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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
FOR THE FISCAL YEAR ENDED AUGUST 27, 1999
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
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
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 1, 1999 (based upon the book
value per share of Class A Common Stock as of October 1, 1999) was $14,146,916.
As of November 1, 1999, the registrant had 11,702,384 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
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Item 1. Business................................................................. 2
Item 2. Properties............................................................... 9
Item 3. Legal Proceedings........................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders...................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 11
Item 6. Selected Financial Data.................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............... 21
Item 8. Financial Statements and Supplementary Data.............................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................ 39
Part III
Item 10. Directors and Executive Officers of the Registrant....................... 40
Item 11. Executive Compensation................................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 49
Item 13. Certain Relationships and Related Transactions........................... 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......... 53
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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.
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, utility wear, sportswear
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 a
leader in the branded and private label, fashion-oriented segment of the apparel
market. Denim sales accounted for 36%, 34% and 34%, respectively, of the
Company's net sales in fiscal 1997, 1998 and 1999.
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 21%, 21% and 22%, respectively, of the Company's net
sales in fiscal 1997, 1998 and 1999.
The Company is a leading manufacturer and marketer of woven cotton
piece-dyed fabrics used in the manufacture of men's, women's and children's
sportswear, casual wear and outerwear. Fabrics are produced for customers in a
wide variety of styles, colors, textures and weights according to individual
customer specifications. The Company's product design staff develops fabric
designs that are presented to customers and, once approved, are produced into
fabrics to meet customers' specifications. Sportswear fabric sales accounted for
12%, 12% and 16%, respectively, of the Company's net sales in fiscal 1997, 1998
and 1999.
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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 25%, 26% and 21%, respectively, of the
Company's net sales in fiscal 1997, 1998 and 1999.
Sales and Marketing
The Company sold apparel fabrics (including denim, utility wear fabrics
and sportswear fabrics), greige and specialty fabrics, and yarns to
approximately 1,400, 200 and 500 customers, respectively, in fiscal 1999. 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), Brittania(R), and
HealthTex(R) brand jeans), with total sales of denim, other fabrics and yarns to
V.F. Corporation accounting for 16% of the Company's net sales in fiscal 1999.
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 1999.
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 seven fabric 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.
Manufacturing Processes. 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
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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
"range" 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 24
manufacturing facilities in the U.S. Of the Company's manufacturing facilities,
fifteen produce yarn, six manufacture fabrics, four 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:
- 1994 -- Completed construction of an 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;
- 1996 -- Acquired Graniteville, which consisted of four
integrated yarn and fabric weaving plants, three indigo-dyeing
facilities, one piece-dyeing and finishing facility, one
fabric coating 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 -- 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;
- 1997 and 1998 -- Constructed a new denim weaving facility,
completed in April 1998, housing technologically advanced
slashing equipment and high speed air jet looms, upgraded
fabric finishing equipment, and executed a lease for a new
distribution center;
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- 1998 and 1999 -- Completed expansion of an existing weaving
facility in June 1999, which included the installation of
technologically advanced slashing equipment and high speed air
jet looms for the production of additional greige fabrics to
be piece-dyed for sportswear and utility wear end uses;
- 1998 and 1999 - Completed construction of a new piece-dyeing
range in February 1999, and installed technologically advanced
fabric inspection equipment for piece-dyed fabrics, to be
operational by December 1999; and
- 1999 -- Began replacement of sixty-seven earlier generation
air jet looms with forty new, high speed air jet looms, to be
completed by November 1999.
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 the year 2002 the three-step competitiveness program established under
the 1990 Trade Act. In fiscal 1997, 1998 and 1999, 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. However, these payments ceased as of December 15, 1998 as financing for
the program was exhausted, and tariff-free quotas for the importation of cotton
opened in March 1999.
On October 22, 1999 the Fiscal 2000 Agriculture Appropriations Bill was
signed into law, restoring funding for payments under the three-step
competitiveness program. Accordingly, the Company expects to begin receiving
renewed payments from the U.S. Department of Agriculture for the differential
between domestic cotton prices and world cotton prices on cotton consumed on or
after the effective date of the bill.
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
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
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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 option 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 acquisition of Graniteville, 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. During fiscal 1998 and 1999, imports of
certain textile products into the U.S. increased primarily as a result of
declines in consumer demand within Asia, heightened liquidity requirements of
Asian textile producers and devaluation of Asian currencies vis-a-vis the U.S.
dollar.
The extent of import protection afforded by the U.S. government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic political deliberation and foreign considerations. In
January 1995, a new multilateral trade organization, the World Trade
Organization (the
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"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 ("NAFTA") among the United
States, Canada and Mexico, 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. 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 $340 million at August
27, 1999, as compared to approximately $375 million at August 28, 1998. Orders
on hand are not necessarily indicative of total future sales. Substantially all
of the orders outstanding at August 27, 1999 are expected to be filled by the
end of fiscal 2000.
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 ("RCRA") (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, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards, and regulate
the
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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 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 submitted a proposal regarding periodic monitoring of the
site, to which DHEC responded with a request for additional information.
Graniteville 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 acquisition of Graniteville, the Company owns a nine
acre site in Aiken County, South Carolina, which was operated jointly by
Graniteville and Aiken County as a landfill from approximately 1950 through
1973. DHEC conducted a site screening investigation in 1990. The United States
Environmental Protection Agency conducted a site investigation in 1991 and an
Expanded Site Inspection in January 1994. Graniteville conducted a groundwater
quality investigation in 1992 and a supplemental site assessment in 1994. Based
on these investigations, DHEC requested that Graniteville enter into a consent
agreement providing for comprehensive assessment of the nature and extent of
soil and groundwater contamination at the site, if any, and an evaluation of
appropriate remedial alternatives. DHEC and the Company entered into a consent
agreement in December 1997. The cost of the comprehensive assessment required by
the consent agreement is estimated to be between $200,000 and $400,000. Because
this investigation has not concluded, the Company is currently unable to predict
what further actions, if any, will be necessary to address the landfill. The
Company has provided a reserve for management's estimate of the cost of
investigating and remediating 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.
