of
additional debt, payment of dividends, retirement of capital stock or
indebtedness, purchase of investments, sales or transfers of assets, certain
consolidations or mergers and certain transactions with affiliates.
At August 30, 1996, the Company was in compliance with the covenants of the
revolving credit facility, subordinated note indenture and letter of credit
agreements.
The carrying value of the Company's long-term debt approximates fair value.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997...................................................................... $ 3,250
1998...................................................................... 3,250
1999...................................................................... 2,250
2000...................................................................... 3,250
2001...................................................................... 163,600
Thereafter through 2006................................................... 127,500
--------
$303,100
========
</TABLE>
In connection with the Company's borrowings, no interest has been
capitalized. The Company paid interest on revolving credit, long-term debt and
interest rate swap agreements of approximately $4,005,000, $12,235,000 and
$15,100,000 in 1994, 1995 and 1996, respectively.
9. Common Stock: Each share of Class A Common Stock is entitled to one
vote and each share of Class B Common Stock is entitled to 20 votes with respect
to matters submitted to a vote of shareholders. Each share of the Class B Common
Stock is convertible at any time, at the option of its holder, into one share of
Class A Common Stock. The Class B Common Stock will convert automatically into
Class A Common
F-12
<PAGE> 30
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock, and thereby lose its special voting rights, if such Class B Common Stock
is sold or otherwise transferred to any person or entity other than certain
designated transferees.
In March 1994, the Company purchased and retired a total of 9,413,000
shares of Class A Common Stock of the Company from five former shareholders for
an aggregate purchase price of $163,317,000.
To finance a portion of the purchase price for the Textile Business, the
Company sold 2.2 million shares of Class A Common Stock to investors for $40
million, less fees and expenses of $700,000. In connection with the sale, the
Company entered into shareholders and registration rights agreements which,
among other matters, grant the investors certain preemptive rights with respect
to future sales of common stock and certain registration rights with respect to
the investors' shares.
Under an agreement with an officer, the Company may be required to purchase
a portion of the shares of Common Stock of the Company held by that officer
(representing approximately 7% of the Company's outstanding Common Stock) upon
the death of the officer. The purchase price, as defined, will approximate
market value. The Company has purchased term life insurance on the officer to
assist in funding the acquisition of such Common Stock. The face amount of the
insurance policy exceeded the estimated market value of such common stock at
August 30, 1996.
The Company maintains a Stock Option Plan that allows for the grant of
non-qualified and incentive stock options. Under the Stock Option Plan, options
to purchase up to 1,081,250 shares of Class A common stock may be granted to
full-time associates, including executive officers of the Company. During 1995
and 1996, 640,000 non-qualified options at $12.50 per share and 390,000
non-qualified options at $18.00 per share, respectively, were granted. The
exercise prices of the options granted approximated the fair market value of the
Company's stock on the date of grant. All options granted vest ratably over 5
years and may be exercised for a period of 10 years. At August 30, 1996, there
were 980,000 stock options outstanding, 118,000 of which were exercisable.
10. Related party transactions: The Chairman of the Company is a director
of the agent bank of a group of banks which provides the Company's revolving
credit facility. During 1996, the Company paid these banks aggregate fees of
approximately $1.9 million related to an amendment of the revolving credit
facility.
Another director of the Company is affiliated with certain purchasers of
the 2.2 million shares of the Company's Class A Common Stock sold to finance a
portion of the purchase price for the Textile Business. The Company paid a
$600,000 closing fee to an affiliate of such purchasers in connection with the
sale of stock described in Note 9.
11. Commitments and Contingencies: The Company is involved in certain
environmental matters and claims. The Company has provided reserves to cover
management's estimates of the cost of investigating, monitoring and remediating
these and other environmental conditions. If more costly remediation measures
are necessary than those believed to be probable based on current facts and
circumstances, actual costs may exceed the reserves provided. However, based on
the information currently available, management does not believe that the
outcome of these matters will have a material adverse effect on its future
results of operations or financial position.
The Company is also a party to litigation incidental to its business from
time to time. The Company is not currently a party to any litigation that
management, in consultation with legal counsel, believes, if determined
adversely to the Company, would have a material adverse effect on the Company's
financial condition or results of operations.
Commitments for future additions to plant and equipment were approximately
$8.5 million at August 30, 1996.
F-13
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
17
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and its wholly owned
subsidiary, Avondale Mills are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
G. Stephen Felker.................. 44 Chairman of the Board, President and Chief
Executive Officer of the Company and
Avondale Mills
Jack R. Altherr, Jr................ 47 Vice Chairman, Chief Financial Officer,
Secretary and Director of the Company and
Avondale Mills
T. Wayne Spraggins................. 59 Vice President of Avondale Mills and
President -- Manufacturing Operations
Keith M. Hull...................... 43 Vice President of Avondale Mills and
President -- Apparel Fabrics*
Robert G. Nelson................... 48 Vice President of Avondale Mills and
President -- Avondale Yarns*
Craig S. Crockard.................. 54 Vice President, Planning and Development of
Avondale Mills
Bill W. Henry...................... 62 Vice President, Raw Material Purchasing of
Avondale Mills
M. Delen Boyd...................... 40 Vice President and Controller of Avondale
Mills and Assistant Secretary of the Company
and Avondale Mills
J. Elliott Woodward................ 44 Vice President and Treasurer of Avondale
Mills and Assistant Secretary of the Company
and Avondale Mills
Sharon L. Rodgers.................. 40 Vice President, Human Resources of Avondale
Mills
Kenneth H. Callaway(1)............. 41 Director of the Company and Avondale Mills
Robert B. Calhoun(1)(2)............ 54 Director of the Company and Avondale Mills
Harry C. Howard(2)................. 67 Director of the Company and Avondale Mills
C. Linden Longino, Jr.(2).......... 60 Director of the Company and Avondale Mills
Dale J. Boden(1)................... 39 Director of the Company and Avondale Mills
John P. Stevens(1)................. 67 Director of the Company and Avondale Mills
</TABLE>
- ---------------
* Avondale Yarns and Apparel Fabrics refer to the yarns division and apparel
fabrics division, respectively.
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
G. Stephen Felker has served as Chairman of the Board of the Company since
1992 and President and Chief Executive Officer of the Company since 1980. Mr.
Felker also served as Treasurer of the Company from 1980 until 1993 and has
served the Company in various capacities since 1974. Mr. Felker has served as
Chairman of the Board and Chief Executive Officer of Avondale Mills since 1986,
when the Company acquired Avondale Mills, and President of Avondale Mills since
1995. Mr. Felker serves as a director of Wachovia Bank of Georgia, N.A and
Oneita Industries, Inc.
Jack R. Altherr, Jr. has served as Vice Chairman of the Company and
Avondale Mills since May 1996, Chief Financial Officer and a director of the
Company since December 1989, Chief Financial Officer and Secretary of Avondale
Mills since October 1988 and a director of Avondale Mills since 1993. Mr.
Altherr served as Vice President of the Company and Avondale Mills from December
1989 and October 1988,
18
<PAGE> 33
respectively, to May 1996. With the exception of fiscal 1995, he has served as
Secretary of the Company and Avondale Mills since August 1993. Mr. Altherr has
served Avondale Mills in various other capacities since July 1982. Mr. Altherr
serves as a director of Oneita Industries, Inc
T. Wayne Spraggins has served as Vice President of Avondale Mills and
President -- Manufacturing Operations since May 1996. Mr. Spraggins served as
Vice President, Manufacturing of Avondale Mills from November 1984 until May
1996. Mr. Spraggins joined Avondale Mills as a standards engineer in August 1961
and has served Avondale Mills in various other capacities, including Plant
Manager, since that time.
Keith M. Hull has served as President -- Apparel Fabrics, the apparel
fabrics division of Avondale Mills following the Graniteville Acquisition, since
May 1996. He has served as Vice President of Avondale Mills since April 1989.
Mr. Hull served as President of Avondale Fabrics, the finished fabrics division
of Avondale Mills prior to the Graniteville Acquisition, from April 1989 until
May 1986. Mr. Hull served as Vice President, Merchandising of Avondale Yarns,
from February 1989 to April 1989. Prior to joining Avondale Mills, Mr. Hull
served as Vice President, Marketing of the Company from November 1984 to
February 1989 and served the Company in various other capacities since 1977. Mr.
Hull has served as a director of Cherokee, Inc. since July 1995.
Robert G. Nelson has served as President -- Avondale Yarns since March 1996
and Vice President of Avondale Mills since August 1993. He served as
President -- Walton Fabrics, the greige fabrics division, from August 1993
through March 1996. Mr. Nelson served as Executive Vice President and Chief
Operating Officer of the Company from December 1988 until August 1993 and as
Vice President, Marketing of the Company from November 1988 to December 1989.
Prior to joining the Company, Mr. Nelson had served in various capacities with
Springs Industries, Inc., a textile manufacturer, since January 1972.
Craig S. Crockard has served as Vice President, Planning and Development of
Avondale Mills since September 1983. Mr. Crockard has served Avondale Mills in
various other capacities, including Vice President, Corporate Services, since
September 1966.
Bill W. Henry has served as Vice President, Raw Material Purchasing of
Avondale Mills since July 1987. Mr. Henry has served Avondale Mills in various
other capacities, including Manager of the Cotton Department, since January
1969.
M. Delen Boyd has served as Vice President and Controller of Avondale Mills
and Assistant Secretary of the Company and Avondale Mills since May 1996. Mr.
Boyd has served as controller of Avondale Mills since 1987. Mr. Boyd joined
Avondale Mills in 1982 and has served in various capacities, including Assistant
Controller and Corporate Director of Accounting and Taxes.
J. Elliott Woodward has served as Vice President and Treasurer of Avondale
Mills since May 1996. Mr. Woodward served as Vice President and Controller of
Graniteville Company from 1993 to May 1996. Mr. Woodward joined Graniteville
Company in 1984 and served in various capacities from 1984 to May 1996,
including Manager of General Accounting and Controller.
Sharon L. Rodgers has served as Vice President, Human Resources of Avondale
Mills since May 1996. Ms. Rodgers served as Vice President, Legal and Assistant
Secretary of Graniteville Company from 1993 to May 1996. Prior to 1993, Ms.
