<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED NOVEMBER 28, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 33-68412
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AVONDALE INCORPORATED
(Exact name of registrant as specified in its charter)
GEORGIA 58-0477150
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
506 SOUTH BROAD STREET 30655
MONROE, GEORGIA (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 267-2226
Former name, former address and former fiscal year, if changed since last
report: N/A
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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Description As Of Shares Outstanding
-------------------- --------------- ------------------
Class A Common Stock January 2, 1998 12,289,837 Shares
Class B Common Stock January 2, 1998 978,939 Shares
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<PAGE> 2
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION (UNAUDITED)
Condensed Consolidated Balance Sheets at November 28, 1997 and August 29, 1997............. 1
Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
November 28, 1997 and November 29, 1996.................................................... 2
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
November 28, 1997 and November 29, 1996.................................................... 3
Notes to Condensed Consolidated Financial Statements....................................... 4
Management's Discussion and Analysis of Financial Condition and Results of Operations...... 6
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.............................................................. 9
Item 2: Changes in Securities and Use of Proceeds...................................... 9
Item 3: Defaults upon Senior Securities................................................ 9
Item 4: Submission of Matters to a Vote of Security Holders............................ 9
Item 5: Other Information.............................................................. 9
Item 6: Exhibits and Reports on Form 8-K............................................... 9
Signature.................................................................................. 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUG. 29, NOV. 28,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 8,517 $ 8,644
Accounts receivable, less allowance for doubtful accounts
of $5,518 in fiscal 1997 and $5,804 in fiscal 1998 77,698 65,441
Inventories 120,860 137,267
Prepaid expenses 1,561 565
--------- ---------
Total current assets 208,636 211,917
Property, plant and equipment
Land 8,510 8,510
Buildings 71,155 74,378
Machinery and equipment 379,434 395,172
--------- ---------
459,099 478,060
Less accumulated depreciation (230,117) (240,033)
--------- ---------
228,982 238,027
Other assets 23,604 23,925
--------- ---------
$ 461,222 $ 473,869
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 41,884 $ 40,554
Accrued compensation, benefits and related expenses 22,514 22,795
Other accrued expenses 22,416 20,750
Long-term debt due in one year 3,250 3,250
Income taxes payable 4,804 4,653
--------- ---------
Total current liabilities 94,868 92,002
Long-term debt 248,075 255,735
Deferred income taxes and other long-term liabilities 31,917 32,479
Shareholders' equity
Preferred stock
$.01 par value; 10,000 shares authorized -- --
Common stock
Class A, $.01 par value; 100,000 shares
authorized, 12,290 issued and outstanding 123 123
Class B, $.01 par value; 5,000 shares
authorized, 979 issued and outstanding 10 10
Capital in excess of par value 41,478 41,478
Retained earnings 44,751 52,042
--------- ---------
Total shareholders' equity 86,362 93,653
--------- ---------
$ 461,222 $ 473,869
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------
NOV. 29, NOV. 28,
1996 1997
------- ---------
<S> <C> <C>
Net sales $254,064 $ 268,789
Operating costs and expenses
Cost of goods sold 218,303 225,293
Depreciation 10,279 10,003
Selling and administrative expenses 11,470 11,684
-------- ---------
Operating income 14,012 21,809
Interest expense 6,498 5,670
Discount and expenses on sale of receivables 1,611 2,151
Loss attributable to investment in Oneita 3,690 --
Other (income) expense, net 258 (375)
-------- ---------
Income before income taxes 1,955 14,363
Provision for income taxes 784 5,745
-------- ---------
Net income $ 1,171 $ 8,618
======== =========
Per share data:
Net income $ .09 $ .64
======== =========
Dividends declared $ .07 $ .10
======== =========
Weighted average shares outstanding 13,400 13,449
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------
NOV. 29, NOV. 28,
1996 1997
-------- --------
<S> <C> <C>
Operating activities
Net income $ 1,171 $ 8,618
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,348 10,101
Loss attributable to investment in Oneita 3,690 --
Provision for deferred income taxes (1,476) (318)
Gain on sale of equipment (2) (95)
Changes in operating assets and liabilities (6,602) (12,600)
-------- --------
Net cash provided by operating activities 7,129 5,706
Investing activities
Purchases of property, plant and equipment (4,306) (19,007)
Proceeds from sale of property, plant and equipment 2 95
-------- --------
Net cash used in investing activities (4,304) (18,912)
Financing activities
Net additions to (payments on) revolving line of credit (75) 7,660
Sale of accounts receivable -- 7,000
Dividends paid (930) (1,327)
-------- --------
Net cash provided by (used in) financing activities (1,005) 13,333
-------- --------
Increase in cash 1,820 127
Cash at beginning of period 7,253 8,517
-------- --------
Cash at end of period $ 9,073 $ 8,644
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 28, 1997
1. Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements include the accounts of Avondale Incorporated
and its wholly owned subsidiaries, Avondale Mills, Inc. and Avondale Receivables
Company (collectively, the "Company"). These statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The August 29, 1997 balance sheet has been derived from
the audited financial statements at that date. The accounting policies and basis
of presentation followed by the Company are presented in Note 1 to the August
29, 1997 Audited Consolidated Financial Statements.