The Company is currently defending two environmentally related
lawsuits, described under Item 3, legal proceedings.
Associates
At August 27, 1999, the Company had approximately 6,800 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 24 manufacturing facilities in the U.S.,
of which eight are located in Alabama, three are located in North Carolina, four
are located in Georgia and nine are located in South Carolina. The Company owns
22 of these facilities and leases two facilities in connection with its prior
issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
fifteen produce yarn, six manufacture fabrics, four are dyeing facilities, and
four are engaged in fabric finishing. Additionally, the Company operates six
warehouses.
The Company's plants generally operate 24 hours a day, seven days a
week throughout the year. The Company considers its plants and equipment to be
in good condition and adequate for its current operations. The Company's
principal executive offices are located in Monroe, Georgia in a building owned
by the Company. The Company also has executive offices in Sylacauga, Alabama,
and Graniteville, South Carolina, which are located in buildings owned by the
Company. All of the Company's sales offices are leased from unrelated third
parties.
ITEM 3. LEGAL PROCEEDINGS
On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould and
other parties against the Alabama Power Company, Russell Corporation, 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 and caused 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
proceeded as to the individual claims of the five plaintiffs.
On November 17, 1998, the court handed down a verdict of $155,200 in
compensatory damages and $52,398,000 in punitive damages against the Alabama
Power Company, Russell Corporation and the Company, on a joint and several
basis, in favor of the plaintiffs. The Company believes that there are numerous
grounds on which the verdict can be appealed and that the verdict was not
supported by the evidence. An appeal of the verdict is in progress, and the
Company intends to pursue such appeal vigorously.
Although the Company believes that it should be successful in its
appeal of the verdict, there can be no assurance regarding the outcome of the
appeal. If the Company is not successful in its appeal of the verdict, the
Company anticipates that its share of the liability incurred in connection with
the verdict could have a material adverse effect on its results of operations
for the fiscal quarter and year in which the liability is incurred; however, it
does not believe the outcome of this matter will have a material adverse effect
on its financial condition.
On February 28, 1999, a case was filed in the Circuit Court of
Jefferson County, Alabama by Chris and Regina Christian against Russell
Corporation, Russell Lands, Inc., Alabama Power, the Company and certain other
parties. The complaint alleges that the Company, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered mental anguish, bodily injury and other
pecuniary loss. The complaint seeks compensatory and punitive damages in an
undisclosed amount. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. While the outcome of
this
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case cannot be predicted with certainty, based upon currently available
information, the Company does not believe that it will have a material adverse
effect on the Company's financial condition or results of operations.
Avondale Mills, along with Russell Corporation and the municipality of
Alexander City, Alabama, was named during fiscal 1998 in two almost identical
citizen suits. The first suit, filed on May 18, 1998, was brought pursuant to
the federal Clean Water Act ("CWA"). The second suit, filed on August 28, 1998,
was brought pursuant to both the CWA and the RCRA. In both lawsuits, the
plaintiff has alleged that Avondale Mills' permitted discharges of wastewater
from its facility in Alexander City into the waste water treatment plant of
Alexander City have indirectly caused the wastewater treatment plant to exceed
the effluent limitation imposed upon the plant's discharges into a local body of
water, thereby violating the CWA. The plaintiff repeated that claim in the
second lawsuit, but also alleged that Avondale Mills also violated RCRA by
contributing to the disposal of a hazardous waste in such a manner as to
endanger human health or the environment. In September 1998, the cases were
consolidated, and the first case filed was designated the "lead case". In each
of these cases, Avondale Mills filed motions to dismiss and for summary judgment
which it believed to be meritorious. However, prior to the court's ruling on
Avondale's motions, the plaintiff moved the court to dismiss the suits. On
September 30, 1999, pursuant to the plaintiff's motion, the court dismissed the
lead case and terminated the remaining case. The dismissal of these cases was
"without prejudice". Concurrent with this litigation, the United States
Environmental Protection Agency had initiated an investigation of the
possibility of CWA violations at Avondale Mills' facility, and this
investigation is continuing at the present time.
The Company is also a party to other litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation other than the Sullivan and Gould case disclosed above, 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.
10
<PAGE> 12
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 27, 1999 there were 130 and one holders of record of Class A Common Stock
and Class B Common Stock, respectively. The Company paid dividends aggregating
$5.2 million and $5.1 million in respect of its outstanding Common Stock during
fiscal 1998 and 1999, respectively. During fiscal 1998, approximately 592,000
shares of Class A Common Stock were repurchased pursuant to a tender offer
distributed by the Company to all shareholders and vested stock option holders
of Class A Common Stock.
The Company has issued and outstanding $125 million 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.