Rodgers served in various other capacities at Graniteville Company during the
fifteen years ending in 1993.
Kenneth H. Callaway has served as a director of the Company since November
1987 and of Avondale Mills since August 1993. Mr. Callaway has been President of
Calgati Chemical Company, a specialty chemical exporter, since December 1991.
From 1987 through 1991, Mr. Callaway served as president of three
privately-owned retail computer businesses.
Robert B. Calhoun has served as a director of the Company since August 1993
and of Avondale Mills since November 1991. Mr. Calhoun has been President of
Clipper Asset Management Corporation, the sole general partner of The Clipper
Group, L.P., a private investment firm, since January 1991, and of Clipper
Capital Corporation, the sole general partner of Clipper, an affiliated private
investment firm, since 1993. From 1975 to 1991, Mr. Calhoun was a Managing
Director of CS First Boston Corporation, an investment
19
<PAGE> 34
banking firm. Mr. Calhoun is also a director of Highway Master Communications,
Inc. and Interstate Bakeries Corporation.
Harry C. Howard has served as a director of the Company since August 1993
and of Avondale Mills since July 1986. Mr. Howard retired from the law firm of
King & Spalding, where he had practiced law since 1956, as of December 31, 1992.
Mr. Howard serves as a director of Crescent Banking Company, a bank holding
company.
C. Linden Longino, Jr. has served as a director of the Company since
November 1975 and of Avondale Mills since August 1993. Mr. Longino served as
Senior Vice President of SunTrust Bank, Atlanta from December 1978 until his
retirement in July 1996. During his 31-year career with SunTrust Bank, Atlanta,
Mr. Longino served in various management capacities.
Dale J. Boden has served as a director of the Company and Avondale Mills
since November 1994. Mr. Boden has served as President and Chief Executive
Officer of B.F. Capital, Inc., a private investment company, since January 1993.
John P. Stevens has served as a director of the Company since January 1970
and of Avondale Mills since July 1986. Mr. Stevens served as Executive Vice
President of Wachovia Bank of Georgia, N.A. from April 1981 until his retirement
in January 1994 and was responsible for managing the Government Banking and
Public Finance department. Mr. Stevens served as a consultant to Wachovia Bank
of Georgia, N.A. from February 1994 to February 1996. In addition, from February
1994 until the present time, Mr. Stevens has been a partner in The Stevens
Group, a consulting firm specializing in providing assistance in a wide range of
business and governmental affairs.
During fiscal 1996, the Company paid its non-employee directors an annual
fee of $12,000 plus $1,500 and $500 for each board and committee meeting
attended (plus out-of-pocket expenses), respectively.
All executive officers of the Company are elected annually by and serve at
the discretion of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
Summary Compensation Table. The table below sets forth certain information
concerning the compensation earned during fiscal 1996 and 1995 by the Company's
Chief Executive Officer and its four other most highly compensated executive
officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(2)
- ---------------------------------------------------- ------ --------- -------- ------------------
<S> <C> <C> <C> <C>
G. Stephen Felker................................... 1996 795,516 918,587 14,076
Chairman of the Board, President and Chief 1995 773,016 993,182 12,763
Executive Officer
Jack R. Altherr, Jr................................. 1996 248,008 153,925 7,304
Vice Chairman, Chief Financial Officer and 1995 234,508 159,424 7,376
Secretary
T. Wayne Spraggins.................................. 1996 196,268 120,797 10,654
Vice President, and President -- Manufacturing 1995 188,840 122,720 10,517
Operations
Keith M. Hull....................................... 1996 187,508 101,835 6,232
Vice President and President -- Apparel Fabrics 1995 170,840 114,822 6,908
Robert G. Nelson.................................... 1996 133,758 32,379 5,988
Vice President and President -- Avondale Yarns 1995 114,176 31,629 6,762
</TABLE>
20
<PAGE> 35
- ---------------
(1) The aggregate amount of perquisites and other personal benefits, if any, did
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.
(2) Amounts shown reflect, for fiscal 1995, (i) matching 401(k) contributions
made by the Company to the Company's Associate Profit Sharing and Savings
Plan of $1,125 on behalf of Messrs. Felker, Altherr, Spraggins and Hull and
$1,120 on behalf of Mr. Nelson, (ii) profit sharing contributions made by
the Company to the Company's Associate Profit Sharing and Savings Plan of
$4,776 on behalf of Messrs. Felker, Altherr, Spraggins and Hull, and $4,554
on behalf of Mr. Nelson, and (iii) life insurance premiums of $6,862,
$1,475, $4,616, 1,007 and $1,088 paid by the Company on behalf of Messrs.
Felker, Altherr, Spraggins, Hull and Nelson, respectively. Amounts shown
reflect, for fiscal 1996, (i) matching 401(k) contributions made by the
Company to the Company's Associate Profit Sharing and Savings Plan of
$1,125 on behalf of each Named Executive Officer, (ii) profit sharing
contributions made by the Company to the Company's Associate Profit Sharing
and Savings Plan of $3,560 on behalf of each Named Executive Officer and
(iii) life insurance premiums of $9,391, $2,619, $5,969, $1,547 and $1,303
paid by the Company on behalf of Messrs. Felker, Altherr, Spraggins, Hull
and Nelson, respectively.
Option Grants Table. The table below sets forth certain information
relating to options granted during fiscal 1996 to each Named Executive Officer.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS(1) REALIZABLE VALUE
-------------------------------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
OPTIONS PRICE
GRANTED TO APPRECIATION FOR
NUMBER OF SECURITIES EMPLOYEES EXERCISE OPTION TERM($)
UNDERLYING OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------
GRANTED(#)(1) YEAR SHARE($) DATE 5% 10%
--------------------- ---------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
G. Stephen Felker........... 25,000 6.4 18.00 5/1/06 283,000 717,250
Jack R. Altherr, Jr......... 25,000 6.4 18.00 5/1/06 283,000 717,250
T. Wayne Spraggins.......... 25,000 6.4 18.00 5/1/06 283,000 717,250
Keith M. Hull............... 25,000 6.4 18.00 5/1/06 283,000 717,250
Robert G. Nelson............ 20,000 5.1 18.00 5/1/06 226,400 573,800
</TABLE>
- ---------------
(1) All of the options shown (i) are options to purchase Class A Common Stock
and (ii) vest in 20% increments commencing one year after the date of
issue.
21
<PAGE> 36
Aggregated Options Table. The table below sets forth certain information
with respect to options exercised during and held at the end of fiscal 1996 by
each Named Executive Officer. No options were exercised during fiscal 1996.
AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES SUBJECT UNEXERCISED
TO UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
AUGUST 30, 1996 AUGUST 30, 1996(1)
--------------- ------------------
<S> <C> <C>
G. Stephen Felker.............................................. 265,000 $1,320,000
Jack R. Altherr, Jr............................................ 125,000 550,000
T. Wayne Spraggins............................................. 75,000 275,000
Keith M. Hull.................................................. 75,000 275,000
Robert G. Nelson............................................... 30,000 55,000
</TABLE>
- ---------------
(1) All options are options to purchase Class A Common Stock of Avondale
Incorporated. There is no existing public market for the Class A Common
Stock. The values shown are based on management's estimate of the fair
market value of the Class A Common Stock at August 30, 1996.
Long-Term Incentive Plans. The table below sets forth certain information
with respect to phantom units held at the end of fiscal 1996 by each Named
Executive Officer. No phantom units were awarded during fiscal 1996.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
AGGREGATE ESTIMATED FUTURE
PHANTOM UNITS PERIOD UNTIL PAYOUTS FOR ALL
NAME HELD(1) PAYOUT (YEARS) PHANTOM UNITS HELD(2)
- ------------------------------------------------ ------------- -------------- ---------------------
<S> <C> <C> <C>
G. Stephen Felker............................... 150 20 $ 245,700
Jack R. Altherr, Jr............................. 90 18 147,420
T. Wayne Spraggins.............................. 50 6 81,900
Keith M. Hull................................... 90 21 147,420
Robert G. Nelson................................ -- -- --
</TABLE>
- ---------------
(1) Each phantom unit equals 398.606 phantom shares. The value of each phantom
share is equal to the result obtained by dividing (i) five times Avondale's
earnings before depreciation, amortization, LIFO inventory adjustments,
interest (including discount and expenses on sale of receivables) and
income taxes for the 10 fiscal quarters immediately preceding such date
divided by 2.5, plus (ii) certain "balance sheet adjustments" by the sum of
(i) the aggregate number of outstanding phantom shares plus (ii) the
aggregate number of outstanding Class A Common Stock and Class B Common
Stock of the Company. Phantom units vest at the rate of 5.0% per year for
each full and uninterrupted year that the Named Executive Officer remains
employed by the Company after August 31, 1989, and vest fully if the Named
Executive Officer dies before his employment is terminated. The value of
vested phantom units is payable beginning on the later of the date on which
the Named Executive Officer reaches the age of 65 or the date on which the
employment of such Named Executive Officer Terminates (the "Normal Payment
Date"), in 10 equal annual installments, with interest equal to the
one-year U.S. Treasury Bill rate in effect on the Normal Payment Date. If
the Named Executive Officer dies before his employment with the Company is
terminated, the value of his phantom units on the date of death is payable
to his beneficiary as described above. If the Named Executive Officer dies
after his Normal Payment Date, the present value of the balance of the
annual installments is payable in a lump sum to his beneficiary. A Named
Executive Officer will forfeit all interest in his Phantom Stock Units
(whether or not vested) if he violates certain non-compete covenants
applicable during such Named Executive Officer's employment and for a
period of five years after termination of such employment.
22
<PAGE> 37
(2) There are no threshold, target or maximum amounts payable with respect to
phantom unit awards made by the Company. The amounts shown reflect the
future value, excluding interest payable during the installment payment
period, as of September 1, 1996, of vested and non-vested phantom units
held at the end of fiscal 1996 based on the results of the Company for the
10 fiscal quarters ended August 30, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee consisted of Messrs. Boden,
Calhoun (since May 1996), Callaway and Stevens. The Compensation Committee is
responsible for recommending to the Board of Directors the Compensation for the
Company's executive officers, which compensation is then approved by the full
Board of Directors.
