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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 18, 1996
Avondale Incorporated
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(Exact name of registrant as specified in its charter)
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Georgia 58-0477150
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(State of incorporation) (Commission File Number) (IRS Employer Identification No.)
506 South Broad Street 30655
Monroe, Georgia ---------
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(Address of principal exeutive offices)
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Registrant's telephone number, including area code: (770) 267-2226
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
Avondale Incorporated (the "Company"), or its executive officers and
directors on behalf of the Company, may from time to time make "forward looking
statements" within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934 (collectively, the "Acts"). The Company is filing this
Current Report on Form 8-K to avail itself of the safe harbor provided in the
Acts with respect to any such (i) forward looking statements that may be
contained in the Company's reports and other documents filed with the
Securities and Exchange Commission under Sections 13 or 15(d) of the Securities
Exchange Act of 1934 and (ii) oral forward looking statements made by the
Company's executive officers and directors on behalf of the Company to the
press, potential investors, securities analysts and others. Such forward
looking statements could involve, among other things, statements regarding the
Company's intent, belief or expectation with respect to (i) the Company's
results of operations and financial condition, (ii) the consummation of
acquisitions and financing transactions and the effect thereof on the Company's
business, and (iii) the Company's plans and objectives for future operations
and expansion. Any such forward looking statements would be subject to risks
and uncertainties that could cause actual results of operations, financial
condition, acquisitions, financing transactions, operations, expansion and
other events to differ materially from those expressed or implied in such
forward looking statements. Any such forward looking statements would be
subject to a number of assumptions regarding, among other things, future
economic, competitive and market conditions generally. Such assumptions would
be based on facts and conditions as they exist at the time such statements are
made as well as predictions as to future facts and conditions, the accurate
prediction of which may be difficult and involve the assessment of events
beyond the Company's control. Further, the Company's business is subject to a
number of risks that would affect any such forward looking statements such
risks include, among others, the following:
CYCLICAL AND COMPETITIVE NATURE OF TEXTILE INDUSTRY. The demand for
textile products tends to fluctuate with the general business cycle of the
U.S. economy. In addition, the popularity, supply and demand for
particular textile products may change significantly from year to year
based on prevailing fashion trends and other factors. These factors have
contributed to fluctuations in the sales and profitability of certain
textile products and in the Company's results of operations. A decline in
the demand for textile products, an increase in the supply of textile
products due to expansion of capacity within the textile industry, changes
in fashion trends or deteriorating economic conditions could have a
material adverse effect on the Company's results of operations and
financial condition.
Reflecting the cyclical nature of the textile industry, many textile
producers tend to increase capacity during years in which sales are
strong. Such increases in capacity tend to accelerate a general economic
downturn in the Company's textile markets. In North America, new
production capacity could negatively impact the Company's results in its
denim and other fabrics and yarn businesses. Further, future capacity
increases in the yarn and denim and other fabric industries could
influence future pricing depending upon market conditions.
The textile industry is highly competitive, and no single company is
dominant. The Company's competitors include large, vertically integrated
textile companies and numerous smaller companies. Increases in domestic
capacity and imports of foreign-made textile and apparel products are a
significant source of competition for many domestic textile manufacturers.
Competition in the form of imported textile and apparel products, pricing
strategies of domestic competitors and the proliferation of newly styled
fabrics competing for fashion acceptance have been factors affecting the
Company's business environment. 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 business.
RAW MATERIALS. The primary raw material used in the Company's
manufacturing processes is cotton, and the cost of cotton is one of the
most significant factors affecting the Company's cost of sales. Until
1991, domestic cotton prices generally exceeded world prices, which
created a competitive disadvantage for the Company and other domestic
textile manufacturers. The U.S. government has taken legislative action
to improve this price imbalance, but there can be no assurance that this
will continue to be the case. To the extent that U.S. cotton prices
exceed world cotton prices, the Company's competitiveness may be
materially,
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adversely affected. Cotton prices are also affected by general economic
conditions as well as the demand for U.S. cotton in world markets and may
increase or decrease depending on other market variables at the time.
Prevailing cotton prices significantly impact the Company's results of
operations, and price increases could have a material adverse effect on
the Company's results of operations and financial condition. In
connection with its purchase of cotton, the Company substantially covers
open order requirements through direct purchases and hedging transactions.
Although the Company believes it acts prudently in hedging its cotton
requirements, there can be no assurance that such transactions will not
result in higher costs to the Company or will protect the Company from
fluctuations in cotton prices. Further, since cotton is an agricultural
product, its supply and quality are subject to forces of nature. Although
the Company has always obtained sufficient supplies of cotton, 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 and
financial condition.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT. The Company has
substantial indebtedness outstanding and, as a consequence, has
significant debt service requirements. The degree to which the Company is
leveraged has important consequences including the following: (i) the
ability of the Company to obtain additional financing in the future,
whether for working capital, capital expenditures, acquisitions or other
purposes, may be impaired; (ii) a substantial portion of the Company's
cash flow from operations will be required to be dedicated to the payment
of principal and interest on its indebtedness, thereby reducing funds
available to the Company for other purposes; (iii) the Company's
flexibility in planning for or reacting to changes in market conditions
may be limited; and (iv) the Company may be more vulnerable in the event
of a downturn in its business.