11
<PAGE> 13
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 27, 1999. 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 27, 1999 are included
elsewhere in this Annual Report. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------
1995 1996 1997 1998 1999
------- ------ -------- -------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales ................................................... $538.7 $706.2 $1,049.5 $1,056.1 $ 880.9
Gross profit ................................................ 71.2 76.9 126.2 137.3 89.7
Facility restructuring ...................................... -- -- -- 2.7 6.2
Operating income ............................................ 47.6 44.9 79.0 86.6 45.3
Interest expense, net ....................................... 14.3 18.5 26.2 23.3 23.0
Discount and expenses on sale of receivables ................ -- 3.7 6.6 7.3 5.6
Loss attributable to investment in Oneita ................... -- -- 7.5 -- --
Other (income) expense, net ................................. (0.8) -- 0.8 0.5 0.5
Income before income taxes .................................. 34.0 22.7 37.9 55.4 16.3
Provision for income taxes .................................. 13.1 9.0 15.0 21.1 6.3
Net income .................................................. 20.9 13.6 22.9 34.3 10.0
Per Share Data:
Net income - basic .......................................... $ 1.89 $ 1.16 $ 1.73 $ 2.62 $ 0.79
Net income - diluted ........................................ 1.88 1.15 1.70 2.58 0.77
Dividends declared .......................................... 0.28 0.28 0.28 0.40 0.40
Weighted average number of shares outstanding - basic ....... 11.1 11.8 13.3 13.0 12.7
Weighted average number of shares outstanding - diluted ..... 11.1 11.9 13.5 13.3 12.9
Balance Sheet Data (at period end):
Total assets ................................................ $257.4 $493.1 $ 461.2 $ 463.6 $ 439.7
Long-term debt, including current portion ................... 169.9 303.1 251.3 246.8 219.5
Shareholders' equity ........................................ 18.0 67.5 86.4 100.0 105.0
Other Data:
Capital expenditures ........................................ $ 15.8 $ 33.4 32.0 $ 66.3 $ 50.1
Depreciation and amortization ............................... 23.8 30.4 40.8 39.9 42.8
EBITDA(1) ................................................... 75.1 73.4 113.3 126.6 93.9
Ratio of EBITDA to interest expense, net and
discount and expenses on sale of receivables .............. 5.2x 3.3x 3.5x 4.1x 3.3x
Ratio of earnings to fixed charges(2) ....................... 3.4x 2.0x 2.1x 2.8x 1.5x
</TABLE>
- ----------
(1) EBITDA is defined as net income plus (i) provision for income taxes,
(ii) interest expense, net, (iii) discount and expenses on sale of
receivables, (iv) depreciation and amortization, (v) loss attributable
to investment in Oneita, (vi) facility restructuring charges 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.
12
<PAGE> 14
(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 plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of deferred financing
costs, discount and expenses on sale of receivables and the portion of
rental expense that is representative of the interest factor in these
rentals.
13
<PAGE> 15
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
--------------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0%
Apparel fabric sales............................. 68.4 67.4 72.8
Greige and specialty fabric sales ............... 6.5 6.6 6.6
Yarn sale........................................ 25.1 26.0 20.6
Cost of goods sold:
Raw materials.................................... 47.2 46.3 44.3
Conversion costs................................. 36.9 37.0 40.7
Total....................................... 84.1 83.3 85.0
Depreciation..................................... 3.9 3.7 4.8
Selling and administrative expenses.............. 4.5 4.5 4.3
Facility restructuring........................... -- 0.3 0.7
Operating income................................. 7.5 8.2 5.2
Interest expense, net............................ 2.5 2.2 2.6
Discount and expenses on sale of receivables..... 0.6 0.7 0.6
Loss attributable to investment in Oneita........ 0.7 -- --
Provision for income taxes....................... 1.4 2.0 0.7
Net income....................................... 2.2 3.3 1.1
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales decreased 16.6% to $880.9 million for fiscal 1999
from $1,056.1 million for fiscal 1998, as the Company experienced intensely
competitive conditions in its markets. Global supply continued to surpass demand
as weak foreign economies directed their production to the U.S. consumer. In
response, the Company was able to employ its sourcing flexibility to increase
its consumption of internally produced yarns and greige fabrics in the
production of finished fabrics and thereby minimize the detrimental effects of
underutilized manufacturing capacity. The Company expects these conditions to
continue for several months, adversely impacting sales in the first and second
quarters of fiscal 2000.
Apparel fabric sales decreased 9.9% to $641.2 million for fiscal 1999
from $711.4 million for fiscal 1998. This decrease in sales reflected a 5.5%
decrease in yards sold and a 4.7% decline in average selling prices for those
yards. Although reports of retail sales and consumer preferences indicate that
domestic sales of denim jeans continued to demonstrate growth during fiscal
1999, the substantial increase in denim productive capacity worldwide in recent
years has caused the global supply of denim to far exceed demand. As a result,
the market for denim fabrics has become very competitive and selling prices have
declined accordingly. These declines in denim sales were partially offset during
fiscal 1999 by growing demand for khaki and other pant-weight fabrics.
Greige and specialty fabric sales decreased 16.2% to $58.1 million for
fiscal 1999 from $69.3 million for fiscal 1998. This decrease reflected an 11.7%
decrease in units sold and a 5.1% decrease in
14
<PAGE> 16
average selling prices for those units. The decrease in units sold and average
selling prices was primarily the result of softening demand during fiscal 1999
for greige and specialty fabrics in the apparel, tent and marine products
industries. The Company also increased its consumption of internally produced
greige fabrics in the production of finished apparel fabrics.
Yarn sales decreased 34.1% to $181.6 million for fiscal 1999 from
$275.4 million for fiscal 1998. This decrease reflected a 25.5% decrease in
pounds sold and an 11.5% decrease in average selling prices. The decrease in
pounds sold was partly the result of the Company's decision to significantly
increase its consumption of internally produced yarn within the Company's
weaving facilities, thereby reducing dependence on outside yarn sourcing, and to
discontinue the operation of higher cost production equipment. Continuing its
yarn restructuring efforts, the Company also announced the closing of the yarn
spinning operation at its Sibley plant located in Augusta, Georgia. Market
demand and pricing for sales yarn remained very competitive during fiscal 1999,
reflecting continued excess productive capacity within the industry, a condition
that has persisted for several years, and increased imports of yarn and knitted
apparel from Asia during fiscal 1998 and 1999.
Cost of Goods Sold. Cost of goods sold decreased 14.8% to $748.9
million for fiscal 1999 from $879.3 million for fiscal 1998. Cost of goods sold
as a percentage of net sales increased to 85.0% for fiscal 1999 from 83.3% for
fiscal 1998. The Company has continued efforts to reduce unit costs through
strategic capital expenditure projects. However, reduced capacity utilization
and a corresponding reduction in absorption of fixed manufacturing costs
resulted in increased unit costs during fiscal 1999.
Selling and Administrative Expenses. Selling and administrative
expenses decreased 20.7% to $38.1 million for fiscal 1999 from $48.1 million for
fiscal 1998. This decrease reflects continued expense reduction efforts, and
reduced charges for certain associate benefits and performance based incentives
corresponding with the reduced results of operations of the Company for the
period. Selling and administrative expenses as a percentage of net sales
decreased to 4.3% for fiscal 1999 from 4.5% for fiscal 1998.