C. Linden Longino, Jr., a director of the Company, served as an officer of
SunTrust Bank, Atlanta during fiscal 1996. Avondale and SunTrust Bank, Atlanta
are parties to five letter of credit agreements relating to industrial revenue
bonds issued in connection with certain of the Company's manufacturing
facilities. In addition, SunTrust Bank, Atlanta has performed other banking
services for the Company over the past three fiscal years. Aggregate payments by
the Company to SunTrust Bank, Atlanta for such services did not exceed 5% of the
Company's net sales or SunTrust Bank, Atlanta's gross revenues in any of such
fiscal years.
Mr. Felker is a director of Wachovia, a former executive officer of which,
John P. Stevens, is a director of the Company. The Company maintains the Credit
Facility, under which it has aggregate borrowing availability of $225 million,
with a syndicate of banks, including Wachovia, for which Wachovia serves as
agent, pursuant to a loan agreement dated April 29, 1996. The greatest amount
owed by the Company under the Credit Facility (and its predecessor agreements)
during fiscal 1996 was $180.3 million, and aggregate interest paid by the
Company under such agreements during fiscal 1996 was $9.1 million. In addition,
Wachovia has performed other banking services for the Company over the past
three fiscal years. Aggregate payments by the Company to Wachovia for such
services did not exceed 5% of the Company's net sales or Wachovia's gross
revenues in any of such fiscal years.
Robert B. Calhoun, a director of the Company, is an affiliate of certain
investors that purchased Class A Common Stock of the Company in the 1996 Private
Placement for an aggregate purchase price of $40 million. In addition, Mr.
Calhoun is an affiliate of Clipper, to which the Company paid a $600,000 closing
fee in connection with the 1996 Private Placement.
The Company believes that its bank credit facilities, including the
Existing Credit Facility, have been on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
facilities with other borrowers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors during fiscal 1996
consisted of Dale J. Boden, Robert B. Calhoun (since May 1996), Kenneth H.
Callaway and John P. Stevens. None of the members of the Compensation Committee
is an employee of the Company. During fiscal 1996, the Compensation Committee
was responsible for (i) establishing the compensation for the Company's Named
Executive Officers and (ii) administering the Company's stock option plan.
Compensation Policy. The Company's executive compensation policy is
designed to attract, retain and motivate executive officers to maximize the
Company's performance and shareholder value by:
- providing base salaries that are market-competitive;
- rewarding the achievement of the Company's business plan goals and
earnings objectives; and
- creating stock ownership opportunities to align the interests of
executive officers with those of shareholders.
23
<PAGE> 38
In light of the Company's compensation policy, the components of its
executive compensation program for fiscal 1996 included base salaries, cash
bonuses and stock options.
Base Salary. Each executive officer's base salary, including the Chief
Executive Officer's base salary, is determined based upon a number of factors
including the executive officer's responsibilities, contribution to the
achievement of the Company's business plan goals, demonstrated leadership skills
and overall effectiveness, and length of service. Base salaries are also
designed to be competitive with those offered in the various markets in which
the Company competes for executive talent and are analyzed with a view towards
desired base salary levels over a three-year to five-year time period. Each
executive officer's salary is reviewed annually and although these and other
factors are considered in setting base salaries, no specific weight is given to
any one factor. During fiscal 1996, the base salary of each Named Executive
Officer other than the Chief Executive Officer and Mr. Nelson was increased by
approximately 4.0% to 8.6% over each such executive officer's fiscal 1995 base
salary. Mr. Nelson's base salary was increased by 30.4% during fiscal 1996 over
his fiscal 1995 base salary in connection with his assumption of the
responsibilities of President -- Avondale Yarns. Mr. Felker's base salary was
increased by 3.5% during fiscal 1996 over his fiscal 1995 base salary.
Cash Bonuses. Each executive officer, including the Chief Executive
Officer, is eligible to receive an annual cash bonus. The Company's cash bonus
program is designed to motivate key managers and sales people as well as
executive officers and reward the achievement of specific business plan goals.
Under the Company's bonus plan, in fiscal 1996, certain executive officers were
eligible to earn a cash bonus in an amount up to 25% to 100% of their respective
base salaries depending on a number of factors including, without limitation,
the Company's financial performance as well as the executive officer's
achievement of certain individual performance goals. During fiscal 1996, under
this plan, the Named Executive Officers other than the Chief Executive Officer
earned bonuses ranging from 22% to 57% of their respective base salaries. Mr.
Felker's bonus was equal to 107% of his base salary.
Stock Options. The grant of stock options is designed to align the
interests of executive officers with those of shareholders in the Company's
long-term performance. Stock options granted have exercise prices equal to the
fair market value of the underlying shares on the date of grant so that
compensation is earned only through long-term appreciation in the fair market
value of the underlying shares. Stock options are granted from time to time if
warranted by the Company's growth and profitability and individual grants are
based on, among other things, the executive officer's responsibilities and
individual performance. To encourage an executive officer's long-term
performance, stock options generally vest over five years and terminate ten
years after the date of grant. The creation of opportunities to own stock is
considered the most significant component in an executive officer's compensation
package. During fiscal 1996, the Named Executive Officers received stock option
grants ranging from options to purchase 20,000 to 25,000 shares.
Dale J. Boden
Robert B. Calhoun
Kenneth H. Callaway
John P. Stevens
THE FOREGOING REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY
GENERAL STATEMENT INCORPORATING BY REFERENCE THIS ANNUAL REPORT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1993, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE
ACT OF 1934 (TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACTS.
24
<PAGE> 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 30, 1996, by (i) each
person who is known to the Company to be the beneficial owner of more than 5% of
the outstanding Class A Common Stock or Class B Common Stock, (ii) each of the
Named Executive Officers, (iii) each of the directors of the Company and (iv)
all directors and executive officers of the Company as a group. Except as set
forth below, the shareholders named below have sole voting and investment power
with respect to all shares of Common Stock shown as being beneficially owned by
them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF CLASS A OF CLASS B
COMMON STOCK COMMON STOCK PERCENTAGE
---------------------- ---------------------- OF
NUMBER PERCENT NUMBER PERCENT COMBINED
NAME OF BENEFICIAL OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS VOTING POWER
- ------------------------------------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
G. Stephen Felker(2)................. 4,120,689 30.9% 978,938 100% 71.1%
Jack R. Altherr, Jr.(3).............. 127,199 1.0% -- -- *
T. Wayne Spraggins(4)................ 92,628 * -- -- *
Keith M. Hull (5).................... 60,000 * -- -- *
Robert G. Nelson (6)................. 3,450 * -- -- *
Dale J. Boden(7)..................... 113,500 * -- -- *
Kenneth H. Callaway.................. 37,500 * -- -- *
Robert B. Calhoun(8)(9)(10).......... 2,245,523 18.2% -- -- 7.0%
Harry C. Howard...................... 45,000 * -- -- *
C. Linden Longino, Jr.(11)........... 34,500 * -- -- *
John P. Stevens(12).................. 98,500 * -- -- *
The Clipper Group(9)(10)(13)......... 2,222,223 18.1% -- -- 7.0%
Grayward Company(14)................. 3,754,500 30.5% -- -- 11.8%
Felker Investments, Ltd.(15)......... 2,093,750 17.0% -- -- 6.6%
Avondale Mills, Inc. Associate Profit
Sharing and Savings Plan(16)....... 600,000 4.9% -- -- 1.9%
All directors and executive officers
as a group (15 persons)............ 7,001,566 52.3% 978,939 100% 80.0%
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise noted, the address of each person who is an officer or
a director of the Company is c/o Avondale Mills, Inc., 506 South Broad
Street, Monroe, Georgia 30655.
(2) Includes (i) 2,093,750 shares of Class A Common Stock held of record by
Felker Investments, Ltd., a partnership of which Mr. Felker is the general
partner (as the general partner, Mr. Felker is deemed to beneficially own
such shares under Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act")), (ii) 978,939 shares of Class A Common Stock issuable upon
conversion of the 978,939 shares of Class B Common Stock beneficially owned
by Mr. Felker and (iii) 48,000 shares of Class A Common Stock issuable upon
exercise of stock options beneficially owned by Mr. Felker, which shares
are deemed beneficially owned by Mr. Felker under Rule 13d-3 under the
Exchange Act.
(3) Includes 20,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Altherr, which shares are deemed
beneficially owned by Mr. Altherr under Rule 13d-3 under the Exchange Act.
(4) Includes 10,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Spraggins, which shares are deemed
beneficially owned by Mr. Spraggins under Rule 13d-3 under the Exchange
Act.
(5) Includes 10,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Hull, which shares are deemed
beneficially owned by Mr. Hull under Rule 13d-3 under the Exchange Act.
25
<PAGE> 40
(6) Includes 2,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Nelson, which shares are deemed
beneficially owned by Mr. Nelson under Rule 13d-3 under the Exchange Act.
(7) Reflects (i) 2,500 shares beneficially owned by BF Capital, Inc. and (ii)
111,000 shares beneficially owned by Hilliard Lyons Trust Co. Trustee Dale
Boden and Charles Boden Irrevocable T/U/A dated July 21, 1993, with respect
to which Mr. Boden is a beneficiary. Mr. Boden is the majority shareholder
of BF Capital, Inc. and, consequently, is deemed to beneficially own under
Rule 13d-3 under the Exchange Act all of the shares beneficially owned by
the Trust.
(8) The address of Mr. Calhoun is c/o Clipper Capital Partners, L.P., 12 East
49th Street, New York, New York 10017.
(9) Includes shares beneficially owned by Clipper Capital Associates, L.P.
("CCA"), Clipper/Merchant Partners, L.P. and Clipper Equity Partners I,
L.P. (whose address is 12 East 49th Street, New York, New York 10017),
Clipper/Merban L.P. ("Merban") and Clipper/European Re, L.P. (whose address
is c/o CITCO, De Ruyterkade, 62, P.O. Box 812, Curacao, Netherlands
Antilles) and CS First Boston Merchant Investments 1995/96, L.P.