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.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. Operating results for the
thirteen weeks ended November 28, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 28, 1998.
2. Inventories: Components of inventories are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
AUG. 29, NOV. 28,
1997 1997
--------- ---------
<S> <C> <C>
Finished goods $ 32,907 $ 36,319
Work in process 51,345 62,890
Raw materials 24,556 26,018
Dyes and chemicals 6,518 6,479
--------- ---------
Inventories at FIFO 115,326 131,706
Less allowance to reduce carrying value to
LIFO basis (2,027) (1,877)
--------- ---------
113,299 129,829
Supplies at average cost 7,561 7,438
--------- ---------
$ 120,860 $ 137,267
========= =========
</TABLE>
4
<PAGE> 7
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON.)
(UNAUDITED)
NOVEMBER 28, 1997
Valuation of the Company's inventories under the last-in, first-out
(LIFO) method at November 28, 1997 and the related impact on the statement of
income for the thirteen weeks then ended has been determined using estimated
quantities and costs as of the fiscal 1998 year-end. As a result, interim
amounts are subject to the final year-end LIFO valuation.
3. 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.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended November 28, 1997 Compared to Thirteen Weeks Ended November
29, 1996
NET SALES. Net sales increased 5.8% to $268.8 million for the thirteen
weeks ended November 28, 1997 from $254.1 million for the thirteen weeks ended
November 29, 1996, primarily as a result of improved yarn sales.
Apparel fabric sales increased 0.4% to $179.3 million for the thirteen
weeks ended November 28, 1997 from $178.5 million for the thirteen weeks ended
November 29, 1996. This modest increase in sales reflected a 3.9% increase in
yards sold, nearly offset by a 3.4% decline in average selling prices. The
increase in yards sold was primarily attributable to the expansion of the
Company's denim manufacturing operations. The decline in average selling prices
resulted from softening market prices for certain denim fabrics caused by excess
inventories of denim fabrics and garments within the industry, as well as
increased production capacity of domestic and Mexican suppliers.
Greige and specialty fabric sales increased 13.4% to $17.1 million for
the thirteen weeks ended November 28, 1997 from $15.1 million for the thirteen
weeks ended November 29, 1996. This increase in sales was primarily the result
of strong demand for greige fabrics by the apparel, home furnishings, luggage
and shoe industries.
Yarn sales increased 19.7% to $72.4 million for the thirteen weeks
ended November 28, 1997 from $60.5 million for the thirteen weeks ended November
29, 1996. This increase reflected a 21.3% increase in pounds sold to outside
customers and a 1.3% decrease in average selling prices for those pounds. Market
prices for sales yarns remained very competitive, reflecting continued excess
production capacity within the industry during the thirteen weeks ended November
28, 1997.
COST OF GOODS SOLD. Cost of goods sold increased 3.2% to $225.3 million
for the thirteen weeks ended November 28, 1997 from $218.3 million for the
thirteen weeks ended November 29, 1996. Cost of goods sold as a percentage of
net sales decreased to 83.8% for the thirteen weeks ended November 28, 1997 from
85.9% for the thirteen weeks ended November 29, 1996, primarily due to improved
capacity utilization and lower raw material costs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased 1.9% to $11.7 million for the thirteen weeks ended November
28, 1997 from $11.5 million for the thirteen weeks ended November 29, 1996.
Selling and administrative expenses as a percentage of net sales decreased to
4.4% for the thirteen weeks ended November 28, 1997 from 4.5% for the thirteen
weeks ended November 29, 1996.
INTEREST EXPENSE, NET. Interest expense, net decreased 12.7% to $5.7
million for the thirteen weeks ended November 28, 1997 from $6.5 million for the
thirteen weeks ended November 29, 1996. This decrease reflected a lower average
balance of outstanding borrowings during the thirteen weeks ended November 28,
1997.
DISCOUNT AND EXPENSES ON SALE OF RECEIVABLES. Discount and expenses on
sale of receivables were $2.2 million for the thirteen weeks ended November 28,
1997 compared to $1.6 million for the thirteen weeks ended November 29, 1996.
This increase was primarily attributable to the payment of bank fees relating to
the receivables securitization facility as well as a net increase in the amount
of Accounts Receivable sold under the facility.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
RESULTS OF OPERATIONS (CONT.)
