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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 29, 1997
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
MONROE, GEORGIA 30655
(Address of principal executive offices) (Zip code)
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 X NO
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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, 1997 (based upon the book
value per share of Class A Common Stock as of October 3, 1997) was $17,235,702.
As of November 12, 1997, the registrant had 12,289,837 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................................................................. 2
Item 2. Properties .............................................................. 9
Item 3. Legal Proceedings ....................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ..................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ... 10
Item 6. Selected Financial Data ................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................... 12
Item 7a. Quantitative and Qualitative Disclosures About Market Risks ............. 17
Item 8. Financial Statements and Supplementary Data ............................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................................ 31
Part III
Item 10. Directors and Executive Officers of the Registrant ...................... 32
Item 11. Executive Compensation ................................................. 35
Item 12. Security Ownership of Certain Beneficial Owners and Management .......... 40
Item 13. Certain Relationships and Related Transactions ......................... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........ 43
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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 of the
textile business of Graniteville Company and its subsidiaries ("Graniteville").
The acquisition of Graniteville, founded in 1845, enhanced the Company's
manufacturing and marketing 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
Apparel fabrics. The Company's apparel fabrics consist of cotton and
cotton-blend fabrics used in the manufacture of jeans, sportswear, utility wear
and other apparel.
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 35%, 37% and 36%, respectively, of the
Company's net sales in fiscal 1995, 1996 and 1997.
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% and 21%, respectively, of the Company's net sales in fiscal
1996 and 1997, reflecting the Company's entry into this market as a result of
the Graniteville Acquisition in April 1996.
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
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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. Sportswear fabric sales
accounted for 7% and 12%, respectively, of the Company's net sales in fiscal
1996 and 1997, reflecting the impact of the Graniteville Acquisition in April
1996.
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 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 outside 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 55%, 37% and 25%, respectively, of the
Company's net sales in fiscal 1995, 1996 and 1997.
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 1997. The Company believes
it is the leading supplier of denim to V.F. Corporation (the maker of Lee(R),
Rider(R), Wrangler(R), Rustler(R), Girbaud(R) and HealthTex(R) brand
jeans), with sales to V.F. Corporation accounting for 18% of the Company's net
sales in fiscal 1997. The Company believes that it has a strong working
relationship with V.F. Corporation. Other than V.F. Corporation, none of the
Company's customers accounted for 10% or more of the Company's net sales in
fiscal 1997.
The Company targets customers who demand a high level of customer service.
The Company's five yarn sales offices are located geographically to be close to
customers' manufacturing facilities, and its five 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, lower costs, minimize inventory levels and maximize
flexibility to respond to changes in customer demand.
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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 control systems to
monitor the manufacturing process and computer 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. The Company maintains
ring spinning capability and offers a full line of yarns to respond to varied
customer demand. 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 weaves dyed or undyed
yarn into fabric. Woven fabrics may be piece-dyed and finished 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 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.
Manufacturing Facilities. The Company currently operates 26 manufacturing
facilities in the U.S. Of the Company's manufacturing facilities, sixteen
produce yarn, seven manufacture fabrics, six are dyeing facilities and four are
engaged in fabric finishing.
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 six fiscal years have
included, among others, the following principal initiatives:
- 1992 and 1993 -- Replaced earlier generation open-end spinning
equipment (which generally was less than 10 years old) with
technologically advanced open-end spinning equipment;
- 1992 and 1993 -- Replaced all remaining fly shuttle looms with
state-of-the art rapier looms, replaced some earlier
generation projectile looms with technologically advanced,
high speed projectile looms, and began construction of a new
state-of-the-art indigo dyeing range;
- 1994 -- Completed construction of the additional indigo dyeing
range, continued replacement of earlier generation projectile
looms with technologically advanced projectile looms, and
installed a caustic recovery system;
- 1995 -- Replaced earlier generation drawing systems and
open-end spinning equipment with state-of-the art drawing and
open-end spinning equipment, and installed a fiber reclamation
system;
- 1996 -- Replaced carding equipment in two plants with modern
carding and drawing systems and earlier generation winders in
a third plant with fully automated winders;
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- 1996 -- Acquired Graniteville, which consisted of four
integrated yarn and fabric weaving plants, three indigo dyeing
facilities, one piece dyeing and finishing facility, and one
garment dyeing facility;
- 1996 and 1997 -- Replaced earlier generation projectile looms
with new, high speed air jet looms and installed two new
integrated finishing ranges;
- 1997 -- Began construction of a new weaving facility, to be
completed in April 1998, to house technologically advanced
slashing equipment and high speed air jet looms, upgraded
fabric finishing equipment, and executed a lease for a new
distribution center to be occupied in November 1997; and
- 1997 -- Purchased additional computer controlled cleaning and
blending equipment for one plant, replaced earlier generation
open-end spinning equipment with technologically advanced
spinning equipment at a second plant, and replaced opening and
carding equipment at a third plant.
The Company has recently initiated construction of another new weaving
facility near Graniteville, South Carolina. This facility, which will produce
greige fabrics to be piece-dyed for sportswear and utility wear end uses, is
scheduled to be completed by July 1998.
Raw Materials
The Company believes that it is one of the largest U.S. consumers 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 reduced the imbalance between world and
domestic cotton prices, but there can be no assurance that this will continue to
be the case.
In addition, the Federal Agricultural Improvement and Reform Act of
1996 established certain support programs that, among other things, continue
through 2002, the three-step competitiveness program established under the 1990
Trade Act. In fiscal 1997, the Company received payments from the U.S.
Department of Agriculture under these support programs representing the
differential between domestic cotton prices and world cotton prices. Should such
price differentials continue, the Company would receive additional payments in
fiscal 1998.
The Company closely monitors the cotton market and manages its
cotton-buying practices. The Company's Chief Executive Officer is an officer 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
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developments in the cotton market. The Company generally purchases cotton in
sufficient quantities to achieve planned manufacturing schedules. Such purchases
may be short of, or in excess of, the quantities needed to satisfy customers'
orders depending upon such factors as the Company's outlook for the cotton
market.
The 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. Periodically, the Company
also purchases cotton futures and options contracts to hedge exposure to price
fluctuations in cotton acquired from various suppliers.
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
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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 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.
In 1986, the United States initiated the Special Access Program with
the Caribbean Basin Initiative ("CBI"). The program provided that apparel made,
using U.S. fabrics, by the 24 Caribbean and Central American countries,
excluding Cuba, would not be subject to quotas but only to tariffs. There has
been subsequent U.S. legislation proposed to grant CBI nations trade status
equal to the NAFTA countries, but such legislation has not been adopted to date.
Management believes that NAFTA parity for the CBI region would be favorable for
the Company as it would provide greater access to lower cost labor for apparel
assembly, making the U.S. a more attractive location for textile sourcing.
Backlog
The Company's order backlog was approximately $337.0 million at August
29, 1997, as compared to approximately $329.0 million at August 30, 1996. Orders
on hand are not necessarily indicative of total future sales. Substantially all
of the orders outstanding at August 29, 1997 are expected to be filled by the
end of fiscal 1998.
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
storage 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 are also governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which,
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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 may 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 February 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 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 the 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.
Avondale and DHEC continue to negotiate regarding the appropriate administrative
agreement to govern performance of the additional investigation requested. The
cost of the study proposed by Graniteville Company is estimated to be between
$150,000 and $200,000. 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 29, 1997, the Company had approximately 7,400 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.
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ITEM 2. PROPERTIES
The Company currently operates 26 manufacturing facilities in the U.S.,
of which nine are located in Alabama, three are located in North Carolina, five
are located in Georgia and nine are located in South Carolina. The Company owns
24 of these facilities and leases two facilities in connection with its prior
issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
sixteen produce yarn, seven manufacture fabrics, six are dyeing facilities, and
four are engaged in fabric finishing. Additionally, the Company operates five
warehouses. In 1997, the Company began construction of a weaving facility in
South Carolina, which is expected to be fully operational by April 1998, and has
entered into a lease for a new distribution center that is currently under
construction in South Carolina.
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 wastewater containing hazardous materials, which
allegedly damaged the plaintiffs' real properties as well as causing mental
anguish to the plaintiffs. The complaint seeks an award of compensatory and
punitive damages. After two years and eleven months of litigation, the
plaintiffs amended their complaint to include class action claims and treatment.
Although the Trial Court granted class certification, the Supreme Court of
Alabama reversed the class certification order, and the case will proceed as to
the individual claims of the four plaintiff families. The Company is vigorously
defending this case and believes that it has a number of defenses available to
it. The Company cannot currently predict whether the plaintiffs will prevail on
their claims or the magnitude of their potential recovery, if any. Although
there can be no assurance, based on currently available information, 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.
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 29, 1997 there were 134 and one holders of record of Class A Common Stock
and Class B Common Stock, respectively. The Company paid dividends aggregating
$3.4 million and $3.7 million in respect of its outstanding Common Stock during
fiscal 1996 and 1997, 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 $200 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 29, 1997. Such data were
derived from the audited Consolidated Financial Statements of the Company. The
audited Consolidated Financial Statements and Notes thereto of the Company for
each of the three fiscal years in the period ended August 29, 1997 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.