("Merchant") (whose address is 55 East 52nd Street, New York, New York
10055).
(10) CCA is the general partner of all of the Clipper Group partnerships other
than Merchant. The general partner of CCA is Clipper Capital Associates,
Inc. ("CCI"), and Mr. Calhoun is the sole stockholder and a director of
CCI. Clipper, an affiliate of Mr. Calhoun, has sole voting and investment
power with respect to the shares of Class A Common Stock beneficially owned
by Merchant. As a result, each of Mr. Calhoun, CCA and CCI is deemed to
beneficially own all shares of Class A Common Stock beneficially owned by
the Clipper Group (other than Merchant), and Mr. Calhoun is deemed to
beneficially own the shares of Class A Common Stock beneficially owned by
Merchant. It is anticipated that Merban will beneficially own shares of
Class A Common Stock representing approximately 5.5% of the outstanding
Class A Common Stock and that none of the other members of the Clipper
Group will beneficially own more than 5% of the outstanding Class A Common
Stock.
(11) Includes 14,500 shares beneficially owned by Mr. Longino's spouse.
(12) Includes 9,500 shares beneficially owned by Mr. Steven's spouse.
(13) Merchant Capital, Inc. ("Merchant Capital"), an affiliate of CS First
Boston Corporation, is the general partner of Merchant and the 99% limited
partner of Clipper/Merchant Partners, L.P. CS Holding, an affiliate of CS
First Boston Corporation, is the indirect 99% limited partner of Merban.
None of Merchant, Merchant Capital, CS First Boston Corporation and CS
Holding is an affiliate of Clipper or CCA.
(14) Grayward Company's address is c/o SunTrust Bank, Nashville, N.A., P.O. Box
305110, Nashville, Tennessee 37230. Grayward Company is a trust of which
SunTrust Bank, Nashville, N.A. serves as trustee. As trustee, SunTrust
Bank, Nashville, N.A. is deemed to beneficially own under Rule 13d-3 under
the Exchange Act all of the shares beneficially owned by Grayward Company.
(15) The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506 South
Broad Street, Monroe, Georgia 30655.
(16) The address of the Avondale Mills, Inc. Associate Profit Sharing and
Savings Plan (the "Plan") is c/o Wachovia Bank of North Carolina, N.A.,
P.O. Box 3099, Winston-Salem, N.C. 27150. Wachovia Bank of North Carolina,
N.A., serves as trustee for the Plan and, as such, is deemed to
beneficially own under Rule 13d-3 under the Exchange Act all of the shares
beneficially owned by the Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C. Linden Longino, Jr., a director of the Company, served as an officer of
SunTrust Bank, Atlanta during fiscal 1996. The Company and SunTrust Bank,
Atlanta are parties to five letter of credit agreements relating to industrial
revenue bonds issued in connection with certain of the Company's facilities. See
"Management -- Compensation Committee Interlocks and Insider Participation".
John P. Stevens, a director of the Company, is a former executive officer
of Wachovia. The Company maintains the Credit Facility, under which the Company
has aggregate borrowing availability of $225 million with a syndicate of banks,
including Wachovia, for which Wachovia serves as agent, pursuant to a loan
26
<PAGE> 41
agreement dated April 29, 1996. See "Management -- Compensation Committee
Interlocks and Insider Participation". The Company believes that its bank credit
facilities, including the Credit Facility, have been on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable facilities with other borrowers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Robert B. Calhoun, a director of the Company, is an affiliate of certain of
the investors that purchased Class A Common Stock in the 1996 Private Placement
for an aggregate purchase price of $40 million. As a result, Mr. Calhoun is
deemed to beneficially own the 2,222,223 shares of Class A Common Stock of the
Company that were purchased by such investors. In addition, Mr. Calhoun is an
affiliate of Clipper, to which the Company paid a $600,000 closing fee in
connection with the 1996 Private Placement.
27
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The following Consolidated Financial Statements of the Company and its
consolidated subsidiaries and the Report of the Independent Auditors, included
in the Registrant's Annual Report to Shareholders for the year ended August 30,
1996 are included in Part II, Item 8.
Report of Independent Auditors
Consolidated Balance Sheets as of August 25, 1995 and August 30, 1996
Consolidated Statements of Income -- Fiscal Years Ended August 26,
1994, August 25, 1995 and August 30, 1996
Consolidated Statements of Shareholders' Equity -- Fiscal Years Ended
August 26, 1994, August 25, 1995 and August 30,1996
Consolidated Statements of Cash Flows -- Fiscal Years Ended August 26,
1994, August 25, 1995 and August 30, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules of the Company.
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <C> <S>
2.1 -- Asset Purchase Agreement, dated March 31, 1996 among Avondale Incorporated, Avondale
Mills, Inc., Graniteville Company and Triarc Companies, Inc. (incorporated by
reference to Exhibit 2.1 to the Avondale Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01).
3.1 -- Restated and Amended Articles of Incorporation of Avondale Incorporated
(incorporated by reference to Exhibit 3.1 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
3.2 -- Bylaws of Avondale Incorporated (incorporated by reference to Exhibit 3.2 to
Avondale Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
4.1 -- Indenture for the Notes between Avondale Incorporated, Avondale Mills, Inc. and The
Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
4.2 -- Amended and Restated Credit Agreement, dated as of April 29, 1996, among Avondale
Mills, Inc., the Banks listed therein and Wachovia Bank of Georgia, N.A., as Agent
(incorporated by reference to Exhibit 4.3 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
4.3 -- Amended and Restated Security Agreement, dated April 29, 1996, between Avondale
Mills, Inc. and Wachovia Bank of Georgia, N.A., as agent for the Banks which are
parties to the Amended and Restated Credit Agreement (incorporated by reference to
Exhibit 4.4 to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
4.4 -- Amended and Restated Parent Guaranty, dated April 29, 1996, executed by Avondale
Incorporated in favor of Wachovia Bank of Georgia, N.A., as agent for the Banks
which are parties to the Amended and Restated Credit Agreement (incorporated by
reference to Exhibit 4.5 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
4.5 -- Amended and Restated Stock Pledge Agreement, dated April 29, 1996, between Wachovia
Bank of Georgia, N.A., as agent for the Banks which are parties to the Amended and
Restated Credit Agreement, and Avondale Incorporated (incorporated by reference to
Exhibit 4.6 to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
</TABLE>
28
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <C> <S>
4.6 -- Agreement to Provide Certain Debt Instruments to the Commission upon Request
(incorporated by reference to Exhibit 4.7 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.1 -- Receivables Purchase Agreement, dated April 29, 1996, among Avondale Mills, Inc., as
Servicer, and Avondale Receivables Company (incorporated by reference to Exhibit
10.1 to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.2 -- Pooling and Servicing Agreement, dated April 29, 1996, among Avondale Receivables
Company, Avondale Mills, Inc. and Manufacturers and Traders Trust Company
(incorporated by reference to Exhibit 10.2 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.3 -- Series 1996-1 Supplement to the Pooling and Servicing Agreement, dated April 29,
1996, among Avondale Receivables Company, Avondale Mills, Inc. and Manufacturers and
Traders Trust Company (incorporated by reference to Exhibit 10.3 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
10.4 -- The Certificate Purchase Agreement, dated April 29, 1996, among Avondale Receivables
Company, Avondale Mills, Inc., the purchasers described therein and First National
Bank of Chicago, as agent (incorporated by reference to Exhibit 10.4 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
10.5 -- Registration Rights Agreement, dated April 29, 1996 between Avondale Incorporated
and the Persons listed therein (incorporated by reference to Exhibit 10.8 to
Avondale Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
10.6 -- Shareholders Agreement, dated April 29, 1996 among Avondale Incorporated, the
Investors listed therein, the Shareholders listed therein and Clipper Capital
Partners, L.P., in its capacity as Purchaser Representative under the Agreement
(incorporated by reference to Exhibit 10.9 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.7 -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27, 1993 by and
among Avondale Incorporated, Metropolitan Life Insurance Company, 1985 Merchant
Investment Partnership, Merchant LBO, Inc., G. Stephen Felker, John F. Maypole and
Jack R. Altherr, Jr. (incorporated by reference to Exhibit 10.10 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
10.8 -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27, 1993 by and
among Avondale Incorporated, Metropolitan Life Insurance Company, 1985 Merchant
Investment Partnership, Merchant LBO, Inc., G. Stephen Felker, John F. Maypole and
T. Wayne Spraggins (incorporated by reference to Exhibit 10.11 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
10.9 -- Avondale Incorporated Stock Option Plan (incorporated by reference to Exhibit 10.12
to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.10 -- Avondale Mills, Inc. Associate Profit Sharing and Savings Plan (incorporated by
reference to Exhibit 10.13 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
10.11 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for G. Stephen Felker
(incorporated by reference to Exhibit 10.14 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.12 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Jack R. Altherr, Jr.
(incorporated by reference to Exhibit 10.15 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01)
10.13 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for T. Wayne Spraggins
(incorporated by reference to Exhibit 10.17 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.14 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Keith Hull.
10.15 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Robert G. Nelson.
10.16 -- Phantom Unit Awards to G. Stephen Felker (incorporated by reference to Exhibit 10.19
to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
</TABLE>
29
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <C> <S>
10.17 -- Phantom Unit Awards to Jack R. Altherr, Jr. (incorporated by reference to Exhibit
10.21 to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)
10.18 -- Phantom Unit Awards to T. Wayne Spraggins (incorporated by reference to Exhibit
10.23 to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.19 -- Phantom Unit Awards to Keith M. Hull.
10.21 -- Supply Agreement dated March 31, 1996 between the Company and C.H. Patrick & Co.,
Inc. (incorporated by reference to Exhibit 10.24 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 33-5455-01).
10.22 -- Note Purchase Agreement, dated December 28, 1995, among Oneita Industries, Inc.,
Robert M. Gintel, and Avondale Mills, Inc. (incorporated by reference to Exhibit
10.5 to Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Ernst & Young LLP, independent public accountants.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
(b) Reports on Form 8-K
Not applicable.
(c) See Item 14(a)(3) and separate Exhibit Index attached hereto.
(d) Not applicable.