Interest Expense, Net. Interest expense, net decreased 1.2% to $23.0
million for fiscal 1999 from $23.3 million for fiscal 1998. This decrease
reflected lower interest rates during fiscal 1999.
Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables were $5.6 million for fiscal 1999 compared to $7.3 million
for fiscal 1998. This decrease was primarily attributable to a net decrease in
the amount of accounts receivable sold under the facility, reflecting the
overall decline in net sales of the Company.
Facility Restructuring. Charges incurred to consolidate facilities and
dispose of certain inefficient equipment in the Company's Graniteville, South
Carolina and Augusta, Georgia operations were $6.2 million for fiscal 1999.
Provision for Income Taxes. Provision for income taxes decreased to
$6.3 million for fiscal 1999 from $21.1 million for fiscal 1998, reflecting the
decrease in income before income taxes. The Company's effective tax rate was
38.5% for fiscal 1999 compared to 38.1% for fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales increased 0.6% to $1,056.1 million for fiscal 1998
from $1,049.5 million for fiscal 1997, primarily as a result of improved yarn
sales.
15
<PAGE> 17
Apparel fabric sales decreased 0.9% to $711.4 million for fiscal 1998
from $717.7 million for fiscal 1997. This decrease in sales reflected a 4.3%
increase in yards sold, which was offset by a 5.0% decline in average selling
prices. The decline in average selling prices resulted from softening market
prices caused by excess inventories of fabric and garments within the industry,
as well as increased production capacity of domestic and international
suppliers.
Greige and specialty fabric sales increased 1.2% to $69.3 million for
fiscal 1998 from $68.5 million for fiscal 1997. This increase in sales reflected
strong demand for greige fabrics by the apparel, home furnishing, luggage and
shoe industries.
Yarn sales increased 4.6% to $275.4 million for fiscal 1998 from $263.3
million for fiscal 1997. This increase reflected a 7.1% increase in pounds sold
to outside customers, which was offset in part by a 2.4% decrease in average
selling prices for those pounds. Market prices for sales yarns remained very
competitive, reflecting continued excess production capacity within the industry
and increased imports of yarn and knitted apparel from Asia during fiscal 1998.
Cost of Goods Sold. Cost of goods sold decreased 0.4% to $879.3 million
for fiscal 1998 from $882.8 million for fiscal 1997. Cost of goods sold as a
percentage of net sales decreased to 83.3% for fiscal 1998 from 84.1% for fiscal
1997, primarily due to improved capacity utilization and lower raw material
costs, which mitigated the impact of generally lower selling prices.
Selling and Administrative Expenses. Selling and administrative
expenses increased 1.7% to $48.1 million for fiscal 1998 from $47.2 million for
fiscal 1997, reflecting increased accrual of certain associate benefit expenses
and compensation expense related to the redemption of stock options by certain
current and former associates of the Company. Selling and administrative
expenses as a percentage of net sales remained constant at 4.5% for fiscal 1998
and for fiscal 1997.
Interest Expense, Net. Interest expense, net decreased 11.0% to $23.3
million for fiscal 1998 from $26.2 million for fiscal 1997. This decrease
reflected lower interest rates and a lower average balance of outstanding
borrowings during fiscal 1998.
Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables were $7.3 million for fiscal 1998 compared to $6.6 million
for fiscal 1997. 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.
Facility Restructuring. Charges incurred to consolidate facilities and
dispose of certain inefficient equipment in the Company's Graniteville, South
Carolina operations were $2.7 million for fiscal 1998.
Provision for Income Taxes. Provision for income taxes increased to
$21.1 million for fiscal 1998 from $15.0 million for fiscal 1997, reflecting the
increase in income before income taxes. The Company's effective tax rate was
38.1% for fiscal 1998 compared to 39.5% for fiscal 1997.
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
General
The Company has funded its working capital requirements and capital
expenditures with cash generated from operations, borrowings under its Credit
Facility, proceeds received in connection with sales of trade receivables and
proceeds received in connection with the issuance of equity and debt securities.
At August 27, 1999, the Company had borrowings of $86.3 million outstanding
under the Credit Facility and $113.7 million of borrowing availability
thereunder. Such borrowings bore interest at a weighted average rate of 6.5% per
annum at August 27, 1999. In addition, at August 27, 1999, $125 million
aggregate principal amount of the Notes (which are fully and unconditionally
guaranteed by the Company) issued by Avondale Mills during fiscal 1996 were
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,
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 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 27, 1999, the Company had swap agreements with
notional amounts aggregating $70.0 million, providing an effective weighted
average interest rate of 5.6% on that equivalent portion of the outstanding
Revolver Loans.
Receivables Securitization Facility
Pursuant to an agreement between Avondale Mills and Bank One, formerly
The First National Bank of Chicago, Bank One 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
17
<PAGE> 19
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 November 15, 2002 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 27, 1999, certificates of
$93.0 million were outstanding.
The rate of interest on the Receivables Securitization Facility is the
Eurodollar rate (adjusted for any reserves) plus 0.40% or Bank One's alternate
base rate. 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.
The Receivables Securitization Facility contains covenants,
representations and warranties customary for such facilities and consistent with
those that Bank One 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 $50.1 million for fiscal
1999. These expenditures were primarily to complete the expansion of an existing
greige weaving facility, upgrade fabric finishing ranges and purchase other
equipment. Management estimates that capital expenditures for fiscal 2000 will
be approximately $45 million, and that such amounts will be used primarily to
improve fabric finishing and yarn spinning facilities.
Net cash provided by operating activities was $99.4 million in fiscal
1999. Principal working capital changes included a $31.5 million decrease in
accounts receivable, an $8.1 million decrease in inventories and a $7.0 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily the capital improvements described above. Net cash
used in financing activities aggregated $51.4 million, including $5.1 million
used to pay dividends on Common Stock, net reduction in revolver loan and other
long term debt of $27.3 million, and a $19.0 million decrease in accounts
receivable sold under the securitization facility.