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FISCAL YEAR
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1993 1994 1995 1996 1997
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(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales............................................ $495.5 $481.6 $538.7 $706.2 $1,049.5
Gross profit......................................... 99.5 51.0 71.2 76.9 126.2
Operating income..................................... 76.8 28.9 47.6 44.9 79.0
Interest expense, net................................ 2.1 6.5 14.3 18.5 26.2
Discount and expenses on sale of receivables......... -- -- -- 3.7 6.6
Loss attributable to investment in Oneita............ -- -- -- -- 7.5
Other (income) expense, net.......................... 0.5 (0.2) (0.8) -- 0.8
Income before income taxes and extraordinary item ... 74.2 22.6 34.0 22.7 37.9
Provision for income taxes........................... 29.0 8.5 13.1 9.0 15.0
Income before extraordinary item..................... 45.2 14.0 20.9 13.6 22.9
Net income........................................... 42.4 14.0 20.9 13.6 22.9
Per Share Data:
Income before extraordinary item..................... $ 2.20 $ .85 $ 1.88 $ 1.15 $ 1.70
Net income........................................... 2.06 .85 1.88 1.15 1.70
Dividends declared................................... .96 .28 .28 .28 .28
Weighted average number of shares outstanding........ 20.6 16.6 11.1 11.9 13.5
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at period end):
Total assets......................................... $255.8 $267.6 $257.4 $493.1 $461.2
Long-term debt, including current portion............ 37.1 200.0 169.9 303.1 251.3
Shareholders' equity................................. 154.1 0.1 18.0 67.5 86.4
Other Data:
Capital expenditures................................. $ 36.4 $ 17.6 $ 15.8 $ 33.4 $ 32.0
Depreciation and amortization........................ 22.4 23.3 23.8 30.4 40.8
EBITDA(1)............................................ 98.3 57.8 75.1 73.4 113.3
Ratio of EBITDA to interest expense, net and
discount and expenses on sale of receivables...... 46.8x 8.9x 5.2x 3.3x 3.2x
Ratio of earnings to fixed charges(2)................ 37.2x 4.5x 3.4x 2.0x 2.1x
</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,
(vi) loss attributable to investment in Oneita and (vii) 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 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.
11
<PAGE> 13
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
------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Apparel fabric sales........................................ 37.9 55.1 68.4
Greige and specialty fabric sales........................... 7.6 7.5 6.5
Yarn sales.................................................. 54.5 37.4 25.1
Cost of goods sold:
Raw materials............................................... 49.2 50.4 47.2
Conversion costs............................................ 33.2 34.4 36.9
Total............................................... 82.4 84.8 84.1
Depreciation.................................................. 4.4 4.3 3.9
Selling and administrative expenses........................... 4.4 4.5 4.5
Operating income.............................................. 8.8 6.4 7.5
Interest expense, net......................................... 2.7 2.6 2.5
Discount and expenses on sale of receivables.................. -- 0.5 0.6
Loss attributable to investment in Oneita..................... -- -- 0.7
Provision for income taxes.................................... 2.4 1.4 1.4
Net income.................................................... 3.9 1.9 2.2
</TABLE>
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales increased 48.6% to $1,049.5 million for fiscal
1997 from $706.2 million for fiscal 1996, primarily as a result of the Company's
acquisition of Graniteville in April 1996.
Apparel fabric sales increased 84.4% to $717.7 million for fiscal 1997
from $389.1 million for fiscal 1996. This increase in sales reflected a 96.0%
increase in yards sold, which was partially offset by a 5.9% decline in average
selling prices. The increase in yards sold was primarily attributable to the
acquisition of Graniteville and expansion of the Company's denim manufacturing
operations. The decline in average selling prices resulted from the inclusion of
a full year of net sales attributable to Graniteville, which generally were at
lower average selling prices than the Company's other apparel fabric sales, and
softening market prices for certain denim fabrics caused by excess inventories
of denim fabric and garments within the industry, as well as increased
production capacity of domestic and Mexican fabric suppliers.
Greige and specialty fabric sales increased 30.0% to $68.5 million for
fiscal 1997 from $52.7 million for fiscal 1996. This increase in sales was
primarily the result of an increase in yards sold due to the inclusion of a full
year of net sales attributable to Graniteville.
12
<PAGE> 14
Yarn sales decreased 0.4% to $263.3 million for fiscal 1997 from $264.4
million for fiscal 1996. This decrease reflected a 2.0% increase in pounds sold
to outside customers offset by a 2.4% decrease in average selling prices for
those pounds. During this same period, yarn production was increased to satisfy
the yarn requirements of the Company's fabric operations. Market prices for
sales yarns remained very competitive, reflecting continued excess production
capacity within the industry during fiscal 1997.
Cost of Goods Sold. Cost of goods sold increased 47.4% to $882.8
million for fiscal 1997 from $599.1 million for fiscal 1996. Cost of goods sold
as a percentage of net sales decreased to 84.1% for fiscal 1997 from 84.8% for
fiscal 1996, primarily due to lower raw material costs. The Company was able to
achieve cost savings to offset the impact of generally higher production costs
of certain Graniteville products.
Selling and Administrative Expenses. Selling and administrative
expenses increased 47.6% to $47.2 million for fiscal 1997 from $32.0 million for
fiscal 1996, primarily due to additional expenses attributable to Graniteville.
Selling and administrative expenses as a percentage of net sales remained
constant at 4.5% for fiscal 1997 and fiscal 1996.
Interest Expense, Net. Interest expense, net increased 41.6% to $26.2
million for fiscal 1997 from $18.5 million for fiscal 1996. This increase
reflected a higher level of outstanding borrowings during fiscal 1997, primarily
as a result of the acquisition of Graniteville.
Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables were $6.6 million for fiscal 1997 compared to $3.7 million
for fiscal 1996. These expenses were related to the Receivables Securitization
Facility (as hereinafter defined) established by the Company in April 1996.
Loss Attributable to Investment in Oneita. During fiscal 1997, the
Company recorded a loss of approximately $7.5 million attributable to its
investment in Oneita, reducing the carrying value of its investment to zero.
Such loss represented the Company's prorata share of the net loss incurred by
Oneita for its four fiscal quarters ended June 28, 1997, limited to the
Company's original investment.
Provision for Income Taxes. Provision for income taxes increased to
$15.0 million for fiscal 1997 from $9.0 million for fiscal 1996, reflecting the
increase in income before income taxes. The Company's effective tax rate was
39.5% for fiscal 1997 compared to 39.8% for fiscal 1996.
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.
13
<PAGE> 15
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
to outside customers 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 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 partially offset 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 established by the Company in April 1996.
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 income before income taxes. The Company's effective tax rate was
39.8% in fiscal 1996 compared to 38.5% in fiscal 1995.
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
revolving credit facility ("Credit Facility"), proceeds received in connection
with sales of trade receivables and proceeds received in connection with
issuance of equity and debt securities. At August 29, 1997, the Company had
borrowings of $112.6 million outstanding under the Credit Facility and $87.4
million of borrowing availability thereunder. Such borrowings bore interest at a
weighted average rate of 7.2% per annum at August 29, 1997. In addition, at
August 29, 1997, $125,000,000 aggregate principal amount of the Notes issued
during fiscal 1996 was outstanding.
Credit Facility
The Credit Facility consists of a five-year revolving line of credit of
up to $200 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 ("Swing Revolver Loans") to be provided by Wachovia Bank
of Georgia, N.A. ("Wachovia"). 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
14
<PAGE> 16
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. 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. 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 counterparties is included in other
liabilities or assets. At August 29, 1997, the Company had swap agreements with
notional amounts aggregating $125.0 million, providing an effective interest
rate of 7.1% 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 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 servicer for the Receivables.
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 of, or interests in, and are
not guaranteed or insured by, the Receivables Company or the Company. At August
29, 1997, certificates of $102.0 million were outstanding.
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 monthly 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.
15
<PAGE> 17
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
provisions of 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 $32.0 million for fiscal
1997. These expenditures were primarily to complete the expansion and
modernization of the Company's Alabama denim operation, begin construction of a
new weaving facility in South Carolina, upgrade fabric finishing ranges in South
Carolina and replace equipment at several of the Company's yarn manufacturing
facilities. Management estimates that capital expenditures for fiscal 1998 will
be approximately $90.0 million, and that such amounts will be used primarily to
construct weaving facilities and to upgrade fabric finishing equipment.
Net cash provided by operating activities was $83.2 million in fiscal
1997. Principal working capital changes included an $8.7 million decrease in
accounts receivable, a $6.8 million decrease in inventories and a $6.9 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily the capital improvements described above and receipt
of the $7.3 million due from Triarc upon finalization of the Graniteville
Acquisition purchase price. Net cash used in financing activities aggregated
$57.9 million, including $51.8 million used to repay long-term indebtedness and
$3.7 million used to pay dividends on outstanding capital stock.