30
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AVONDALE INCORPORATED
By: G. STEPHEN FELKER
--------------------------------------
Name: G. Stephen Felker
Title:Chairman of the Board,
President and
Chief Executive Officer
Date: November 13, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ G. STEPHEN FELKER Chairman of the Board, November 13, 1996
- --------------------------------------------- President and Chief
G. Stephen Felker Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ JACK R. ALTHERR, JR. Vice Chairman, Chief November 13, 1996
- --------------------------------------------- Financial Officer and
Jack R. Altherr, Jr. Director
DIRECTORS:
/s/ DALE J. BODEN Director November 13, 1996
- ---------------------------------------------
Dale J. Boden
/s/ ROBERT B. CALHOUN Director November 13, 1996
- ---------------------------------------------
Robert B. Calhoun
/s/ KENNETH H. CALLAWAY Director November 13, 1996
- ---------------------------------------------
Kenneth H. Callaway
/s/ HARRY C. HOWARD Director November 13, 1996
- ---------------------------------------------
Harry C. Howard
/s/ C. LINDEN LONGINO, JR. Director November 13, 1996
- ---------------------------------------------
C. Linden Longino, Jr.
/s/ JOHN P. STEVENS Director November 13, 1996
- ---------------------------------------------
John P. Stevens
</TABLE>
31
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------------------------------------------------------- -------------
<C> <C> <S> <C>
2.1 -- Asset Purchase Agreement, dated March 31, 1996 among Avondale
Incorporated, Avondale Mills, Inc., Graniteville Company and Triarc
Companies, Inc. (incorporated by reference to Exhibit 2.1 to the
Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
3.1 -- Restated and Amended Articles of Incorporation of Avondale Incorporated
(incorporated by reference to Exhibit 3.1 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01)..............
3.2 -- Bylaws of Avondale Incorporated (incorporated by reference to Exhibit
3.2 to Avondale Incorporated's Registration Statement on Form S-4, File
No. 333-5455-01).......................................................
4.1 -- Indenture for the Notes between Avondale Incorporated, Avondale Mills,
Inc. and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 4.1 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).............................................
4.2 -- Amended and Restated Credit Agreement, dated as of April 29, 1996,
among Avondale Mills, Inc., the Banks listed therein and Wachovia Bank
of Georgia, N.A., as Agent (incorporated by reference to Exhibit 4.3 to
Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
4.3 -- Amended and Restated Security Agreement, dated April 29, 1996, between
Avondale Mills, Inc. and Wachovia Bank of Georgia, N.A., as agent for
the Banks which are parties to the Amended and Restated Credit
Agreement (incorporated by reference to Exhibit 4.4 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
4.4 -- Amended and Restated Parent Guaranty, dated April 29, 1996, executed by
Avondale Incorporated in favor of Wachovia Bank of Georgia, N.A., as
agent for the Banks which are parties to the Amended and Restated
Credit Agreement (incorporated by reference to Exhibit 4.5 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
4.5 -- Amended and Restated Stock Pledge Agreement, dated April 29, 1996,
between Wachovia Bank of Georgia, N.A., as agent for the Banks which
are parties to the Amended and Restated Credit Agreement, and Avondale
Incorporated (incorporated by reference to Exhibit 4.6 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
4.6 -- Agreement to Provide Certain Debt Instruments to the Commission upon
Request (incorporated by reference to Exhibit 4.7 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
10.1 -- Receivables Purchase Agreement, dated April 29, 1996, among Avondale
Mills, Inc., as Servicer, and Avondale Receivables Company
(incorporated by reference to Exhibit 10.1 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01)..............
10.2 -- Pooling and Servicing Agreement, dated April 29, 1996, among Avondale
Receivables Company, Avondale Mills, Inc. and Manufacturers and Traders
Trust Company (incorporated by reference to Exhibit 10.2 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------------------------------------------------------- -------------
<C> <C> <S> <C>
10.3 -- Series 1996-1 Supplement to the Pooling and Servicing Agreement, dated
April 29, 1996, among Avondale Receivables Company, Avondale Mills,
Inc. and Manufacturers and Traders Trust Company (incorporated by
reference to Exhibit 10.3 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01)...........................
10.4 -- The Certificate Purchase Agreement, dated April 29, 1996, among
Avondale Receivables Company, Avondale Mills, Inc., the purchasers
described therein and First National Bank of Chicago, as agent
(incorporated by reference to Exhibit 10.4 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01)..............
10.5 -- Registration Rights Agreement, dated April 29, 1996 between Avondale
Incorporated and the Persons listed therein (incorporated by reference
to Exhibit 10.8 to Avondale Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01)........................................
10.6 -- Shareholders Agreement, dated April 29, 1996 among Avondale
Incorporated, the Investors listed therein, the Shareholders listed
therein and Clipper Capital Partners, L.P., in its capacity as
Purchaser Representative under the Agreement (incorporated by reference
to Exhibit 10.9 to Avondale Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01)........................................
10.7 -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27,
1993 by and among Avondale Incorporated, Metropolitan Life Insurance
Company, 1985 Merchant Investment Partnership, Merchant LBO, Inc., G.
Stephen Felker, John F. Maypole and Jack R. Altherr, Jr. (incorporated
by reference to Exhibit 10.10 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01)...........................
10.8 -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27,
1993 by and among Avondale Incorporated, Metropolitan Life Insurance
Company, 1985 Merchant Investment Partnership, Merchant LBO, Inc., G.
Stephen Felker, John F. Maypole and T. Wayne Spraggins (incorporated by
reference to Exhibit 10.11 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01)...........................
10.9 -- Avondale Incorporated Stock Option Plan (incorporated by reference to
Exhibit 10.12 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).............................................
10.10 -- Avondale Mills, Inc. Associate Profit Sharing and Savings Plan
(incorporated by reference to Exhibit 10.13 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01)..............
10.11 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for G.
Stephen Felker (incorporated by reference to Exhibit 10.14 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
10.12 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Jack R.
Altherr, Jr. (incorporated by reference to Exhibit 10.15 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
10.13 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for T. Wayne
Spraggins (incorporated by reference to Exhibit 10.17 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
10.14 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Keith
Hull...................................................................
10.15 -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Robert
G. Nelson..............................................................
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------------------------------------------------------- -------------
<C> <C> <S> <C>
10.16 -- Phantom Unit Awards to G. Stephen Felker (incorporated by reference to
Exhibit 10.19 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).............................................
10.17 -- Phantom Unit Awards to Jack R. Altherr, Jr. (incorporated by reference
to Exhibit 10.21 to Avondale Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01)........................................
10.18 -- Phantom Unit Awards to T. Wayne Spraggins (incorporated by reference to
Exhibit 10.23 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).............................................
10.19 -- Phantom Unit Awards to Keith M. Hull...................................
10.21 -- Supply Agreement dated March 31, 1996 between the Company and C.H.
Patrick & Co., Inc. (incorporated by reference to Exhibit 10.24 to
Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01)...........................................................
10.22 -- Note Purchase Agreement, dated December 28, 1995, among Oneita
Industries, Inc., Robert M. Gintel, and Avondale Mills, Inc.
(incorporated by reference to Exhibit 10.5 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01)..............
12.1 -- Computation of Ratio of Earnings to Fixed Charges......................
23.1 -- Consent of Ernst & Young LLP, independent public accountants...........
27 -- Financial Data Schedule (for SEC use only).............................
</TABLE>
- ---------------
(b) Reports on Form 8-K
Not applicable.
(c) See Item 14(a)(3) and separate Exhibit Index attached hereto.
(d) Not applicable.
<PAGE> 1
EXHIBIT 10.14
November 18, 1994
TO: Keith Hull
FROM: Richard H. Monk, Jr.
I am pleased to inform you that you have been approved to participate in
the management incentive plan for fiscal 1995. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1995, the amount of your actual incentive award will be
based on two factors: (1) Financial Goals, and (2) Personal Goals, as set
forth below.
Financial Goals
The Financial Goals for your fiscal 1995 award are as follows:
(Thousands of Dollars)
Corporate
Performance Avondale Fabrics Operating Earnings
Level Division Income (EBDLIT)
----------- ---------------- ------------------
50% $19,050 $50,000
100% 24,300 60,000
The portion of your actual incentive award related to Financial Goals
will be based 50% on Avondale Fabrics Division Income and 50% on Corporate
Operating Earnings (EBDLIT). This portion of your actual incentive award will
be determined by multiplying your total base salary paid in fiscal 1995 times
your individual percentage award times the sum of 50% of the Performance Level
achieved for Avondale Fabrics Division Income and 50% of the Performance Level
achieved for Corporate Operating Earnings (EBDLIT) as set forth above and will
be calculated by the Company. The Performance Levels will be prorated when
final financial results fall between the 50% and 100% levels. No incentive
award based on Financial Goals will be paid if the applicable Performance Level
is below 50%, and no additional incentive award will be paid for any financial
results which exceed the 100% Performance Level.
Personal Goals
An additional incentive award of up to 25% of your individual
percentage award may be made to you based upon your successful achievement, as
determined by the Company, of your Personal Goals for fiscal year 1995. A copy
of your Personal Goals is attached.
The general guidelines of the plan for fiscal 1995 are as follows:
<PAGE> 2
Keith Hull
November 18, 1994
Page 2
1. Corporate Operating Earnings (EBDLIT) and Avondale Fabrics
Division Income will be defined as reported in the Company's
financial statements.
2. Your actual incentive award will be paid on an annual basis,
with payment to be made as soon as practical after the fiscal
year audit is completed.
3. No incentive award will be paid if you are not in the employ of
the Company on the last day of the fiscal year (effective date
of severance must be on or after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or
demotion), payment of the incentive award will be determined
on a case-by-case basis. The Company reserves the right to
deny payment or to reduce the incentive award in the case
of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me.
A copy is provided for your personal files.
/s/ Richard
RHMJr/cas
Acknowledged: /s/ Keith Hull
----------------------
Date: 11-22-94
------------------------------
<PAGE> 3
AVONDALE FABRICS DIVISION
FISCAL 1995 PERSONAL GOALS
KEITH HULL, PRESIDENT, AVONDALE FABRICS
1. Meet budgeted conversion costs of $1.432/yard for range and yarn dyed
fabrics.