Net cash provided by operating activities was $81.8 million in fiscal
1998. Principal working capital changes included a $5.2 million decrease in
accounts receivable, a $6.2 million decrease in inventories and an $8.3 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily capital improvements of $66.3 million. Net cash used
in financing activities aggregated $15.1 million, including $5.2 million used to
pay dividends on Common Stock, $15.4 million used to repurchase approximately
592,000 shares of Class A Common Stock pursuant to a tender offer distributed by
the Company to all shareholders and vested stock option holders of Class A
Common Stock, and receipt of $10.0 million from the sale of additional accounts
receivable under the securitization facility.
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<PAGE> 20
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 expenditures for capital improvements of $32.0 million
and the receipt of the $7.3 million due from Triarc upon finalization of the
purchase price for Graniteville. 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 Common 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.
YEAR 2000
The Company utilizes computer systems and related software which
process dates using two digits to define specific years. Such systems may not be
able to distinguish the year 2000 from the year 1900, resulting in system
failures or miscalculations which may disrupt operations and other activities.
During the past three years, the Company has identified those systems which are
not Year 2000 compliant and developed plans to modify or replace them. Execution
of these plans has been substantially completed and remediation of all systems
is anticipated by December 1, 1999.
Costs associated with remediation of the affected systems are being
expensed as incurred. The Company estimates that it has incurred costs of
approximately $5 million through fiscal 1999 to achieve Year 2000 compliant
systems and will incur additional costs of approximately $0.5 million in fiscal
2000 to complete the remediation.
The Company has conducted limited surveys of its major suppliers and
customers and found that those contacted are aware of the Year 2000 problem and
their own remediation requirements. However, the Company has no means of
assuring that its suppliers and customers will be Year 2000 compliant, and their
inability to complete required remediations in a timely manner could have an
adverse effect on the Company.
The Company has developed contingency plans for possible Year 2000
issues, including the use of backup systems as well as manual processes to
ensure continuity of business operations.
While management believes that its estimates of the costs to achieve
Year 2000 compliance and the related completion dates are reasonable and
achievable, there can be no assurance that actual results will not differ
significantly from management's plans.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards
19
<PAGE> 21
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value, and changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company plans to adopt Statement No. 133
in fiscal 2001. Management does not believe the adoption of this statement will
have a material effect on the consolidated financial position or results of
operations of the Company.
During the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standard No. 130 "Reporting Comprehensive Income", which
requires the reporting and display of net income plus other comprehensive income
items such as unrealized gains and losses on securities or foreign currency
translation adjustments. The adoption of this statement did not have a material
impact on the presentation of the Company's condensed consolidated financial
statements, as the Company does not have any material other comprehensive income
to report.
FORWARD LOOKING STATEMENTS
Statements herein regarding the Company's anticipated capital
expenditures, Year 2000 compliance and anticipated performance in future periods
constitute forward looking statements within the meaning of the Securities Act
of 1993 and Securities Act of 1934. Such statements are subject to certain risks
and uncertainties that could cause actual amounts to differ materially from
those projected. With respect to anticipated capital expenditures, management
has made certain assumptions regarding, among other things, maintenance of
existing facilities and equipment, availability and desirability of new,
technologically advanced equipment, installation and start up times, cost
estimates and continued availability of financial resources. The estimated
amount of capital expenditures is subject to certain risks, including, among
other things, the risk that unexpected capital expenditures will be required and
unexpected costs and expenses will be incurred. With respect to Year 2000
compliance, management has performed certain assessments to identify remediation
needs of the Company's computer systems and related software and contacted major
suppliers and customers to assess the impact of the Year 2000 problem on their
operations. The Company's expectations regarding the impact of the Year 2000
problem and its estimate of the costs to achieve Year 2000 compliance are
subject to certain risks, including, among other things, the risk that the
assessments have not identified all required system modifications, system
modifications can not be completed in a timely manner, unexpected costs and
expenses will be incurred in connection with system modifications, and major
suppliers and customers will not successfully achieve Year 2000 compliance in a
timely manner. Further, statements herein regarding the Company's performance in
future periods are subject to risks relating to, among other things, the
cyclical and competitive nature of the textile industry in general, pressures on
sales prices due to competitive and economic conditions, deterioration of
relationships with, or loss of, significant customers, availability, sourcing
and pricing of cotton and other raw materials, technological advancements,
employee relations, continued availability of financial resources, difficulties
integrating acquired businesses and possible changes in governmental policies
affecting raw material costs. Management believes these forward looking
statements are reasonable; however, undue reliance should not be placed on such
forward looking statements, which are based on current expectations.
20
<PAGE> 22
OTHER DATA
EBITDA, which 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 the ability to incur and service debt, is calculated by the Company
as follows (amounts in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Net income.................................. $ 22,937 $ 34,313 $ 10,023
Interest expense............................ 26,158 23,280 22,998
Discount and expenses on
sale of receivables........................ 6,617 7,342 5,590
Provision for income taxes.................. 14,950 21,125 6,270
Depreciation and amortization............... 40,822 39,887 42,801
Loss attributable to investment in Onieta... 7,500 -- --
Facility restructuring...................... -- 2,699 6,240
Net change in allowance to reduce carrying
value of inventory to LIFO basis.......... (5,698) (2,027) --
-------- -------- -------
EBITDA...................................... $113,276 $126,619 $93,922
======== ======== =======
</TABLE>
EBITDA as calculated by the Company is not necessarily comparable with
similarly-titled measures presented by other companies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Upward or downward changes in market interest rates and their impact on
the reported interest expense of the Company's variable rate borrowings may
affect the Company's earnings. However, the Company's use of interest rate swap
agreements will limit the negative impact of higher interest rates. Assuming the
revolving credit facility and interest rate swap agreements at August 27, 1999
remain in effect throughout fiscal 2000, a 10% change in the effective average
interest rate would not have a material effect on the Company's pretax earnings
for fiscal 2000. In addition, a 10% change in interest rates would not have a
material effect on the fair value of the Company's interest rate swap agreements
and senior subordinated notes.