Net cash provided by operating activities was $25.5 million in fiscal
1996. Principal working capital changes included a $21.9 million increase in
accounts receivable, a $1.9 million decrease in inventories (net of the
Graniteville Acquisition) and a $7.4 million increase in accounts payable and
accrued expenses. 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, capital improvements of $33.4
million, 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
16
<PAGE> 18
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
sale of certain real estate 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.
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 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 June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosure About Segments of an Enterprise and Related Information,"
which generally requires that companies report segment information for operating
segments which are revenue producing components for which separate financial
information is produced internally. The Company plans to adopt Statement No. 131
in the first quarter of fiscal 1999, but has not yet completed its analysis of
the impact, if any, Statement No. 131 may have on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 29, 1997
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors....................................................... 19
Consolidated Balance Sheets.......................................................... 20
Consolidated Statements of Income.................................................... 21
Consolidated Statements of Shareholders' Equity...................................... 22
Consolidated Statements of Cash Flows................................................ 23
Notes to Consolidated Financial Statements........................................... 24
</TABLE>
18
<PAGE> 20
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 30, 1996 and August 29, 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three fiscal years in the period ended August 29, 1997. 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 30, 1996 and August 29, 1997, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended August 29, 1997, 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 7, 1997
19
<PAGE> 21
AVONDALE INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 29,
1996 1997
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash .......................................................................... $ 7,253 $ 8,517
Accounts receivable, less allowance for doubtful accounts of $4,920 in
1996 and $5,518 in 1997 .................................................... 84,428 77,698
Due from Triarc ............................................................... 7,250 --
Inventories ................................................................... 127,698 120,860
Prepaid expenses .............................................................. 2,792 1,561
-------- --------
Total current assets .................................................. 229,421 208,636
Property, plant and equipment
Land .......................................................................... 8,490 8,510
Buildings ..................................................................... 64,275 71,155
Machinery and equipment ....................................................... 355,155 379,434
-------- --------
427,920 459,099
Less accumulated depreciation ................................................. (190,838) (230,117)
-------- --------
237,082 228,982
Other assets .................................................................... 26,576 23,604
-------- --------
$493,079 $461,222
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................... $ 47,045 $ 41,884
Accrued compensation, benefits and related expenses........................ 20,182 22,514
Other accrued expenses..................................................... 26,530 22,416
Long-term debt due in one year............................................. 3,250 3,250
Income taxes payable....................................................... 88 4,804
-------- --------
Total current liabilities.......................................... 97,095 94,868
Long-term debt............................................................... 299,850 248,075
Deferred income taxes and other long-term liabilities........................ 28,622 31,917
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 -- 12,312 shares in 1996 and 12,290 shares in 1997....... 123 123
Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding -- 979 shares in 1996 and 1997.......................... 10 10
Capital in excess of par value............................................. 41,844 41,478
Retained earnings.......................................................... 25,535 44,751
-------- --------
Total shareholders' equity......................................... 67,512 86,362
-------- --------
$493,079 $461,222
======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 22
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 25, AUGUST 30, AUGUST 29,
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................................. $ 538,652 $ 706,232 $1,049,474
Operating costs and expenses
Cost of goods sold.................................................... 443,726 599,149 882,760
Depreciation 23,709 30,139 40,508
Selling and administrative expenses................................... 23,606 32,018 47,243
---------- ---------- ----------
Operating income............................................. 47,611 44,926 78,963
Interest expense....................................................... 14,333 18,512 26,158
Discount and expenses on sale of receivables........................... -- 3,718 6,617
Loss attributable to investment in Oneita.............................. -- -- 7,500
Other (income) expense, net............................................ (761) 13 801
---------- ---------- ----------
Income before income taxes.......................................... 34,039 22,683 37,887
Provision for income taxes............................................. 13,100 9,035 14,950
---------- ---------- ----------
Net income................................................... $ 20,939 $ 13,648 $ 22,937
========== ========== ==========
Net income per common share............................................ $ 1.88 $ 1.15 $ 1.70
---------- ---------- ----------
Weighted average shares outstanding.................................... 11,133 11,919 13,469
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 23
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED CAPITAL IN
-------------------- EXCESS OF RETAINED
SHARES AMOUNT PARVALUE EARNINGS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
Net income ..................................... -- -- -- 22,937
Cash dividends ($0.28 per share) ............... -- -- -- (3,721)
Purchase and retirement of treasury stock
(22) -- (366) --
------ -------- -------- --------
Balance at August 29, 1997 ....................... 13,269 $ 133 $ 41,478 $ 44,751
====== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
AUGUST 25, AUGUST 30, AUGUST 29,
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Operating activities
Net income .............................................................. $ 20,939 $ 13,648 $ 22,937
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................................ 23,849 30,411 40,822
Loss attributable to investment in Oneita ............................ -- -- 7,500
Benefit of deferred income taxes ..................................... (85) (5,632) (318)
Interest expense on payment-in-kind notes ............................ 2,337 2,671 --
Other assets ......................................................... (643) (1,016) (3,311)
Other liabilities .................................................... 1,211 1,326 1,639
Gain on sale of equipment ............................................ (738) (696) (681)
Changes in operating assets and liabilities:
Accounts receivable ................................................ 6,142 (21,898) 8,730
Inventories ........................................................ (4,924) 1,888 6,838
Prepaid expenses ................................................... 2,032 (2,380) 1,230
Accounts payable and accrued expenses .............................. (24) 7,401 (6,943)
Income taxes payable 352 (265) 4,716
--------- --------- --------
Net cash provided by operating activities ....................... 50,448 25,458 83,159
Investing activities
Acquisition of Textile Business of Graniteville ......................... -- (247,956) --
Sale of real estate ..................................................... -- 11,484 --
Due from Triarc ......................................................... -- (7,250) 7,250
Investment in Oneita securities ......................................... -- (7,500) --
Purchase of property, plant and equipment ............................... (15,823) (33,439) (32,046)
Proceeds from sale of property, plant and equipment ..................... 1,298 904 763
--------- --------- --------
Net cash used in investing activities ........................... (14,525) (283,757) (24,033)
Financing activities
Principal payments on long-term debt .................................... (3,000) (4,000) (3,250)
Net borrowings (payments) on revolving line of credit ................... (29,375) 54,525 (48,525)
Issuance of subordinated notes .......................................... -- 125,000 --
Deferred financing costs ................................................ -- (6,184) --
Sale of accounts receivable, net......................................... -- 104,000 (2,000)
Issuance of common stock ................................................ -- 39,300 --
Retirement of subordinated notes ........................................ -- (45,014) --
Purchase and retirement of treasury stock ............................... -- -- (366)
Dividends paid (3,099) (3,410) (3,721)
--------- --------- --------
Net cash (used in) provided by financing activities ............. (35,474) 264,217 (57,862)
--------- --------- --------
Increase in cash .......................................................... 449 5,918 1,264
Cash and cash equivalents at beginning of year............................. 886 1,335 7,253
--------- --------- --------
Cash and cash equivalents at end of year......................... $ 1,335 $ 7,253 $ 8,517
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 29, 1997
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.
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, which are
immaterial, are deferred as an adjustment to the carrying value of inventories
and recognized when these inventories are sold.
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. Capital
lease amortization is included with depreciation expense in the consolidated
financial statements.
Effective September 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." The adoption of this statement
had no material impact on the Company's results of operations or financial
position.
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 $4.3 million,
$6.0 million, and $6.9 million for fiscal 1995, 1996, and 1997, respectively.
24
<PAGE> 26
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.
Fair Value of Financial Instruments: The carrying values of cash,
accounts receivable, certain other assets and accounts payable and accrued
expenses approximate reasonable estimates of their fair values at August 30,
1996 and August 29, 1997. See Note 7 for disclosures related to the fair values
of Long term debt and interest rate swap agreements.
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 method) outstanding during each year.
Stock Based Compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related Interpretations in accounting for its employee stock
options and adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS
123"). The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant and, accordingly, recognizes no compensation expense for the stock
option grants.
Recent Accounting Pronouncements: In June 1997, the Financial
Accounting Standards Board issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which generally requires that
companies report segment information for operating segments which are revenue
producing components for which separate financial information is produced
internally. The Company plans to adopt Statement No. 131 in the first quarter of
fiscal 1999, but has not yet completed its analysis of the impact, if any,
Statement No. 131 may have on its financial statements.
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
throughout the year (8%, 14%, and 10% of total revenues in 1995, 1996, and 1997
respectively) on a bill and hold basis, invoicing goods that have been produced,
packaged and made 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 remittance terms and collection experience
on the related invoicing is consistent with all other sales by the Company.
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 1995, 20% of net sales for fiscal 1996, and 18% of net sales
for fiscal 1997.
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 $242.8 million 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.
25
<PAGE> 27
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.
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 and August
27, 1997, an allowance of $6.2 million and $7.6 million, respectively, 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 and $102 million, respectively, were
outstanding at August 30, 1996 and August 29, 1997. Accounts receivable in the
Consolidated Balance Sheet have been reduced by approximately $105 million and
$103 million, respectively, representing the face amount of the outstanding
receivables sold at those dates.