2. Meet budgeted division recovery of 94.7%.
3. Meet budgeted expenses in Division of $10,634,620 (5.62%) S G & A and
Mill Indirects.
4. Reduce the total out-of-pocket loss from complaints from $285,000 in
fiscal year 1994 to $175,000 in fiscal year 1995.
5. Develop a new customer (not including Lee, Levi, Wrangler, Oshkosh, Liz
Claiborne, Girbaud and Liberty) with the last six months annualized
sales of at least $3,750,000.
<PAGE> 1
EXHIBIT 10.15
November 18, 1994
TO: Bob Nelson
FROM: Richard H. Monk, Jr.
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1995. You will participate in the
plan based on an individual percentage award of 40%.
For fiscal 1995, the amount of your actual incentive award will be
based on two factors: (1) Financial Goals, and (2) Personal Goals, as set
forth below.
Financial Goals
The Financial Goals for your fiscal 1995 award are as follows:
(Thousands of Dollars)
Corporate
Performance Walton Fabrics Operating Earnings
Level Division Income (EBDLIT)
----------- --------------- ------------------
50% $ 3,750 $50,000
100% 5,000 60,000
The portion of your actual incentive award related to Financial Goals
will be based 50% on Walton Fabrics Division Income and 50% on Corporate
Operating Earnings (EBDLIT). This portion of your actual incentive award will
be determined by multiplying your total base salary paid in fiscal 1995 times
your individual percentage award times the sum of 50% of the Performance Level
achieved for Walton Fabrics Division Income and 50% of the Performance Level
achieved for Corporate Operating Earnings (EBDLIT) as set forth above and will
be calculated by the Company. The Performance Levels will be prorated when
final financial results fall between the 50% and 100% levels. No incentive
award based on Financial Goals will be paid if the applicable Performance Level
is below 50%, and no additional incentive award will be paid for any financial
results which exceed the 100% Performance Level.
Personal Goals
An additional incentive award of up to 25% of your individual
percentage award may be made to you based upon successful achievement, as
determined by the Company, of your Personal Goals for fiscal year 1995. A copy
of your Personal Goals is attached.
The general guidelines of the plan for fiscal 1995 are as follows:
<PAGE> 2
Bob Nelson
November 18, 1994
Page 2
1. Corporate Operating Earnings (EBDLIT) and Walton Fabrics
Division Income will be defined as reported in the Company's
financial statements.
2. Your actual incentive award will be paid on an annual basis,
with payment to be made as soon as practical after the fiscal
year audit is completed.
3. No incentive award will be paid if you are not in the employ
of the Company on the last day of the fiscal year (effective
date of severance must be on or after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or
demotion), payment of the incentive award will be determined
on a case-by-case basis. The Company reserves the right to
deny payment or to reduce the incentive award in the case
of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me.
A copy is provided for your personal files.
/s/ Richard
RHMJr/cas
Acknowledged: /s/ Robert G. Nelson
---------------------------
Date: 11/21/94
-------------------------------------
<PAGE> 3
WALTON FABRICS DIVISION
FISCAL 1995 PERSONAL GOALS
BOB NELSON, PRESIDENT, WALTON FABRICS DIVISION
1. Meet budgeted conversion costs of $.6006/pound.
2. Meet or exceed raw material recovery goal of 94.5%.
3. Achieve 0 lost time and 8 recordable injuries maximum.
4. Meet budgeted average division margin of $.1985/pound.
5. Develop and introduce 2 new value-added, enhanced profitability
programs which result in sales of at least 100,000 yards of each product
annually.
<PAGE> 1
EXHIBIT 10.19
March 15, 1990
Mr. Keith Hull
302 Highland Circle
Sylacauga, AL 35150
Dear Keith:
Avondale's continued success depends upon the superior performance of all
of its associates working together as a team. To make the relationship mutually
beneficial, there is a system of rewards in place, including compensation,
profit sharing and other benefits as well as attractive and safe working
environments and, at certain management levels, performance incentives.
An additional opportunity for reward is now being offered to you and a few
key associates. The program involves the grant of phantom stock units which
effectively provides equity participation in the growth of the company. The
program will not replace or detract from existing benefits.
While the phantom stock units do not represent actual shares of equity in
Avondale and therefore do not carry voting and other rights associated with
stock ownership, their grant nonetheless represents substantial financial
recognition by the company's shareholders of the importance and role played by
key associates.
Please review carefully the following terms and conditions of your grant of
phantom stock units. As questions arise, please direct them to John Hudson, Jack
Altherr or me. Because relatively few key associates will participate in the
program, I request that you recognize the need for confidentiality.
1. GRANT OF PHANTOM STOCK UNITS
Your participation in the program will take the form of a grant, effective
September 1, 1989, of 60 "phantom stock units". A phantom stock unit is simply a
bookkeeping measure which represents your vested and nonvested interest in the
value of the company (as defined in section 2).
2. VALUE OF PHANTOM STOCK UNITS
The value of each phantom stock unit on any date will be 0.002% of an
amount, which shall be determined by Avondale, equal to "EBDLIT" times five,
plus "Balance Sheet Adjustments". Avondale defines EBDLIT as the consolidated
earnings of Avondale and its subsidiaries before depreciation, amortization,
LIFO inventory adjustments, interest and income taxes, for the ten fiscal
quarters immediately preceding such date, divided by 2.5. Avondale defines
Balance Sheet Adjustments as an amount, which may be positive or negative, equal
to the consolidated cash, cash equivalents and short term investments of
Avondale and its subsidiaries minus the consolidated debt of Avondale and its
subsidiaries, determined as of the final day of the last fiscal period for which
financial statements were prepared and that immediately precedes the date such
amount is determined.
3. VESTING OF PHANTOM STOCK UNITS
Your vested interest in your phantom stock units will increase (subject to
section 7) at the rate of five percent per year for each full and uninterrupted
year that you continue to work for Avondale after August 31, 1989.
You also will (subject to section 7) become fully vested in your phantom
stock units if you die before your employment by Avondale terminates.
Finally, you will forfeit your entire interest in your phantom stock units
(whether or not vested under this section 3) if you engage in any actions
described under section 7.
<PAGE> 2
4. PAYMENT AT RETIREMENT
Avondale will compute and pay the value of your vested interest in your
phantom stock units to you in cash beginning as of your "Normal Payment Date",
which will be the date you reach age 65 or, if later, the date your employment
by Avondale terminates. Your payment will be made with interest in ten equal
annual installments, calculated as an annuity payable on your Normal Payment
Date and on the first nine anniversaries of your Normal Payment Date using an
interest rate equal to the one year Treasury Bill rate which Avondale deems in
effect on your Normal Payment Date.
5. TERMINATION OF EMPLOYMENT
If your employment with Avondale terminates (for any reason whatsoever
except death) before your Normal Payment Date, further vesting will cease and
Avondale will compute the value of your vested interest in your phantom stock
units as of your termination date. The value of your vested interest in your
phantom stock units, as so determined and without further increase, shall be
paid to you beginning on your Normal Payment Date; that is, no further
appreciation or depreciation in the value of the phantom stock units nor any
crediting of interest will occur after your employment terminates. Beginning
with your Normal Payment Date, payment will be made in ten equal annual
installments, as if you retired, in accordance with section 4 using the value of
your vested interest in your phantom stock units as calculated at termination
and the one year Treasury Bill rate which Avondale deems in effect on your
Normal Payment Date.
6. DEATH BENEFIT
If you die before your employment with Avondale terminates, you will become
fully vested in your phantom stock units in accordance with section 3. Avondale
will compute the value of your phantom stock units as of the date of your death
in accordance with section 2 and pay such amount to your beneficiary.
If you die after your employment with Avondale terminates but before your
Normal Payment Date, Avondale will pay to your beneficiary the value of your
vested interest in your phantom stock units as calculated under section 5.
If you die after your Normal Payment Date, Avondale will calculate the
present value (discounted to the date of your death using the one year Treasury
Bill rate which Avondale deems in effect on your Normal Payment Date) of any
unpaid annual installments established under section 4 and pay such amount to
your beneficiary.
Any death benefit payment to your beneficiary under this section 6 will be
made in lump sum in cash within 90 days after the date of your death.
Please complete and return the attached beneficiary designation form to the
corporate secretary. If you fail to designate a beneficiary for your interest in
your phantom stock units (or your beneficiary fails to survive you), Avondale
will treat your estate as your beneficiary for your interest in your phantom
stock units. You can change your beneficiary at any time by returning a new
beneficiary designation form to the corporate secretary, and such change will be
effective on the date the new beneficiary designation form is received by the
corporate secretary.
7. FORFEITURE OF BENEFITS
If, in Avondale's opinion, you either (a) compete directly or indirectly
with Avondale or (b) engage in any actions or make any statements which are
detrimental to Avondale's best interests, at any time while you are employed by
Avondale or before the end of the five year period following your termination of
employment with Avondale, you will forfeit your entire vested and nonvested
interest in your phantom stock units.
8. AMENDMENT/TERMINATION
This letter sets forth the terms and conditions of this program in their
entirety. Avondale reserves the right to amend the terms and conditions of this
program from time to time or to terminate this program at any
2
<PAGE> 3
time and for any reason whatsoever. However, Avondale will not amend
retroactively the formula outlined in section 2 for valuing phantom stock units
or the rate at which you vest in such units under section 3 (other than the
forfeiture conditions).
No action to amend or terminate this program shall be effective unless such
action is set forth in writing and signed by me or my successor as Chief
Executive Officer of Avondale.
If this program is terminated, Avondale will compute and pay your vested
interest in your phantom stock units in accordance with section 5 as if your
employment by Avondale had terminated on the date Avondale terminated this
program.
9. NOT A CONTRACT OF EMPLOYMENT
You are an employee at will and you may terminate your employment, or your
employment may be terminated by Avondale, at any time without notice. Nothing in
this grant of phantom stock units shall give you any right to continue your
employment with Avondale or shall limit in any way Avondale's right to terminate
your employment, or your right to terminate your employment, at any time,
without regard to the effect of such termination on this grant.