Increases or decreases in the market price of cotton may affect the
valuation of the Company's inventories and fixed purchase commitments and,
accordingly, the Company's earnings. The potential decline in fair value of
these inventories and fixed purchase commitments resulting from a 10% decline in
market prices is estimated to be approximately $9 to $22 million.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 27, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants..................... 23
Consolidated Balance Sheets.................................. 25
Consolidated Statements of Income............................ 26
Consolidated Statements of Shareholders' Equity.............. 27
Consolidated Statements of Cash Flows........................ 28
Notes to Consolidated Financial Statements................... 29
</TABLE>
22
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Avondale Incorporated:
We have audited the accompanying consolidated balance sheets of
Avondale Incorporated as of August 28, 1998 and August 27, 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for the
two fiscal years then ended. These financial statements and the schedule
referred to below 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. The consolidated statements of income,
shareholders' equity, cash flows and the schedule referred to below for the
fiscal year ended August 29, 1997, were audited by other auditors whose report
dated October 7, 1997, expressed an unqualified opinion on those statements and
schedule.
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 28, 1998 and August 27, 1999, and the
consolidated results of their operations and their cash flows for the two fiscal
years ended August 27, 1999 in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index at Item
14 (a) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 4, 1999
23
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Avondale Incorporated
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Avondale Incorporated for the fiscal year
ended August 29, 1997. Our audit 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Avondale Incorporated for the fiscal year 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
24
<PAGE> 26
AVONDALE INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 27,
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash ............................................................. $ 9,259 $ 8,545
Accounts receivable, less allowance for doubtful accounts of
$2,533 in 1998 and $2,615 in 1999 .............................. 62,497 49,948
Inventories ...................................................... 114,684 106,559
Prepaid expenses ................................................. 742 1,070
--------- ---------
Total current assets ......................................... 187,182 166,122
Property, plant and equipment
Land ............................................................. 8,510 8,510
Buildings ........................................................ 82,366 84,515
Machinery and equipment .......................................... 430,629 469,274
--------- ---------
521,505 562,299
Less accumulated depreciation .................................... (267,791) (306,318)
--------- ---------
253,714 255,981
Other assets ....................................................... 22,686 17,629
--------- ---------
$ 463,582 $ 439,732
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ................................................. $ 34,839 $ 30,773
Accrued compensation, benefits and related expenses .............. 24,665 18,378
Other accrued expenses ........................................... 18,970 22,366
Long-term debt due in one year ................................... 2,250 3,250
Income taxes payable ............................................. 1,345 3,411
--------- ---------
Total current liabilities ..................................... 82,069 78,178
Long-term debt ..................................................... 244,575 216,275
Deferred income taxes and other long-term liabilities .............. 36,894 40,283
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 -- 11,698 shares in 1998 and 1999 ................. 117 117
Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding -- 979 shares in 1998 and 1999 .................... 10 10
Capital in excess of par value ..................................... 39,835 39,835
Retained earnings .................................................. 60,082 65,034
--------- ---------
Total shareholders' equity .................................... 100,044 104,996
--------- ---------
$ 463,582 $ 439,732
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 27
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
AUGUST 29, AUGUST 28, AUGUST 27,
1997 1998 1999
---------- ----------- ----------
<S> <C> <C> <C>
Net sales ........................................ $1,049,474 $1,056,103 $880,855
Operating costs and expenses
Cost of goods sold ............................. 882,760 879,263 748,910
Depreciation ................................... 40,508 39,497 42,271
Selling and administrative expenses ............ 47,243 48,067 38,096
Facility restructuring ......................... -- 2,699 6,240
---------- ---------- --------
Operating income ............................ 78,963 86,577 45,338
Interest expense ................................. 26,158 23,280 22,998
Discount and expenses on sale of receivables ..... 6,617 7,342 5,590
Loss attributable to investment in Oneita ........ 7,500 -- --
Other expense, net ............................... 801 517 457
---------- ---------- --------
Income before income taxes ..................... 37,887 55,438 16,293
Provision for income taxes ....................... 14,950 21,125 6,270
---------- ---------- --------
Net income .................................. $ 22,937 $ 34,313 $ 10,023
========== ========== ========
Per share data
Net income - basic .......................... $ 1.73 $ 2.62 $ .79
========== ========== ========
Net income - diluted ........................ $ 1.70 $ 2.58 $ .77
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
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 PAR VALUE EARNINGS
------ ------ --------- --------
<S> <C> <C> <C> <C>
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
Net income ..................................... -- -- -- 34,313
Cash dividends ($0.40 per share) ............... -- -- -- (5,249)
Purchase and retirement of treasury stock ...... (592) (6) (1,643) (13,733)
------- ----- -------- --------
Balance at August 28, 1998 ....................... 12,677 127 39,835 60,082
Net income ..................................... -- -- -- 10,023
Cash dividends ($0.40 per share) ............... (5,071)
------- ----- -------- --------
Balance at August 27, 1999 ....................... 12,677 $ 127 $ 39,835 $ 65,034
======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 29
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
AUGUST 29, AUGUST 28, AUGUST 27,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income ............................................ $ 22,937 $ 34,313 $ 10,023
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 40,822 39,887 42,801
Loss attributable to investment in Oneita ............ 7,500 -- --
Provision for (benefit of) deferred income taxes ..... (318) 6,452 (1,852)
Loss (gain) on sale of equipment ..................... (681) 1,877 4,183
Changes in operating assets and liabilities:
Accounts receivable .................................. 8,730 5,201 31,549
Inventories .......................................... 6,838 6,173 8,125
Prepaid expenses ..................................... 1,230 819 (328)
Other assets and liabilities, net .................... (1,672) (1,119) 9,767
Accounts payable and accrued expenses ................ (6,943) (8,339) (6,957)
Income taxes payable ................................. 4,716 (3,459) 2,066
-------- -------- --------
Net cash provided by operating activities .......... 83,159 81,805 99,377
Investing activities
Due from Triarc ...................................... 7,250 -- --
Purchase of property, plant and equipment ............ (32,046) (66,335) (50,143)
Proceeds from sale of property, plant and equipment .. 763 403 1,423
-------- -------- --------
Net cash used in investing activities .............. (24,033) (65,932) (48,720)
Financing activities
Principal payments on long-term debt ................. (3,250) (3,250) (2,250)
Net payments on revolving line of credit ............. (48,525) (1,250) (25,050)
Sale of accounts receivable, net ..................... (2,000) 10,000 (19,000)
Purchase and retirement of treasury stock ............ (366) (15,382) --
Dividends paid ....................................... (3,721) (5,249) (5,071)
-------- -------- --------
Net cash used in financing activities .............. (57,862) (15,131) (51,371)
-------- -------- --------
Increase (decrease) in cash ............................ 1,264 742 (714)
Cash and cash equivalents at beginning of year ......... 7,253 8,517 9,259
-------- -------- --------
Cash and cash equivalents at end of year ........... $ 8,517 $ 9,259 $ 8,545
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 27, 1999
1. Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Avondale Incorporated and its wholly owned
subsidiaries, Avondale Mills, Inc. ("Avondale Mills") and Avondale Receivables
Company (collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated. Certain prior year financial statement
amounts have been reclassified to conform with the current year's presentation.