The ability of the Company to meet its debt service obligations will
depend on the future operating performance and financial results of the
Company, which will be subject in part to factors beyond the control of
the Company. Although management believes that the Company's cash flow
will be adequate to meet its interest and principal payments, there can be
no assurance that the Company will continue to generate earnings in the
future sufficient to cover its fixed charges. If the Company is unable to
generate earnings in the future sufficient to cover its fixed charges and
is unable to borrow sufficient funds under either its credit facilities or
from other sources, it may be required to refinance all or a portion of
its existing debt or to sell all or a portion of its assets. There can be
no assurance that a refinancing would be possible, nor can there be any
assurance as to the timing of any asset sales or the proceeds which the
Company could realize therefrom. In addition, the Company is subject to
certain contractual restrictions that limit the Company's ability to sell
assets and the use of the proceeds therefrom.
If for any reason, including a shortfall in anticipated operating
results or proceeds from asset sales, the Company were unable to meet its
debt service obligations, it would be in default under the terms of its
indebtedness. In the event of such a default, the holders of such
indebtedness could elect to declare all of such indebtedness immediately
due and payable, including accrued and unpaid interest, and to terminate
their commitments (if any) with respect to funding obligations under such
indebtedness. In addition, such holders could proceed against their
collateral (if any) which, in the case of certain indebtedness, consists
of substantially all of the assets of the Company. Any default with
respect to any of the Company's indebtedness could result in a default
under other indebtedness or result in a bankruptcy of the Company. Such
defaults or any bankruptcy of the Company could result in a default
under the Indenture and could delay or preclude payment of principal of,
or interest on, the Notes.
INTEGRATION OF THE GRANITEVILLE ACQUISITION. The Company acquired
substantially all of the assets and certain of the liabilities of the
textile business of Graniteville Company ("Graniteville") in April 1996
(the "Graniteville Acquisition"). The Graniteville Acquisition was
significantly larger than the Company's previous acquisitions and
represents a substantial increase in the scope of the Company's business.
Successful integration of Graniteville's operations will depend primarily
on the Company's ability to manage Graniteville's manufacturing operations
and eliminate redundancies and excess costs. There can be no assurance
that the Company can successfully integrate Graniteville and any failure
or any inability to do so may have a material adverse effect on the
Company's results of operations and financial condition. In addition, the
Company expects to realize certain cost savings and other business
synergies as a result of the Graniteville Acquisition. Realization of
such cost savings and other business synergies could be affected by a
number of factors
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beyond the Company's control, such as general economic conditions,
increased operating costs, the response of competitors or customers and
regulatory developments. There can be no assurance that the Company will
achieve the expected cost savings and other business synergies.
ACQUISITION RISKS. The Company may seek additional acquisition
opportunities. There can be no assurance that the Company will be able
successfully to identify suitable acquisition candidates, complete
acquisitions, integrate acquired operations into its existing operations
or expand into new markets. There can also be no assurance that future
acquisitions will not have an adverse effect upon the Company's operating
results, particularly in the fiscal quarters immediately following the
completion of such acquisitions while the operations of the acquired
business are being integrated into the Company's operations. Once
integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by the
Company's existing operations, or otherwise perform as expected.
GOVERNMENT POLICY; IMPORT REGULATIONS. The domestic textile market
is subject to various U.S. governmental policies affecting raw material
costs and product supply. In addition, the policies of foreign
governments may, directly or indirectly, affect the domestic market.
Because U.S. textile companies are generally prohibited from importing
cotton, the Company must purchase its cotton in the domestic market.
Prior to 1991, from time to time, price imbalances between world and
domestic cotton prices existed. A series of U.S. legislative initiatives
has resulted in the reduction of the Company's effective cotton costs to
near world levels. Because the availability and cost of cotton are
affected by U.S. agricultural policies, the Company may experience
increased cotton costs that cannot be entirely passed on to its customers.
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. In view of the labor cost
advantages and the number of foreign producers of textile products that
compete with certain of the Company's products, substantial elimination
of import protection for domestic textile manufacturers could have a
material adverse effect on the Company's business. In January 1995, a
new multilateral trade organization, the World Trade Organization ("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 are generally exporters of textile products) that are
members of the WTO to get them to reduce their tariffs on imports of
textiles and apparel. The elimination of quotas and the reduction of
tariffs under the WTO will result in increased 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 ("NAFTA") among Canada,
Mexico and the United States, which became effective on January 1, 1994,
has created the world's largest free-trade zone. The agreement contains
safeguards that were 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. Although management believes that the Company may benefit from
NAFTA, there can be no assurance that the removal of these barriers to
trade will not have a material adverse effect on the Company's results of
operations and financial condition.
RELIANCE ON SIGNIFICANT CUSTOMERS. V.F. Corporation has historically
been a significant customer of the Company. The loss of V.F. Corporation
as a customer, or a significant reduction in its purchases from the
Company (substantially all of which are finished fabrics), could have a
material adverse effect on the Company's business.
ENVIRONMENTAL AND OTHER 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. Certain of the
Company's facilities (which were acquired in connection with an
acquisition in April
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1996) have been cited or are being investigated with respect to alleged
violations of these laws and regulations. The Company's operations also
are governed by laws and regulations relating to workplace safety and
worker health which, among other things, establish cotton dust,
formaldehyde, asbestos and noise standards, and regulate the use of
hazardous chemicals in the workplace. Although the Company does not
expect that compliance with the foregoing environmental or health and
safety laws and regulations will adversely affect the Company's
operations, the Company cannot predict what environmental or health and
safety legislation or regulations will be enacted in the future or how
existing or future laws or regulations will be administered or
interpreted, nor can it predict the amount of future expenditures which
may be required in order to comply with any environmental or health and
safety laws or regulations.
In light of the significant uncertainties inherent in any forward looking
statements, undue reliance should not be placed on any such statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 18, 1996 AVONDALE INCORPORATED
By:/s/ Jack R. Altherr, Jr.
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Jack R. Altherr, Jr.
Vice Chairman and
Chief Financial Officer
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