PROVISION FOR INCOME TAXES. Provision for income taxes increased to $5.7 million
for the thirteen weeks ended November 28, 1997 from $0.8 million for the
thirteen weeks ended November 29, 1996. The Company's effective tax rate was
40.0% for the thirteen weeks ended November 28, 1997 compared to 40.1% for the
thirteen weeks ended November 29, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.7 million for the
thirteen weeks ended November 28, 1997. Principal working capital changes
included a $5.3 million decrease in Accounts Receivable, a $16.4 million
increase in Inventories, and a $2.7 million decrease in Accounts Payable and
Accrued Expenses. Investing activities were predominantly equipment purchases
and plant improvements of $19.0 million made in connection with the ongoing
modernization of the Company's manufacturing facilities. Financing activities
included a $7.7 million net advance under the revolving line of credit, payment
of $1.3 million in dividends on outstanding common stock, and receipt of $7.0
million from the sale of additional Accounts Receivable under the securitization
facility.
At November 28, 1997, the Company had borrowings of $120.2 million
outstanding under its revolving line of credit and $79.8 million of borrowing
availability thereunder.
The Company's capital expenditures, aggregating $19.0 million for the
thirteen weeks ended November 28, 1997, were primarily related to the
construction of a new weaving facility in South Carolina and other equipment
purchases. Management estimates that capital expenditures for the balance of
fiscal 1998 will be approximately $60.0 million, and that such amounts will be
used primarily to upgrade weaving equipment and to improve fabric finishing
facilities.
Management believes that cash generated from operations, together with
borrowings available under its revolving line of credit 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.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
OTHER DATA
EBITDA, 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 the ability to incur and service debt, is calculated by the Company as
follows (amounts in thousands):
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------
NOV. 29, NOV. 28,
1996 1997
-------- --------
<S> <C> <C>
Net income $ 1,171 $ 8,618
Interest expense 6,498 5,670
Discount and expenses on sale of receivables 1,611 2,151
Provision for income taxes 784 5,745
Depreciation and amortization 10,348 10,101
Loss attributable to investment in Oneita 3,690 --
Net change in allowance to reduce carrying
value of inventory to LIFO basis (200) (150)
-------- --------
EBITDA $ 23,902 $ 32,135
======== ========
</TABLE>
8
<PAGE> 11
AVONDALE INCORPORATED
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders
on November 20, 1997.
(b) Eight directors were elected at the Annual Meeting to
serve until the Annual Meeting of Shareholders in
1998. The names of these Directors are as follows:
G. Stephen Felker
Jack R. Altherr, Jr.
Dale J. Boden
Robert B. Calhoun
Kenneth H. Callaway
Harry C. Howard
C. Linden Longino, Jr.
John P. Stevens
(c) The Company had outstanding shares of Class A Common
Stock and Class B Common Stock having an aggregate of
31,868,617 votes entitled to be cast at the Annual
Meeting. Of such aggregate outstanding votes, 68,000
votes were not present at the Annual Meeting in
person or by proxy. The remaining outstanding
31,800,617 votes were present at the Annual Meeting
in person or by proxy and voted For the 8 directors
that were elected at the Annual Meeting. There were
no abstentions or broker non-votes and no votes were
withheld.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
1. On October 17, 1997, the Company filed a
current report on Form 8-K regarding its
press release for the fiscal year ended
August 29, 1997.
9
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVONDALE INCORPORATED
By: /s/ G. STEPHEN FELKER
------------------------------------------------
G. Stephen Felker
Chairman, President, and Chief Executive Officer
By: /s/ JACK R. ALTHERR, JR.
------------------------------------------------
Jack R. Altherr, Jr.
Vice Chairman and Chief Financial Officer
Date: January 8, 1998
---------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED NOVEMBER 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1998
<PERIOD-END> NOV-28-1997
<CASH> 86,444
<SECURITIES> 0
<RECEIVABLES> 65,441
<ALLOWANCES> 5,804
<INVENTORY> 137,267
<CURRENT-ASSETS> 211,917
<PP&E> 478,060
<DEPRECIATION> 240,033
<TOTAL-ASSETS> 473,869
<CURRENT-LIABILITIES> 92,002
<BONDS> 255,735
0
0
<COMMON> 133
<OTHER-SE> 93,520
<TOTAL-LIABILITY-AND-EQUITY> 473,869
<SALES> 268,789
<TOTAL-REVENUES> 268,789
<CGS> 225,293
<TOTAL-COSTS> 246,980
<OTHER-EXPENSES> 1,776
<LOSS-PROVISION> 327
<INTEREST-EXPENSE> 5,670
<INCOME-PRETAX> 14,363
<INCOME-TAX> 5,745
<INCOME-CONTINUING> 8,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,618
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