For the fiscal years ended August 30, 1996 and August 29, 1997,
discounts of $3.7 million and $6.6 million, respectively, on sales of
Receivables have been included in Discount and expenses on sale of
26
<PAGE> 28
receivables in the Consolidated Statements of Income. The Company sells the
Receivables as an alternative to incurring additional debt. Viewed on this
basis, the Company's ongoing cost of the facility at August 29, 1997 is equal
to the Eurodollar rate (adjusted for any reserves) plus 0.625% or the bank's
base rate of interest. A commitment fee of .375% per annum is payable monthly
on the unused portion of the facility.
4. Inventories: Components of inventories are as follows (in
thousands):
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 29,
1996 1997
---------- ----------
<S> <C> <C>
Finished goods............................................. $ 35,746 $ 32,907
Work in process............................................ 56,826 51,345
Raw materials.............................................. 26,817 24,556
Dyes and chemicals......................................... 9,119 6,518
-------- --------
Inventories at FIFO........................................ 128,508 115,326
Less allowance to reduce carrying value to LIFO basis...... (7,725) (2,027)
-------- --------
120,783 113,299
Supplies at average cost................................... 6,915 7,561
-------- --------
$127,698 $120,860
======== ========
</TABLE>
5. 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 is accounted for under the equity
method, is included in Other assets in the Consolidated Balance Sheet.
The following summarizes the results of operations reported by Oneita
for its four fiscal quarters ended June 28, 1997 (amounts in thousands):
<TABLE>
<S> <C>
Net Sales $ 136,672
=========
Loss from Operations $ (27,562)
=========
Net Loss $ (35,659)
=========
</TABLE>
During the fiscal year ended August 29, 1997, the Company recorded a
loss of $7.5 million attributable to its investment in Oneita, reducing the
carrying value of its investment to zero. Such loss represented the Company's
pro rata share of the net loss incurred by Oneita for its four fiscal quarters
noted above, limited to the Company's original investment.
27
<PAGE> 29
6. Income Taxes: Provision for income taxes is composed of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $11,376 $12,784 $13,232
State......................................... 1,809 1,883 2,036
------- ------- -------
13,185 14,667 15,268
------- ------- -------
Deferred:
Federal....................................... (86) (4,870) (275)
State......................................... 1 (762) (43)
------- ------- -------
(85) (5,632) (318)
------- ------- -------
$13,100 $ 9,035 $14,950
======== ======= =======
</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>
1995 1996 1997
------- ------ -------
<S> <C> <C> <C>
Taxes on earnings at 35%................................... $11,914 $7,939 $13,261
State income taxes, net of federal tax benefit............. 1,177 729 1,276
Other...................................................... 9 367 413
------- ------ -------
$13,100 $9,035 $14,950
======= ====== =======
</TABLE>
The Company made income tax payments of $12.6 million, $14.3 million
and $10.4 million during fiscal 1995, 1996 and 1997, respectively.
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 30, AUGUST 29,
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation...................................... $ 21,109 $ 21,784
Inventory valuation............................... 7,088 7,395
Goodwill.......................................... 2,688 2,638
Other............................................. 1,781 1,414
-------- --------
Deferred tax liabilities.................. 32,666 33,231
-------- --------
Deferred tax assets:
Employee benefit programs......................... 8,430 8,015
Receivable reserves............................... 4,382 5,285
Other............................................. 2,969 3,364
-------- --------
Deferred tax assets....................... 15,781 16,664
-------- --------
Net deferred tax liabilities........................ $ 16,885 $ 16,567
======== ========
</TABLE>
28
<PAGE> 30
7. Long Term Debt: Long term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 29,
1996 1997
---------- ----------
<S> <C> <C>
Revolving credit facility, interest tied to banks' base rate or
alternative rates, 6.88% - 8.5% in 1997, due April 2001............ $ 161,100 $ 112,575
Industrial revenue bonds, floating rate, 3.10% - 4.70% in 1997, due
in various installments through 2004............................... 17,000 13,750
Senior subordinated notes, 10.25%, due May 1, 2006................. 125,000 125,000
---------- ----------
303,100 251,325
Less current portion............................................... (3,250) (3,250)
---------- ----------
$ 299,850 $ 248,075
========== ==========
</TABLE>
The Company maintains a secured revolving credit facility with a group
of banks which provides aggregate borrowing availability of a maximum of $200
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
0.275% 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, $20.6 million of retained earnings was available
for payment of dividends at August 29, 1997.
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 29, 1997,
the Company had interest rate swap agreements with notional amounts aggregating
$125 million providing an effective interest rate of 7.1% on that equivalent
portion of the revolving credit facility. These interest rate swap agreements
had no significant market value at August 30, 1996 and August 29, 1997, 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 $28.0 million at August 29, 1997. 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. At August 30, 1996, the quoted market value of the notes
approximated their carrying value. At August 29, 1997, the market value of the
notes was approximately $133 million. The Company does not anticipate settlement
of the notes at fair value and currently expects the notes to remain outstanding
through maturity.
29
<PAGE> 31
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 29, 1997, 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 revolving credit facility and
industrial revenue bonds approximates fair value.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998 .......................................... $ 3,250
1999 .......................................... 2,250
2000 .......................................... 3,250
2001 .......................................... 115,075
2002 .......................................... 500
Thereafter through 2006........................... 127,000
--------
$251,325
========
</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 $12.2 million, $15.1 million and
$25.4 million in 1995, 1996 and 1997, respectively.
8. 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 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.
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 shareholder 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.
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.
30
<PAGE> 32
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,
and 50,000 non-qualified options at $12.50 per share and 25,000 non-qualified
options at $18.00 per share, respectively, were forfeited (and reinstated as
available for grant) by associates leaving the Company. The exercise prices of
the options granted approximated the fair market value of the Company's stock on
the dates of grant. All options granted vest ratably over 5 years and may be
exercised for a period of 10 years. At August 29, 1997, there were 955,000 stock
options outstanding, 309,000 of which were exercisable.
The Company adopted a stock option plan for its non-employee directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, automatically each
director will be granted annually, on the fifth day following the annual
shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. The options will be exercisable for a period of
ten years, subject to certain limitations.
Proforma information regarding the effect on the Company's results of
operations, had stock options been accounted for under the fair value method of
FAS 123, has not been presented as such proforma effect is immaterial.
9. 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 $42.4 million at August 29, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
31
<PAGE> 33
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........................ 45 Chairman of the Board, President and Chief
Executive Officer of the Company and
Avondale Mills
Jack R. Altherr, Jr...................... 48 Vice Chairman, Chief Financial Officer,
Secretary and Director of the Company
and Avondale Mills
T. Wayne Spraggins....................... 60 Vice President of Avondale Mills and President,
Manufacturing Operations
Keith M. Hull............................ 44 Vice President of Avondale Mills and
President, Apparel Fabrics
Robert G. Nelson......................... 49 Vice President of Avondale Mills and
President, Avondale Yarns
Craig S. Crockard........................ 55 Vice President, Planning and Development of
Avondale Mills
Bill W. Henry............................ 63 Vice President, Raw Material Purchasing of
Avondale Mills
M. Delen Boyd............................ 41 Vice President, Controller of Avondale
Mills, and Assistant Secretary of the Company
and Avondale Mills
J. Elliott Woodward...................... 45 Vice President, Treasurer of Avondale
Mills, and Assistant Secretary of the Company
and Avondale Mills
Sharon L. Rodgers........................ 41 Vice President, Human Resources of Avondale
Mills
Kenneth H. Callaway(1)................... 42 Director of the Company and Avondale Mills
Robert B. Calhoun(1)(2)(3)............... 55 Director of the Company and Avondale Mills
Harry C. Howard(2)....................... 68 Director of the Company and Avondale Mills
C. Linden Longino, Jr.(2)................ 61 Director of the Company and Avondale Mills
Dale J. Boden(1)......................... 40 Director of the Company and Avondale Mills
John P. Stevens(1)....................... 68 Director of the Company and Avondale Mills
</TABLE>
- --------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Mr. Calhoun has been elected a director of the Company pursuant to that
certain shareholder's agreement dated as of April 29, 1996 by and among
the Company and certain shareholders of the Company.
G. Stephen Felker has served as Chairman of the Board of the Company
since 1992, President and Chief Executive Officer of the Company since 1980, and
in various other 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.
32
<PAGE> 34
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. With the
exception of fiscal 1995, he has served as Secretary of the Company and Avondale
Mills since August 1993. Mr. Altherr has served the Company and 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 joined
Avondale Mills as a standards engineer in August 1961 and has served Avondale
Mills in various other capacities, including Vice President, Manufacturing of
Avondale Mills, 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. Mr. Hull has served as Vice President of Avondale Mills since April
1989, and serves the Company in various other capacities, including Vice
President, Marketing since 1977. Mr. Hull serves as a director of Cherokee, Inc.
Robert G. Nelson has served as President, Avondale Yarns, the yarns
division of Avondale Mills, since March 1996 and Vice President of Avondale
Mills since August 1993. Mr. Nelson has served the Company in various other
capacities, including President, Walton Fabrics, since 1988.