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.
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 option 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,
which range from three to thirty years. Depreciation is calculated primarily
using the straight-line method. Capital lease amortization is included with
depreciation expense in the consolidated financial statements.
Long-Lived Assets: The Company periodically reviews the values assigned
to long-lived assets, such as property, plant and equipment and goodwill. The
associated depreciation and amortization periods are reviewed on an annual
basis. Recoverability is measured based on the anticipated undiscounted cash
flows from operations. Management believes that long-lived assets included in
the accompanying balance sheets are appropriately valued.
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 $6.9 million,
$8.1 million and $3.5 million for fiscal 1997, 1998 and 1999, respectively.
29
<PAGE> 31
Other Assets and Other Long-Term Liabilities: Other assets consist
primarily of unamortized loan fees, goodwill, cash surrender value of life
insurance, and deposits on machinery and equipment purchases. Loan fees are
amortized on a straight line basis over the outstanding term of the related
debt. Goodwill is amortized on a straight line basis over 20 years. 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, accounts payable and accrued expenses
approximate reasonable estimates of their fair values at August 28, 1998 and
August 27, 1999. 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 is calculated by dividing the
reported net income for the period by the appropriate weighted average number of
shares of common stock outstanding, as shown below (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding -
Basic ......................................... 13,289 13,090 12,677
Effect of employee and director stock options .... 180 215 257
------ ------ ------
Weighed average shares outstanding -
Diluted ....................................... 13,469 13,305 12,934
====== ====== ======
</TABLE>
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 and
director 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 and directors 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.
Comprehensive Income: During the first quarter of fiscal 1999, the
Company adopted Statement of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income", which requires the reporting and display of net income
plus other comprehensive income items such as unrealized gains and losses on
securities or foreign currency translation adjustments. The adoption of this
statement did not have a material impact on the presentation of the Company's
condensed consolidated financial statements, as the Company does not have any
material other comprehensive income to report.
Recent Accounting Pronouncements: In June 1998, the Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value, and changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company plans to adopt Statement No. 133
in the first quarter of fiscal 2001. Management does not believe the adoption of
this statement will have a material effect on the consolidated financial
statements of the Company.
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 (10%, 10% and 9% of total revenues in fiscal 1997, 1998 and
1999, respectively) on a bill and hold basis, invoicing goods that have been
produced, packaged and made ready
30
<PAGE> 32
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 18% of net
sales for fiscal 1997, 16% of net sales for fiscal 1998, and 16% of net sales
for fiscal 1999.
2. Facility Restructuring: During the fourth quarter of fiscal 1999,
the Company recorded pretax charges of $6.2 million to consolidate manufacturing
facilities and dispose of certain inefficient equipment in its Graniteville,
South Carolina and Augusta, Georgia operations.
During the third quarter of fiscal 1998, the Company recorded pretax
charges of $2.7 million to consolidate manufacturing facilities and dispose of
certain inefficient equipment in its Graniteville, South Carolina operations.
3. Segment Information: During 1999, the Company adopted Statement of
Financial Accounting Standard No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which requires the reporting of certain
information for each division of the Company which engages in business activity
and whose operating results are regularly reviewed by senior management. The
Company operates principally in three segments: apparel fabrics, greige and
specialty fabrics and yarns. Apparel fabrics manufactures and sells cotton and
cotton-blend fabrics used in the manufacture of jeans, sportswear and utility
wear. Greige and specialty fabrics manufactures and sells a variety of fabrics
marketed to apparel, home furnishings, industrial, military and recreational
products manufacturers. Yarns manufactures and sells cotton and cotton-blend
yarns marketed to customers in the knitting and weaving industries. The
unallocated amounts reflect expenses, assets and capital expenditures for
centralized transportation, warehouse and administrative services functions.