10. NON-TRANSFERABILITY/CONSTRUCTION
You may not alienate, assign, transfer or otherwise encumber your interest
in your phantom stock units and any action to do so shall be treated as a
violation of your grant and shall not be binding on Avondale or this program.
The terms and conditions of this program shall be construed in accordance with
the laws of Alabama to the extent such laws are not preempted by ERISA.
11. SOURCE OF BENEFITS
All benefits payable to you pursuant to this grant of phantom stock units
will be paid from the general assets of Avondale, and the status of your claim
for benefits shall be the same as the status of a claim against Avondale by any
general and unsecured creditor. No assets of Avondale whatsoever shall be
earmarked or otherwise set aside or encumbered in any manner whatsoever to pay
any benefit payable to you pursuant to this grant. Further, you shall have no
right to look to any officer, director, employee or agent of Avondale in his
individual capacity for payment of any such benefits whatsoever.
Very truly yours,
/s/ G. STEPHEN FELKER
--------------------------------------
G. Stephen Felker
GSF/lj
3
<PAGE> 4
AVONDALE MILLS, INC.
ASSOCIATE: HULL, KEITH
PHANTOM STOCK UNITS: 90
ESTIMATED VALUE ON SEPTEMBER 1, 1992: $452,700
VESTING AND POTENTIAL VALUE:
<TABLE>
<CAPTION>
VALUE OF UNITS
-------------------------
AGE % IF 5% IF 10%
FISCAL YEAR 9/1 VESTED GROWTH GROWTH
- ----------------------------------------------------- --- ------ ---------- ----------
<S> <C> <C> <C> <C>
1992................................................. 39 15.0 % $ 452,700 $ 452,700
1993................................................. 40 20.2 % 475,335 497,970
1994................................................. 41 25.0 % 499,102 547,767
1995................................................. 42 30.0 % 524,057 602,544
1996................................................. 43 35.0 % 550,260 662,798
1997................................................. 44 40.0 % 577,773 729,078
1998................................................. 45 45.0 % 606,661 801,986
1999................................................. 46 50.0 % 636,994 882,184
2000................................................. 47 55.0 % 668,844 970,403
2001................................................. 48 60.0 % 702,286 1,067,443
2002................................................. 49 65.0 % 737,401 1,174,187
2003................................................. 50 70.0 % 774,271 1,291,606
2004................................................. 51 75.0 % 812,984 1,420,767
2005................................................. 52 80.0 % 853,633 1,562,843
2006................................................. 53 85.0 % 896,315 1,719,127
2007................................................. 54 90.0 % 941,131 1,891,040
2008................................................. 55 95.0 % 988,187 2,080,144
2009................................................. 56 100.0 % 1,037,597 2,288,159
2010................................................. 57 100.0 % 1,089,477 2,516,975
2011................................................. 58 100.0 % 1,143,950 2,768,672
2012................................................. 59 100.0 % 1,201,148 3,045,539
2013................................................. 60 100.0 % 1,261,205 3,350,093
2014................................................. 61 100.0 % 1,324,266 3,685,102
2015................................................. 62 100.0 % 1,390,479 4,053,613
2016................................................. 63 100.0 % 1,460,003 4,458,974
2017................................................. 64 100.0 % 1,533,003 4,904,871
Annual Payment:
10 Year Annuity @ 8.5%............................................. $ 215,338 $ 688,977
</TABLE>
- ---------------
NOTES: The purpose of this schedule is to show the potential value of your
phantom stock units for the years shown above assuming you continue to
work for Avondale for each year shown and assuming Avondale grows at a 5%
or 10% rate per year. However, the actual value of your phantom stock
units will depend on the actual growth rate achieved by Avondale and the
date your employment by Avondale terminates.
The annual payment shown in the example above has been calculated as a ten
year annuity assuming (a) your employment by Avondale terminates at age 65, (b)
Avondale grows at a 5% or 10% rate per year and (c) the one year Treasury Bill
rate in effect at the time you reach age 65 is 8.5%.
4
<PAGE> 5
PROJECTED VALUE OF PHANTOM STOCK UNIT
AT SEPTEMBER 1, 1992
<TABLE>
<S> <C>
EBDLIT:
FY 1992 -- Projected......................................................... $ 88,615,469
FY 1991...................................................................... 27,572,548
3rd quarter '90.............................................................. 17,492,754
4th quarter '90.............................................................. 12,876,433
------------
Ten quarters ended 8/28/92..................................................... 146,557,204
Annualizing Factor............................................................. 2.50
------------
Average Annual EBDLIT.......................................................... 58,622,882
Phantom Stock Multiple......................................................... 5.00
------------
293,114,408
Plus Cash (at May 29, 1992).................................................... 8,208,214
Less Debt (at May 29, 1992).................................................... (49,800,000)
------------
Phantom Stock Base............................................................. 251,522,622
% of Base per Unit............................................................. 0.002%
------------
Estimated Value of Phantom Stock Unit.......................................... $ 5,030
===========
</TABLE>
5
<PAGE> 6
AVONDALE MILLS, INC.
ASSOCIATE: HULL, KEITH
PHANTOM STOCK UNITS: 60
ESTIMATED VALUE ON SEPTEMBER 1, 1989: $290,682
VESTING AND POTENTIAL VALUE:
<TABLE>
<CAPTION>
VALUE OF UNITS
-------------------------
% IF 5% IF 10%
FISCAL YEAR AGE VESTED GROWTH GROWTH
- ----------------------------------------------------- --- ------ ---------- ----------
<S> <C> <C> <C> <C>
1990................................................. 38 0.0 % $ 290,682 $ 290,682
1991................................................. 39 5.0 % 305,216 319,750
1992................................................. 40 10.0 % 320,477 351,725
1993................................................. 41 15.0 % 336,501 386,898
1994................................................. 42 20.0 % 353,326 425,588
1995................................................. 43 25.0 % 370,992 468,146
1996................................................. 44 30.0 % 389,542 514,961
1997................................................. 45 35.0 % 409,019 566,457
1998................................................. 46 40.0 % 429,470 623,103
1999................................................. 47 45.0 % 450,943 685,413
2000................................................. 48 50.0 % 473,490 753,954
2001................................................. 49 55.0 % 497,165 829,350
2002................................................. 50 60.0 % 522,023 912,285
2003................................................. 51 65.0 % 548,124 1,003,513
2004................................................. 52 70.0 % 575,531 1,103,865
2005................................................. 53 75.0 % 604,307 1,214,251
2006................................................. 54 80.0 % 634,522 1,335,676
2007................................................. 55 85.0 % 666,249 1,469,244
2008................................................. 56 90.0 % 699,561 1,616,168
2009................................................. 57 95.0 % 734,539 1,777,785
2010................................................. 58 100.0 % 771,266 1,955,564
2011................................................. 59 100.0 % 809,829 2,151,120
2012................................................. 60 100.0 % 850,321 2,366,232
2013................................................. 61 100.0 % 892,837 2,602,855
2014................................................. 62 100.0 % 937,479 2,863,141
2015................................................. 63 100.0 % 984,353 3,149,455
2016................................................. 64 100.0 % 1,033,570 3,464,400
2017................................................. 65 100.0 % 1,085,249 3,810,840
Annual Payment:
10 Year Annuity @ 8.5%............................................. $ 152,443 $ 535,301
</TABLE>
- ---------------
NOTES: The purpose of this schedule is to show the potential value of your
phantom stock units for the years shown above assuming you continue to
work for Avondale for each year shown and assuming Avondale grows at a 5%
or 10% rate per year. However, the actual value of your phantom stock
units will depend on the actual growth rate achieved by Avondale and the
date your employment by Avondale terminates.
The annual payment shown in the example above has been calculated as a ten
year annuity assuming (a) your employment by Avondale terminates at age 65, (b)
Avondale grows at a 5% or 10% rate per year and (c) the one year Treasury Bill
rate in effect at the time you reach age 65 is 8.5%.
6
<PAGE> 7
ESTIMATED VALUE OF PHANTOM STOCK UNIT
AT SEPTEMBER 1, 1989
<TABLE>
<S> <C>
EBDLIT:
FY 1987 (3rd & 4th qtr)..................................................... $ 41,769,030
FY 1988..................................................................... 72,449,443
FY 1989..................................................................... 58,200,711
-------------
Total -- 10 qtrs............................................................ 172,419,154
Annualizing Factor.......................................................... 2.5
-------------
Annualized EBDLIT........................................................... 68,967,674
Valuation Multiple............................................................ 5
-------------
EBDLIT X 5.................................................................... 344,838,370
Balance Sheet Adjustments
Cash........................................................................ 2,321,691
Debt........................................................................ (104,925,000)
-------------
Estimated Company Value....................................................... 242,235,061
% Company Value Per Unit...................................................... 0.002%
-------------
Estimated Value of Phantom Stock Unit......................................... $ 4,845
============
</TABLE>
7
<PAGE> 8
December 6, 1994
Mr. Keith Hull
302 Highland Circle
Sylacauga, Alabama 35150
Dear Keith:
When the phantom stock program was adopted in fiscal 1990, the objective of
the Board of Directors was to provide long term incentives to management which
parallel the economic interests of Avondale's shareholders. Although the phantom
stock units do not represent actual shares of equity in Avondale, their grant
does represent a significant financial commitment by the shareholders to allow
key members of management an opportunity to participate in the growth of the
Company.
In my letters granting the phantom stock units, the value of a phantom
stock unit was defined to be 0.002% of Avondale's equity value, as determined by
a specific formula (five times annualized EBDLIT for the past ten fiscal
quarters plus cash minus debt). Since this approach uses a fixed percentage of
calculated equity instead of an equivalent number of phantom shares, substantial
dilution or accretion in the value of a phantom stock unit may be created by
stock-related transactions while the value of a share of common stock may not be
affected similarly. As an example of the potential dilution, the March 1994
leveraged purchase of common stock shares from CS First Boston and Metropolitan
Life Insurance Company produced a nearly 40% decline in the calculated value of
a phantom stock unit (see Schedule A).