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, 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, 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. Ms. Rodgers
joined Graniteville Company in 1980 and served in various other capacities at
Graniteville Company during the thirteen 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
33
<PAGE> 35
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 banking firm.
Mr. Calhoun is also a director of Interstate Bakeries Corporation, Sterling
Chemical Holdings, Inc., TravelCenters of America, Inc., HVIDE Marine, Inc. and
several private companies.
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 34-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 1997, the Company paid each non-employee director a
quarterly fee of $7,500 plus reimbursement of out-of-pocket expenses. The
Company also paid $500 to its non-employee directors for each committee meeting
attended in the first quarter of the fiscal year, totaling $6,500 in aggregate
for all directors.
The Company adopted a stock option plan for its non-employee directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, automatically each
director will be granted annually, on the fifth day following the annual
shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. The options will be exercisable for a period of
ten years, subject to certain limitations.
The directors of the Company are elected annually by the shareholders
of the Company. All executive officers of the Company are elected annually by
and serve at the discretion of the Board of Directors.
34
<PAGE> 36
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
Summary Compensation Table. The table below sets forth certain
information concerning the compensation earned during fiscal 1997, 1996 and 1995
by the Company's Chief Executive Officer and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
---------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3)
- --------------------------- ---- --------- ----------- ------------------
<S> <C> <C> <C> <C>
G. Stephen Felker.............................. 1997 800,016 1,073,601 16,782
Chairman of the Board, President and Chief 1996 795,516 918,587 14,076
Executive Officer 1995 773,016 993,182 12,763
Jack R. Altherr, Jr............................ 1997 291,668 197,470 8,768
Vice Chairman, Chief Financial Officer and 1996 248,008 153,925 7,304
Secretary 1995 234,508 159,424 7,376
T. Wayne Spraggins............................. 1997 241,260 162,157 12,783
Vice President and President, Manufacturing 1996 196,268 120,797 10,654
Operations 1995 188,840 122,720 10,517
Keith M. Hull.................................. 1997 240,008 160,418 7,329
Vice President and President, Apparel Fabrics 1996 187,508 101,835 6,232
1995 170,840 114,822 6,908
Robert G. Nelson............................... 1997 150,000 68,285 7,072
Vice President and President, Avondale Yarns 1996 133,758 32,379 5,988
1995 114,176 31,629 6,762
</TABLE>
- ----------
(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 include cash bonuses earned under the Company's fiscal
1997 management incentive plan, payments received in the Company's
distribution of fiscal 1997 cash profit sharing to all eligible
associates of the Company, and payments received in lieu of profit
sharing contributions under the Company's Associate Profit Sharing and
Savings Plan on fiscal 1997 compensation in excess of qualified plan
limits.
(3) 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
35
<PAGE> 37
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.
Amounts shown reflect, for fiscal 1997, (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 $4,456 on behalf
of each Named Executive Officer and (iii) life insurance premiums of
$11,202, $3,188, $7,202, $1,748 and $1,491 paid by the Company on
behalf of Messrs. Felker, Altherr, Spraggins, Hull and Nelson,
respectively.
Aggregated Options Table. The table below sets forth certain
information with respect to options held at the end of fiscal 1997 by each Named
Executive Officer. No options were granted or exercised during fiscal 1997.
AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES SUBJECT UNEXERCISED
TO UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
AUGUST 29, 1997 AUGUST 29, 1997(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 29, 1997.
Long-Term Incentive Plans. The table below sets forth certain
information with respect to phantom units held at the end of fiscal 1997 by each
Named Executive Officer. No phantom units were awarded during fiscal 1997.
36
<PAGE> 38
LONG-TERM INCENTIVE PLANS -- UNITS HELD AT AUGUST 29, 1997
<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 19 $746,190
Jack R. Altherr, Jr....................... 90 17 447,714
T. Wayne Spraggins........................ 50 5 248,730
Keith M. Hull............................. 90 20 447,714
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 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 shares of 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.
(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, 1997, of vested and non-vested
phantom units held at the end of fiscal 1997 based on the results of
the Company for the 10 fiscal quarters ended August 29, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee consisted of Messrs.
Stevens, Boden, Calhoun and Callaway. 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 four 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.
37
<PAGE> 39
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 $200
million, with a syndicate of banks, including Wachovia, for which Wachovia
serves as agent, pursuant to a loan amendment dated April 29, 1996. The greatest
amount owed by the Company under the Credit Facility during fiscal 1997 was
$168.8 million, and aggregate interest paid by the Company under this agreement
during fiscal 1997 was $11.7 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 2,222,223 shares of Class A Common Stock of the
Company in the 1996 Private Placement for an aggregate purchase price of $40
million. Those investors subsequently purchased an additional 55,300 shares of
Class A Common Stock, and thus Mr. Calhoun is deemed to beneficially own
2,277,523 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.
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 -- Liquidity and Capital Resources."
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors during fiscal 1997
consisted of John P. Stevens, Chairman of the Compensation Committe, Dale J.
Boden, Robert B. Calhoun and Kenneth H. Callaway. None of the members of the
Compensation Committee is an employee of the Company. During fiscal 1997, 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
- creatingstock ownership opportunities to align the interests
of executive officers with those of shareholders.
In light of the Company's compensation policy, the components of its
executive compensation program for fiscal 1997 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
38
<PAGE> 40
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 1997, the base salary of each Named
Executive Officer other than the Chief Executive Officer and Mr. Nelson was
increased by 20.0% to 32.0% over each such executive officer's fiscal 1996 base
salary commensurate with increased responsibilities assumed as a result of the
Graniteville Acquisition. 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 and remained unchanged in
fiscal 1997. Mr. Felker's base salary has not been adjusted since November 1,
1995.
Cash Bonuses. Each executive officer, including the Chief Executive
Officer, is eligible to receive an annual cash bonus under the management
incentive plan. The Company's managment incentive plan 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 management
incentive plan, in fiscal 1997, certain executive officers were eligible to earn
a cash bonus in an amount from 25% up to 125% of their respective base salaries
depending on a number of factors including, without limitation, the Company's
financial performance. During fiscal 1997, under this plan, the Named Executive
Officers other than the Chief Executive Officer earned bonuses ranging from
43.5% to 62.5% of their respective base salaries. Mr. Felker's bonus was equal
to 125% 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 1997, the Named Executive Officers did not receive any
stock option grants.
John P. Stevens
Dale J. Boden
Robert B. Calhoun
Kenneth H. Callaway
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.
39
<PAGE> 41
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 29, 1997, 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 PERCENTAGE
COMMON STOCK COMMON STOCK 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)................. 4,173,689 31.2% 978,939 100% 71.2%
Jack R. Altherr, Jr.(3).............. 152,199 1.2% -- -- *
T. Wayne Spraggins(4)................ 107,628 * -- -- *
Keith M. Hull (5).................... 75,000 * -- -- *
Robert G. Nelson (6)................. 9,450 * -- -- *
Dale J. Boden(7)..................... 116,500 * -- -- *
Kenneth H. Callaway.................. 37,500 * -- -- *
Robert B. Calhoun(8)(9)(10).......... 2,300,823 18.7% -- -- 7.2%
Harry C. Howard...................... 45,000 * -- -- *
C. Linden Longino, Jr.(11)........... 34,500 * -- -- *
John P. Stevens(12).................. 103,000 * -- -- *
The Clipper Group(9)(10)(13)......... 2,277,523 18.5% -- -- 7.1%
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).... 7,191,866 53.3% 978,939 100% 80.4%
</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) 101,000
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 45,000 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 25,000 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr.
40
<PAGE> 42
Spraggins, which shares are deemed beneficially owned by Mr. Spraggins
under Rule 13d-3 under the Exchange Act.
(5) Includes 25,000 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.
(6) Includes 8,000 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., (ii)
3,000 shares beneficially owned by Textile Capital Partners, and (iii)
111,000 shares beneficially owned by The Sterling Trust; Hilliard Lyons
Trust Co. Trustee with respect to which Mr. Boden is a beneficiary. Mr.
Boden is the majority shareholder of BF Capital, Inc. and Textile
Capital Partners and, consequently is deemed to beneficially own under
Rule 13d-3 under the Exchange Act all of the shares beneficially owned
by these entities.
(8) The address of Mr. Calhoun is c/o Clipper Capital Partners, L.P., 650
Madison Avenue, New York, New York 10022.
(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 650 Madison Avenue, 9th Floor, New York, New
York 10022), 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 650 Madison Avenue, 9th
Floor, New York, New York 10022).
(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 5.1% 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 13,000 shares beneficially owned by Mr. Stevens' 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.
41
<PAGE> 43
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 four letter of credit agreements relating to industrial
revenue bonds issued in connection with certain of the Company's facilities. See
"Executive Compensation -- 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 $200 million with a syndicate of
banks, including Wachovia, for which Wachovia serves as agent, pursuant to a
loan 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 2,222,223 shares of Class A Common Stock
in the 1996 Private Placement for an aggregate purchase price of $40 million.
Those investors subsequently purchased an additional 55,300 shares of Class A
Common Stock, and thus Mr. Calhoun is deemed to beneficially own the 2,277,523
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. See "Management -- Compensation Committee Interlocks and Insider
Participation."
42
<PAGE> 44
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 29,
1997 are included in Part II, Item 8.
Report of Independent Auditors
Consolidated Balance Sheets as of August 30, 1996 and August 29, 1997
Consolidated Statements of Income -- Fiscal Years Ended August 25,
1995, August 30, 1996 and August 29, 1997 Consolidated Statements of
Shareholders' Equity -- Fiscal Years Ended August 25, 1995, August 30,
1996 and August 29,1997
Consolidated Statements of Cash Flows -- Fiscal Years Ended August 25,
1995, August 30, 1996 and August 29, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules of the Company.
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C> <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
</TABLE>
43
<PAGE> 45
<TABLE>
<S> <C>
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).
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 1997 Management Incentive Plan for G. Stephen Felker.
10.12 -- Avondale Mills, Inc. Fiscal 1997 Management Incentive Plan for Jack R. Altherr, Jr.
10.13 -- Avondale Mills, Inc. Fiscal 1997 Management Incentive Plan for T. Wayne Spraggins.
10.14 -- Avondale Mills, Inc. Fiscal 1997 Management Incentive Plan for Keith Hull.
</TABLE>
44
<PAGE> 46
<TABLE>
<S> <C>
10.15 -- Avondale Mills, Inc. Fiscal 1997 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).
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 (incorporated by reference to Exhibit 10.19
to Avondale Incorporated 's Annual Report on Form 10-K,File No. 33-68412).
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).
10.23 -- Avondale Incorporated Stock Option Plan for Non-Employee Directors, Dated April 10,
1997.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
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.
45
<PAGE> 47
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: /s/ G. STEPHEN FELKER
------------------------------
Name: G. Stephen Felker
Title: Chairman of the Board,
President and
Chief Executive Officer
Date: November 14, 1997
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 14, 1997
- --------------------------- President and Chief Executive
G. Stephen Felker Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ JACK R. ALTHERR, JR. Vice Chairman, Chief November 14, 1997
- --------------------------- Financial Officer and
Jack R. Altherr, Jr. Director
DIRECTORS:
/s/ DALE J. BODEN Director November 14, 1997
- ---------------------------
Dale J. Boden
/s/ ROBERT B. CALHOUN Director November 14, 1997
- ---------------------------
Robert B. Calhoun
/s/ KENNETH H. CALLAWAY Director November 14, 1997
- ---------------------------
Kenneth H. Callaway
/s/ HARRY C. HOWARD Director November 14, 1997
- ---------------------------
Harry C. Howard
/s/ C. LINDEN LONGINO, JR. Director November 14, 1997
- ---------------------------
C. Linden Longino, Jr.
/s/ JOHN P. STEVENS Director November 14, 1997
- ---------------------------
John P. Stevens
</TABLE>
46
<PAGE> 48
SCHEDULE II
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS (in thousands)
<TABLE>
<CAPTION>
(B)
BALANCE CHARGED TO ACQUIRED BALANCE
AT COSTS IN AT END
BEGINNING AND GRANITEVILLE (A) OF
DESCRIPTION OF PERIOD EARNINGS ACQUISITION DEDUCTIONS PERIOD
----------- --------- -------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 25, 1995 Allowance for doubtful $ 2,153 $ 1,206 $ -- $ (1,120) $ 2,239
accounts
Year Ended August 30, 1996 Allowance for doubtful
accounts 2,239 1,629 8,892 (1,615) 11,145
Year Ended August 29, 1997 Allowance for doubtful
accounts 11,145 3,473 -- (1,550) 13,068
</TABLE>
- ------------------------------------------
(A) Deductions represent customer account balances written off during the
period.
(B) At August 30, 1996 and August 29, 1997, the Balance at end of period
includes $6,225 and $7,565, respectively, related to accounts receivable
sold. These amounts are included in Other accrued expenses in the
Consolidated Balance Sheet.
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------- ----------------------- --------------
<S> <C> <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> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------- ----------------------- -------------
<S> <C> <C>
10.3 -- Series 1996-1Supplement 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 1997 Management Incentive Plan for G.
Stephen Felker.
10.12 -- Avondale Mills, Inc. Fiscal 1997 Management Incentive Plan for Jack R.
Altherr, Jr.
10.13 -- Avondale Mills, Inc. Fiscal 1997 Management Incentive Plan for T. Wayne
Spraggins.
</TABLE>
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------- ----------------------- -------------
<S> <C> <C>
10.14 -- Avondale Mills, Inc. Fiscal 1997 Management Incentive Plan for Keith Hull.
10.15 -- Avondale Mills, Inc. Ficscal 1997 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).
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 (incorporated by reference to Exhibit 10.19
to Avondale Incorporated's Annual Report on Form 10-K, File No.33-68412).
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)
10.23 -- Avondale Incorporated Stock Option Plan for Non-Employee Directors,
dated April 10, 1997
12.1 -- Computation of Ratio of Earnings to Fixed Charges
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 10.11
INTER
OFFICE
MEMO
DATE: May 1, 1997
TO: Mr. G. Stephen Felker
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1997. You will participate in the
plan based on an individual percentage award of 100%.
For fiscal 1997, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1997 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 95,000
75% 100,000
100% 105,000
125% 110,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1997 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
<PAGE> 2
The general guidelines of the plan for fiscal 1997 are as follows:
1. Operating earnings (EBDLIT) 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 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/ Sharon L. Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ G. Stephen Felker
---------------------
Date: May 5, 1997
-----------
<PAGE> 1
EXHIBIT 10.12
INTER
OFFICE
MEMO
DATE: May 1, 1997
TO: Mr. Jack Altherr
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1997. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1997, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1997 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 95,000
75% 100,000
100% 105,000
125% 110,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1997 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
<PAGE> 2
The general guidelines of the plan for fiscal 1997 are as follows:
1. Operating earnings (EBDLIT) 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 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/ Sharon L. Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Jack R. Altherr Jr.
-----------------------
Date: May 2, 1997
-----------
<PAGE> 1
EXHIBIT 10.13
INTER
OFFICE
MEMO
DATE: May 1, 1997
TO: Mr. Wayne Spraggins
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1997. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1997, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1997 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 95,000
75% 100,000
100% 105,000
125% 110,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1997 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
<PAGE> 2
The general guidelines of the plan for fiscal 1997 are as follows:
1. Operating earnings (EBDLIT) 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 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/ Sharon L. Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Wayne Spraggins
-------------------
Date: May 1, 1997
-----------
<PAGE> 1
EXHIBIT 10.14
INTER
OFFICE
MEMO
DATE: May 1, 1997
TO: Mr. Keith Hull
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1997. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1997, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1997 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 95,000
75% 100,000
100% 105,000
125% 110,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1997 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
<PAGE> 2
The general guidelines of the plan for fiscal 1997 are as follows:
1. Operating earnings (EBDLIT) 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 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/ Sharon L. Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Keith M. Hull
-----------------
Date: April 30, 1997
--------------
<PAGE> 1
EXHIBIT 10.15
INTER
OFFICE
MEMO
DATE: May 1, 1997
TO: Mr. Bob Nelson
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1997. You will participate in the
plan based on an individual percentage award of 40%.
For fiscal 1997, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1997 award are as follows:
<TABLE>
<CAPTION>
Corporate
Avondale Yarns Operating Earnings
Performance Division Income (Thousands of Dollars)
Level (Thousands of Dollars) (EBDLIT)
- ----------- ---------------------- ----------------------
<S> <C> <C>
50% 7,500 95,000
75% 10,000 100,000
100% 12,500 105,000
125% 15,000 110,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals, with 75% based on Avondale Yarns Division Income and 25% based
on Corporate Operating Earnings (EBDLIT). Your actual incentive award will be
determined by multiplying your total base salary paid in fiscal 1997 times 100%
of your individual percentage award times the sum of 75% of the Performance
Level achieved for Avondale Yarns Division Income and 25% 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 125% levels. No incentive award
<PAGE> 2
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 125% Performance Level.