To ensure that the original objective of the phantom stock program is
achieved, the Board of Directors has approved an amendment to the provisions of
the program such that the value of a phantom stock unit will be determined using
phantom shares. The number of phantom shares per phantom stock unit will be
defined as 0.002% of the total number of shares of common stock of Avondale (AM
Acquisition, Inc.) outstanding at September 1, 1989, including the phantom
shares. The number of phantom shares so calculated at September 1, 1989 will be
adjusted for any subsequent stock splits or stock dividends, such as the August
27, 1993 merger and stock dividend (see Schedule B). As a result, this approach
begins with the same value established at September 1, 1989 using 0.002% of
calculated equity but allows the value per phantom stock unit to "float" with
the actual number of shares outstanding and eliminates the undesired dilution or
accretion in value. Again as an example, the dilution caused by the leveraged
stock purchase is virtually eliminated by using the phantom share calculation
(see Schedule C).
All 90 phantom stock units awarded to you are subject to the terms and
conditions set forth in my letters of March 15, 1990 and July 20, 1992, copies
of which are enclosed for your reference. To execute the amendment described
above, Section 2 of the terms and conditions set forth in my letter of March 15,
1990 is hereby restated and replaced in its entirety with the following:
2. VALUE OF PHANTOM STOCK UNITS
The value of each phantom stock unit on any date (the "valuation
date") will be equal to the "Equity Value of the Company Per Share"
multiplied by 398.606 phantom shares. The "Equity Value of the Company Per
Share", as determined by Avondale, shall be equal to the sum of "EBDLIT"
times five, plus "Balance Sheet Adjustments", divided by the sum of the
total number of shares of Avondale Incorporated Class A and Class B common
stock outstanding on the valuation date plus 398,606 phantom shares.
Avondale defines EBDLIT as the consolidated earnings of Avondale and
its subsidiaries before depreciation, amortization, LIFO inventory
adjustments, interest and income taxes, for the ten fiscal quarters
immediately preceding such date, divided by 2.5. Avondale defines Balance
Sheet Adjustments as an amount, which may be positive or negative, equal to
the consolidated cash, cash equivalents and short term investments of
Avondale and its subsidiaries minus the consolidated debt of Avondale and
its subsidiaries, determined as of the final day of the last fiscal period
for which financial statements were prepared and that immediately precedes
the valuation date.
8
<PAGE> 9
All other terms and conditions contained in my letters granting your 90
phantom stock units remain in full force and effect.
If you have any questions regarding this amendment, please direct them to
Jack Altherr or me. As noted in previous correspondence, due to the relatively
few key associates participating in the program, we ask that you recognize the
need for confidentiality.
Please indicate your understanding and acceptance of the above amendment by
signing and returning the enclosed copy of this letter to me.
Very truly yours,
/s/ G. STEPHEN FELKER
--------------------------------------
Acknowledged and accepted:
/s/ KEITH M. HULL
- --------------------------------------
Date: December 19th, 1994
9
<PAGE> 10
SCHEDULE A
AVONDALE MILLS, INC.
VALUE OF PHANTOM STOCK UNIT
(USING TWO PERCENT OF CALCULATED EQUITY VALUE)
<TABLE>
<CAPTION>
2ND QUARTER 3RD QUARTER
FY 1994 FY 1994
------------ -------------
<S> <C> <C>
Annualized cash flow -- EBDLIT (past 10 fiscal quarters)......... $ 88,024,754 $ 86,433,972
Valuation multiple............................................... 5.00 5.00
------------ -------------
440,123,770 432,169,860
Cash............................................................. 372,287 1,411,191
Debt............................................................. (42,950,000) (204,330,590)
------------ -------------
Calculated equity value (per formula)............................ 397,546,057 229,250,461
% equity per phantom stock unit.................................. 0.0020% 0.0020%
------------ -------------
Value of phantom stock unit...................................... $ 7,951 $ 4,585
=========== ============
</TABLE>
10
<PAGE> 11
SCHEDULE B
AVONDALE MILLS, INC.
CALCULATION OF PHANTOM SHARES
<TABLE>
<CAPTION>
SHARES % SHARES
------------ --------
<S> <C> <C>
Shares outstanding at 9/1/89 (AM Acquisition, Inc.)
First Boston........................................................ 185.7200 15.73%
Metropolitan Life................................................... 368.2800 31.19%
John Maypole........................................................ 4.0000 0.34%
Walton Monroe....................................................... 501.0000 42.43%
Stephen Felker...................................................... 58.0000 4.91%
Class B............................................................. 40.2083 3.41%
------------ --------
1,157.2083 98.00%
Calculated phantom shares (AM Acquisition, Inc.)...................... 23.6165 2.00%
------------ --------
1,180.8248 100.00%
=========== =======
Calculated phantom shares (AM Acquisition, Inc.)...................... 23.6165
Factor for merger with Walton Monroe.................................. 67.5131
------------
1,594.4240
Factor for stock dividend............................................. 250.0000
------------
Phantom shares........................................................ 398,605.9976
===========
AVONDALE INCORPORATED -- AUGUST 1, 1994
Class A shares outstanding............................................ 10,089,811 87.99%
Class B shares outstanding............................................ 978,939 8.54%
------------ --------
Total common shares................................................... 11,068,750 96.52%
Phantom shares (whole shares)......................................... 398,606 3.48%
------------ --------
11,467,356 100.00%
=========== =======
</TABLE>
11
<PAGE> 12
SCHEDULE C
AVONDALE MILLS, INC.
VALUE OF PHANTOM STOCK UNIT
(USING CALCULATED EQUITY VALUE PER PHANTOM SHARE)
<TABLE>
<CAPTION>
2ND QUARTER 3RD QUARTER
FY 1994 FY 1994
------------ -------------
<S> <C> <C>
Annualized cash flow -- EBDLIT (past 10 fiscal quarters)......... $ 88,024,754 $ 86,433,972
Valuation multiple............................................... 5.00 5.00
----------- ------------
440,123,770 432,169,860
Cash............................................................. 372,287 1,411,191
Debt............................................................. (42,950,000) (204,330,590)
----------- ------------
Calculated equity value (per formula)............................ 397,546,057 229,250,461
Total number of shares (including phantom shares)................ 20,880,436 11,467,356
----------- ------------
Calculated equity value per share................................ $ 19.04 $ 19.99
Phantom shares per unit.......................................... 398.606 398.606
----------- ------------
$ 7,589 $ 7,969
=========== ============
</TABLE>
12
<PAGE> 13
July 20, 1992
Mr. Keith M. Hull
302 Highland Circle
Sylacauga, Alabama 35150
Dear Keith:
This letter amends the grant of phantom stock units awarded to you by my
letter of March 15, 1990, a copy of which is attached for your reference.
Effective this date, your grant is increased by 30 phantom stock units, bringing
your total award to 90 phantom stock units.
All 90 phantom stock units awarded to you are subject to the terms and
conditions set forth in my March 15, 1990 letter. Accordingly, your interest in
your 90 phantom stock units will vest at five percent per year for each full and
uninterrupted year that you continue to work for Avondale after August 31, 1989.
Should you remain so employed, you will become fully vested on August 31, 2009.
Payment in the form of ten annual installments will begin upon your 65th
birthday assuming you retire at that time.
In addition, your interest in your 90 phantom stock units will become fully
vested in the event you die before your employment with Avondale terminates.
Your vested value will be computed as of the date of your death and paid to your
beneficiary in a single lump sum.
If you should have any questions regarding the terms of the grant, please
direct them to Richard Monk, Jack Altherr or me. Because relatively few key
associates participate in the program, I request that you recognize the need for
confidentiality.
Very truly yours,
/s/ STEPHEN FELKER
--------------------------------------
Stephen Felker
GSF/lj
13
<PAGE> 1
EXHIBIT 12.1
AVONDALE INCORPORATED
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(AMOUNTS IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------
1992 1993 1994 1995 1996
------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 4.5 $ 2.1 $ 6.5 $ 14.3 18.5
Discount and expenses on sale of -- -- -- -- 3.7
accounts receivables -- -- -- -- .9
------ ------ ------ ------ ------
Amortization of debt issuance costs $ 4.5 $ 2.1 $ 6.5 $ 14.3 $ 23.1
Fixed Charges ====== ====== ====== ====== ======
Earnings:
Pretax income from continuing operations $ 81.5 $ 74.2 $ 22.6 $ 34.0 $ 22.7
Fixed charges 4.5 2.1 6.5 14.3 23.1
------ ------ ------ ------ ------
Earnings $ 86.0 76.3 $ 29.1 $ 48.3 $ 45.8
====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges 19.0x 37.2x 4.5x 3.4x 2.0x
</TABLE>
<PAGE> 1
EXHIBIT 23.1
We consent to the reference to our firm under the caption "Item 6. Selected
Financial Data" included in this Annual Report (Form 10-K) and the incorporation
by reference in the Registration Statement (Form S-4 File No. 333-5455 and
333-5455-01) and in the related Prospectus of Avondale Incorporated and Avondale
Mills, Inc. of our report dated October 18, 1996, with respect to the
consolidated financial statements and schedule of Avondale Incorporated included
in this Annual Report (Form 10-K) for the year ended August 30, 1996.
ERNST & YOUNG LLP
Atlanta, Ga.
November 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-30-1996
<PERIOD-START> AUG-26-1995
<PERIOD-END> AUG-30-1996
<CASH> 7,253
<SECURITIES> 0
<RECEIVABLES> 89,348
<ALLOWANCES> 4,920
<INVENTORY> 127,698
<CURRENT-ASSETS> 229,421
<PP&E> 430,632
<DEPRECIATION> 190,838
<TOTAL-ASSETS> 493,079
<CURRENT-LIABILITIES> 97,095
<BONDS> 299,850
0
0
<COMMON> 133
<OTHER-SE> 67,379
<TOTAL-LIABILITY-AND-EQUITY> 493,079
<SALES> 706,232
<TOTAL-REVENUES> 706,232
<CGS> 599,149
<TOTAL-COSTS> 661,306
<OTHER-EXPENSES> 3,731
<LOSS-PROVISION> 1,629
<INTEREST-EXPENSE> 18,512
<INCOME-PRETAX> 22,683
<INCOME-TAX> 9,035
<INCOME-CONTINUING> 13,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,648
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 0
</TABLE>