The general guidelines of the plan for fiscal 1997 are as follows:
1. Operating earnings (EBDLIT) 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 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/ Sharon L. Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Bob Nelson
--------------
Date: May 6, 1997
-----------
<PAGE> 1
EXHIBIT 10.23
AVONDALE INCORPORATED
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ss. 1. PURPOSE 1
ss. 2. DEFINITIONS..............................................................................................1
2.1 Board...........................................................................................1
2.2 Change in Control...............................................................................1
2.3 Code............................................................................................2
2.4 Company.........................................................................................2
2.5 Director........................................................................................2
2.6 Exchange Act....................................................................................2
2.7 Fair Market Value...............................................................................2
2.8 Insider.........................................................................................3
2.9 Option..........................................................................................3
2.10 Option Certificate..............................................................................3
2.11 Option Price....................................................................................3
2.12 Plan............................................................................................3
2.13 Rule 16b-3......................................................................................3
2.14 Stock...........................................................................................3
2.15 Stock Option Committee..........................................................................4
ss. 3. SHARES RESERVED UNDER THE PLAN...........................................................................4
ss. 4. EFFECTIVE DATE...........................................................................................4
ss. 5. ADMINISTRATION...........................................................................................4
ss. 6. ELIGIBILITY..............................................................................................5
ss. 7. GRANT OF OPTIONS.........................................................................................5
ss. 8. OPTION PRICE.............................................................................................6
ss. 9. EXERCISE PERIOD..........................................................................................6
ss. 10. NONTRANSFERABILITY.......................................................................................7
ss. 11. SECURITIES REGISTRATION..................................................................................7
ss. 12. LIFE OF PLAN.............................................................................................8
ss. 13. ADJUSTMENT...............................................................................................8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ss. 14. SALE OR MERGER OR CHANGE IN CONTROL......................................................................9
14.1 Sale or Merger..................................................................................9
14.2 Change in Control..............................................................................10
ss. 15. AMENDMENT OR TERMINATION................................................................................11
ss. 16. MISCELLANEOUS...........................................................................................11
16.1 No Shareholder Rights..........................................................................11
16.2 No Contract of Service.........................................................................12
16.3 Other Conditions...............................................................................12
16.4 Withholding....................................................................................12
16.5 Construction...................................................................................12
</TABLE>
<PAGE> 4
AVONDALE INCORPORATED
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SS. 1.
PURPOSE
The purpose of this Plan is to promote the interest of the Company and
its shareholders by granting Options to purchase Stock to Directors in order (a)
to provide an additional incentive to each Director to increase the value of the
Company's Stock, and (b) to provide each Director with a stake in the future of
the Company which corresponds to the stake of each of the Company's
shareholders.
SS. 2.
DEFINITIONS
Each term set forth in this ss. 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1 Board -- means the Board of Directors of the Company.
1
<PAGE> 5
2.2 Change in Control -- means (a) the acquisition of the power to
direct, or cause the direction of, the management and policies of the Company by
a person (not previously possessing such power), acting alone or in conjunction
with others, whether through the ownership of Stock, by contract or otherwise,
or (b) the acquisition, directly or indirectly, of the power to vote more than
50% of the outstanding voting power of the Stock by any person or by two or more
persons acting together, except an acquisition from the Company or by the
Company, the Company's management or a Company-sponsored employee benefit plan.
For purposes of this definition, (1) the term "person" means a natural person,
corporation, partnership, joint venture, trust, government or instrumentality of
a government, and (2) customary agreements with or between underwriters and
selling group members with respect to a bona fide public offering of Stock shall
be disregarded.
2.3 Code -- means the Internal Revenue Code of 1986, as amended.
2.4 Company -- means Avondale Incorporated, a Georgia corporation, and
any successor to such corporation.
2.5 Director -- means any member of the Company's Board who is not also
an employee of the Company.
2.6 Exchange Act -- means the Securities Exchange Act of 1934, as
amended.
2.7 Fair Market Value -- means (a) the closing price on any date for a
share of Stock as reported by The Wall Street Journal under the New York Stock
Exchange Composite Transactions quotation system (or under any successor
quotation system) or, (b) if the Stock is not traded on the New York Stock
Exchange, under the quotation system under which such closing price is reported
or, (c) if The Wall Street Journal does
2
<PAGE> 6
not report such closing price, such closing price as reported by a newspaper or
trade journal selected by the Stock Option Committee or, (d) if no such closing
price is available on such date, such closing price as so reported or so quoted
in accordance with ss. 2.7(a), (b) or (c) for the immediately preceding business
day, or, (e) if no newspaper or trade journal reports such closing price or if
no such price quotation is available, the price which the Stock Option Committee
acting in good faith determines through any reasonable valuation method that a
share of Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts.
2.8 Insider -- means any individual who is subject to Section 16(a) of
the Exchange Act.
2.9 Option -- means an option granted under this Plan to purchase
Stock.
2.10 Option Certificate -- means the written certificate or instrument
which sets forth the terms of an Option granted to a Director under this Plan.
2.11 Option Price -- means the price which shall be paid to purchase
one share of Stock upon the exercise of an Option granted under this Plan.
2.12 Plan -- means this Avondale Incorporated Stock Option Plan For
Non-Employee Directors, as amended from time to time.
2.13 Rule 16b-3 -- means Rule 16b-3 under Section 16(b) of the Exchange
Act or any successor to such rule.
2.14 Stock -- means $.01 par value Class A Common Stock of the Company.
3
<PAGE> 7
2.15 Stock Option Committee -- means the committee appointed by the
Board to administer this Plan which at all times shall consist of two or more
members of the Board who are employees of the Company.
SS. 3.
SHARES RESERVED UNDER THE PLAN
There shall be 100,000 shares of Stock reserved for use under this
Plan, and such shares of Stock shall be reserved to the extent that the Company
deems appropriate from authorized but unissued shares of Stock and from shares
of Stock which have been reacquired by the Company. Furthermore, any shares of
Stock subject to an Option which remain unissued after the cancellation,
expiration or exchange of such Option thereafter shall again become available
for use under this Plan.
SS. 4.
EFFECTIVE DATE
The effective date of this Plan shall be September 1, 1997.
SS. 5.
ADMINISTRATION
This Plan shall be administered by the Stock Option Committee. The
Board may from time to time remove members from, or add members to, the Stock
Option Committee. Vacancies on the Stock Option Committee shall be filled by the
Board. The Stock Option Committee shall select one of its members as Chairman
and shall hold meetings at such times and places as it may determine. The Stock
Option Committee acting in its absolute discretion shall exercise such powers
and take such action as
4
<PAGE> 8
expressly called for under this Plan and, further, the Stock Option Committee
shall have the power to interpret this Plan and (subject to Rule 16b-3) to take
such other action (except to the extent the right to take such action is
expressly and exclusively reserved for the Board) in the administration and
operation of this Plan as the Stock Option Committee deems equitable under the
circumstances, which action shall be binding on the Company, on each affected
Director and on each other person directly or indirectly affected by such
action. At such time as the Company's Directors become subject to the reporting
requirements under Section 16(a) of the Exchange Act, the Plan shall be
administered by the Board and any reference to "Stock Option Committee" shall be
deemed to be a reference to the Board or the Board shall take such other action
as it deems appropriate to satisfy the exemptions.
SS. 6.
ELIGIBILITY
Only Directors shall be eligible for the grant of Options under this
Plan.
SS. 7.
GRANT OF OPTIONS
On the fifth business day after each annual shareholders' meeting, an
Option shall be granted under this Plan to each then serving Director to
purchase 2,000 shares of Stock. Each Option shall be fully vested and shall be
evidenced by an Option Certificate. The Option Certificate shall specify the
Option Price and incorporate such other terms and conditions as the Stock Option
Committee, acting in its absolute discretion, deems consistent with the terms of
this Plan.
5
<PAGE> 9
SS. 8.
OPTION PRICE
The Option Price for each share of Stock subject to an Option shall be
the Fair Market Value of a share of Stock on the date the Option is granted. The
Option Price shall be payable in full upon the exercise of any Option and, at
the discretion of the Stock Option Committee, an Option Certificate can provide
for the payment of the Option Price either in cash, by check, or in Stock or in
any combination of cash, check, and Stock acceptable to the Stock Option
Committee. Any payment made in Stock shall be treated as equal to the Fair
Market Value of such Stock on the date the properly endorsed certificate for
such Stock is delivered to the Stock Option Committee or its delegate.
SS. 9.
EXERCISE PERIOD
Each Option granted under this Plan to a Director shall be exercisable
in whole or in part at such time or times as set forth in the related Option
Certificate, but no Option shall be exercisable after the earlier of
(a) the date such Option is exercised in full,
(b) the date which is the tenth anniversary of the date the
Option is granted,
(c) the date which is 3 months after the date the Director's
term as Directors's terrminates for any reason other than the
Director's death, or
6
<PAGE> 10
(d) the date which is the one year anniversary of the
Director's death, if the Director's term as Director terminates by
reasons of the Director's death.
SS. 10.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by a Director
other than by will or by the laws of descent and distribution, and such Option
shall be exercisable during the lifetime of a Director only by such Director.
The person or persons to whom an Option is transferred by will or by the laws of
descent and distribution thereafter shall be treated as the Director under this
Plan.
SS. 11.
SECURITIES REGISTRATION
Each Option Certificate shall provide that, upon the receipt of shares
of Stock as a result of the exercise of an Option, the Director shall, if so
requested by the Company, hold such shares of Stock for investment and not with
a view to resale or distribution to the public and, if so requested by the
Company, shall deliver to the Company a written statement satisfactory to the
Company to that effect. Each Option Certificate also shall provide that, if so
requested by the Company, the Director shall make a written representation to
the Company that he or she will not sell or offer to sell any of such Stock
unless a registration statement shall be in effect with respect to such Stock
under the Securities Act of 1933, as amended ("1933 Act") and any applicable
state securities law or unless he or she shall have furnished to the Company an
opinion, in form and substance
7
<PAGE> 11
satisfactory to the Company, of legal counsel acceptable to the Company, that
such registration is not required. Certificates representing the Stock
transferred upon the exercise of an Option granted under this Plan may at the
discretion of the Company bear a legend to the effect that such Stock has not
been registered under the 1933 Act or any applicable state securities law and
that such Stock may not be sold or offered for sale in the absence of an
effective registration statement as to such Stock under the 1933 Act and any
applicable state securities law or an opinion, in form and substance
satisfactory to the Company, of legal counsel acceptable to the Company, that
such registration is not required.
SS. 12.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(a) the tenth anniversary of the effective date of this Plan (as
determined under ss. 4 of this Plan) and, after the tenth anniversary, this Plan
thereafter shall continue in effect until all outstanding Options have been
exercised in full or no longer are exercisable, or
(b) the date on which all of the Stock reserved under ss. 3 of this
Plan has (as a result of the exercise of Options granted under this Plan) been
issued or no longer is available for use under this Plan, in which event this
Plan also shall terminate on such date.
SS. 13.
ADJUSTMENT
The number of shares of Stock reserved under ss. 3 of this Plan, the
number of shares of Stock subject to Options granted under this Plan and the
Option Price of such
8
<PAGE> 12
Options shall be adjusted by the Stock Option Committee in an equitable manner
to reflect any change in the capitalization of the Company, including, but not
limited to, such changes resulting from stock dividends or stock splits. The
Stock Option Committee shall have the right to adjust the number of shares of
Stock reserved under ss. 3 of this Plan, the number of shares of Stock subject
to Options granted under this Plan, and the Option Price of such Options in the
event of any corporate transaction described in ss. 424(a) of the Code which
provides for the substitution or assumption of Options in order to take into
account on an equitable basis the effect of such transaction. If any adjustment
under this ss. 13 would create a fractional share of Stock or a right to acquire
a fractional share of Stock, such fractional share shall be disregarded and the
number of shares of Stock reserved under this Plan and the number subject to any
Options granted under this Plan shall be the next lower number of shares of
Stock, rounding all fractions downward.
SS. 14.
SALE OR MERGER OR CHANGE IN CONTROL
14.1 Sale or Merger. If the Company agrees to sell all or substantially
all of its assets for cash or property or for a combination of cash and property
or agrees to any merger, consolidation, reorganization, division or other
corporate transaction in which Stock is converted into another security or into
the right to receive securities or property and such agreement does not provide
for the assumption or substitution of the Options granted under this Plan in
accordance with ss. 13 on a basis that is fair and equitable to holders of such
Options as determined by the Stock Option Committee, each Option granted to a
Director at the direction and discretion of the Stock Option Committee, (a) may
(subject to such conditions, if any, as the Stock Option Committee deems
appropriate
9
<PAGE> 13
under the circumstances) be canceled unilaterally by the Company in exchange for
a transfer to such Director of the number of whole shares of Stock, if any,
determined by the Stock Option Committee on a date set by the Stock Option
Committee for this purpose by dividing (i) the excess of the then Fair Market
Value of the Stock then subject to exercise under such Option over the Option
Price of such Stock by (ii) the then Fair Market Value of a share of such Stock,
(b) if the exchange described in ss. 14.1(a) would result in a violation of
Section 16 of the Exchange Act for a Director, may (subject to such conditions,
if any, as the Stock Option Committee deems appropriate under the circumstances)
be canceled unilaterally by the Company after advance written notice to such
Director, or (c) may be canceled unilaterally by the Company if the Option Price
equals or exceeds the Fair Market Value of a share of Stock on a date set by the
Stock Option Committee for this purpose.
14.2 Change in Control. If there is a Change in Control of the Company
or a tender or exchange offer is made for Stock other than by the Company, the
Stock Option Committee thereafter shall have the right to take such action with
respect to any unexercised Options granted to Directors, or all such Options, as
the Stock Option Committee deems appropriate under the circumstances to protect
the interest of the Company in maintaining the integrity of such grants under
this Plan, including following the procedures set forth in ss. 14.1 for a sale
or merger of the Company with respect to such Options. The Stock Option
Committee shall have the right to take different action under this ss. 14.2 with
respect to different Directors or different groups of Directors, as the Stock
Option Committee deems appropriate under the circumstances.
10
<PAGE> 14
SS. 15.
AMENDMENT OR TERMINATION
This Plan may be amended by the Stock Option Committee from time to
time to the extent that the Stock Option Committee deems necessary or
appropriate; provided, however, that at such time as the Company's Directors
become subject to the reporting requirements of Section 16(a) of the Exchange
Act and to the extent Board approval is required in order for the exemption set
forth in Rule 16b-3 to be available in respect of Options granted pursuant to
this Plan, this Plan shall not be amended absent the approval of the Board in
accordance with Rule 16b-3, (1) to change the class of individuals eligible for
Options under ss. 6, (2) to change the Option Price under ss. 8 or (3) to extend
the maximum life of the Plan under ss. 12 or the maximum exercise period under
ss. 9. The Stock Option Committee also may suspend the granting of Options under
this Plan at any time and may terminate this Plan at any time; provided,
however, the Stock Option Committee shall not have the right unilaterally to
modify, amend or cancel any Option granted before such suspension or termination
unless (1) the Director consents in writing to such modification, amendment or
cancellation or (2) there is a dissolution or liquidation of the Company or a
transaction described in ss. 13 or ss. 14 of this Plan.
SS. 16
MISCELLANEOUS
16.1 No Shareholder Rights. No Director shall have any rights as a
shareholder of the Company as a result of the grant of an Option to him or to
her under this Plan or his or her exercise of such Option pending the actual
delivery of Stock subject to such Option to such Director.
11
<PAGE> 15
16.2 No Contract of Service. The grant of an Option to a Director under
this Plan shall not constitute a contract of employment or a right to continue
to serve on the Board and shall not confer on any Director any rights upon the
termination of such Director's term as a Director in addition to those rights,
if any, expressly set forth in the Option Certificate.
16.3 Other Conditions. Each Option Certificate may require that a
Director (as a condition to the exercise of an Option) enter into any agreement
or make such representations prepared by the Company, including any agreement
which restricts the transfer of Stock acquired pursuant to the exercise of such
Option or provides for the repurchase of such Stock by the Company under certain
circumstances.
16.4 Withholding. The exercise of any Option granted under this Plan
shall constitute full and complete consent by a Director to whatever action the
Stock Option Committee deems necessary to satisfy the federal and state tax
withholding requirements, if any, which the Stock Option Committee acting in its
discretion deems applicable to such exercise. The Stock Option Committee also
shall have the right to provide in an Option Certificate that a Director may
elect to satisfy federal and state withholding requirements through a reduction
in the number of shares of Stock actually transferred to him or her under this
Plan, and if the Director is subject to the reporting requirements under Section
16(a) of the Exchange Act, any such election and any such reduction shall be
effected so as to satisfy the conditions to the exemption under Rule 16b-3 under
the Exchange Act.
16.5 Construction. This Plan shall be construed under the laws of the
State of Georgia.
12
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused its duly authorized office to execute
this Plan this 10th day of April, 1997, to evidence its adoption of this Plan.
Avondale Incorporated
By: /s/ Jack R. Altherr, Jr.
-----------------------------
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
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 2.1 $ 6.5 $14.3 $18.5 $26.2
Discount and expenses on sale of
accounts receivable -- -- -- 3.7 6.6
Amortization of debt issuance costs -- -- -- .9 1.1
----- ----- ----- ----- -----
Fixed Charges $ 2.1 $ 6.5 $14.3 $23.1 $33.9
----- ----- ----- ----- -----
Earnings
Pretax income before $74.2 $22.6 $34.0 $22.7 $37.9
extraordinary item
Fixed charges 2.1 6.5 14.3 23.1 33.9
----- ----- ----- ----- -----
Earnings $76.3 $29.1 $48.3 $45.8 $71.8
----- ----- ----- ----- -----
Ratio of Earnings to Fixed Charges 37.2x 4.5x 3.4x 2.0x 2.1x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AVONDALE INCORPORATED FOR THE FISCAL YEAR
ENDED AUGUST 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-29-1997
<PERIOD-START> AUG-31-1996
<PERIOD-END> AUG-29-1997
<CASH> 8,517
<SECURITIES> 0
<RECEIVABLES> 77,698
<ALLOWANCES> 5,518
<INVENTORY> 120,860
<CURRENT-ASSETS> 208,636
<PP&E> 459,099
<DEPRECIATION> 230,117
<TOTAL-ASSETS> 461,222
<CURRENT-LIABILITIES> 94,868
<BONDS> 248,075
0
0
<COMMON> 133
<OTHER-SE> 86,229
<TOTAL-LIABILITY-AND-EQUITY> 461,222
<SALES> 1,049,474
<TOTAL-REVENUES> 1,049,474
<CGS> 882,760
<TOTAL-COSTS> 970,511
<OTHER-EXPENSES> 14,918
<LOSS-PROVISION> 3,473
<INTEREST-EXPENSE> 26,158
<INCOME-PRETAX> 37,887
<INCOME-TAX> 14,950
<INCOME-CONTINUING> 22,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,937
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 0
</TABLE>