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ---------
<S> <C> <C> <C>
Net Sales:
Apparel fabrics ...................... $ 720,678 $ 711,579 $ 641,304
Greige and specialty fabrics ......... 81,942 80,931 73,699
Yarns ................................ 300,191 303,493 197,372
----------- ----------- ---------
1,102,811 1,096,003 912,375
Less intersegment sales .............. 53,337 39,900 31,520
----------- ----------- ---------
Total ............................. $ 1,049,474 $ 1,056,103 $ 880,855
=========== =========== =========
Income:
Apparel fabrics ...................... $ 82,488 $ 78,847 $ 72,900
Greige and specialty fabrics ......... 9,393 9,826 7,064
Yarns ................................ 12,843 30,257 (125)
Unallocated .......................... (25,761) (32,353) (34,501)
----------- ----------- ---------
Total operating income ............ 78,963 86,577 45,338
Interest expense ..................... 26,158 23,280 22,998
Discount and expenses on sale of
receivables ....................... 6,617 7,342 5,590
Loss attributable to investment in
Oneita ............................ 7,500 -- --
Other expense, net ................... 801 517 457
----------- ----------- ---------
Income before income taxes ........ $ 37,887 $ 55,438 $ 16,293
=========== =========== =========
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Identifiable Assets:
Apparel fabrics ............... $ 307,214 $ 322,222 $317,549
Greige and specialty fabrics .. 34,552 30,600 25,336
Yarns ......................... 88,983 76,951 61,827
Unallocated ................... 30,473 33,809 35,020
---------- ---------- --------
Total ...................... $ 461,222 $ 463,582 $439,732
========== ========== ========
Depreciation and Amortization:
Apparel fabrics ............... $ 19,024 $ 21,738 $ 28,340
Greige and specialty fabrics .. 2,866 2,843 3,001
Yarns ......................... 14,993 11,031 8,127
Unallocated ................... 3,939 4,275 3,333
---------- ---------- --------
Total ...................... $ 40,822 $ 39,887 $ 42,801
========== ========== ========
Capital Expenditures:
Apparel fabrics ............... $ 23,135 $ 56,913 $ 38,844
Greige and specialty fabrics .. 372 1,902 868
Yarns ......................... 8,431 3,864 7,820
Unallocated ................... 108 3,656 2,611
---------- ---------- --------
Total ...................... $ 32,046 $ 66,335 $ 50,143
========== ========== ========
Geographic Sales Information:
United States ................. $ 979,280 $ 985,078 $820,274
All Other ..................... 70,194 71,025 60,581
========== ========== ========
Total ....................... $1,049,474 $1,056,103 $880,855
========== ========== ========
</TABLE>
4. Receivables Securitization Facility: On November 21, 1997, the
Company executed a 5-year amendment to its April 29, 1996 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 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 Sheets.
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 28, 1998 and August
27, 1999, an allowance of $4.5 million and $5.0 million, respectively, related
to the Receivables is included in other accrued expenses in the Consolidated
Balance Sheets.
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.
32
<PAGE> 34
Under the Agreement, the trust may issue certificates of up to $120.0
million. Certificates of $112.0 million and $93.0 million, respectively, were
outstanding at August 28, 1998 and August 27, 1999. Accounts receivable in the
Consolidated Balance Sheets have been reduced by approximately $113.0 million
and $94.0 million, respectively, representing the face amount of the outstanding
receivables sold at those dates.
For the fiscal years ended August 29, 1997, August 28, 1998 and August
27, 1999, discounts of $6.6 million, $7.3 million and $5.6 million,
respectively, on sales of Receivables have been included in discount and
expenses on sale of 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 27,
1999 is equal to the Eurodollar rate (adjusted for any reserves) plus 0.40% or
the bank's base rate of interest.
5. Inventories: Components of inventories are as follows (in
thousands):
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 27,
1999 1999
---------- ----------
<S> <C> <C>
Finished goods ............................................. $ 28,744 $ 28,519
Work in process ............................................ 49,434 44,541
Raw materials .............................................. 23,279 20,907
Dyes and chemicals ......................................... 6,084 5,537
-------- --------
Inventories at FIFO ........................................ 107,541 99,504
Less allowance to reduce carrying value to LIFO basis ...... -- --
-------- --------
107,541 99,504
Supplies at average cost ................................... 7,143 7,055
-------- --------
$114,684 $106,559
======== ========
</TABLE>
6. Income Taxes: Provision for income taxes is composed of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal ......................... $ 13,232 $ 13,578 $ 7,029
State ........................... 2,036 1,095 1,093
-------- -------- -------
15,268 14,673 8,122
Deferred:
Federal ......................... (275) 5,506 (1,603)
State ........................... (43) 946 (249)
-------- -------- -------
(318) 6,452 (1,852)
-------- -------- -------
$ 14,950 $ 21,125 $ 6,270
======== ======== =======
</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>
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Federal income taxes ............................. $13,261 $19,403 $5,702
State income taxes, net of federal tax benefit ... 1,276 1,407 492
Other ............................................ 413 315 76
------- ------- ------
$14,950 $21,125 $6,270
======= ======= ======
</TABLE>
33
<PAGE> 35
The Company made income tax payments of $10.4 million, $11.5 million
and $4.6 million during fiscal 1997, 1998 and 1999, 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 28, AUGUST 27,
1998 1999
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation .................... $25,084 $26,215
Inventory valuation ............. 6,989 5,491
Goodwill ........................ 2,496 2,355
Other ........................... 1,804 1,600
------- -------
Deferred tax liabilities .... 36,373 35,661
Deferred tax assets:
Employee benefit programs ....... 8,948 9,496
Receivable reserves ............. 2,842 3,094
Other ........................... 1,564 1,904
------- -------
Deferred tax assets ......... 13,354 14,494
------- -------
Net deferred tax liabilities ...... $23,019 $21,167
======= =======
</TABLE>
7. Long-Term Debt: Long-term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 27,
1998 1999
--------- ---------
<S> <C> <C>
Revolving credit facility, interest tied to banks' base rate or
alternative rates, 5.9% - 8.5% in 1999, due October 2001 ........ $ 111,325 $ 86,275
Industrial revenue bonds, floating rate, 2.3% - 4.2% in
1999, due in various installments through 2004 .................. 10,500 8,250
Senior subordinated notes, 10.25%, due May 1, 2006 ............... 125,000 125,000
--------- ---------
246,825 219,525
Less current portion ............................................. (2,250) (3,250)
--------- ---------
$ 244,575 $ 216,275
========= =========
</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 October 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, $16.1 million of retained earnings was available
for payment of dividends at August 27, 1999.
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
34
<PAGE> 36
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 27, 1999,
the Company had interest rate swap agreements with notional amounts aggregating
$70 million providing an effective weighted average interest rate of 5.6% on
that equivalent portion of the revolving credit facility. These interest rate
swap agreements had an unrealized loss of approximately $1 million at August 28,
1998, and no significant market value at August 27, 1999. The Company does not
anticipate realization of any gain or loss as the interest rate swap agreements
are anticipated to remain outstanding through maturity.
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 $25.5 million at August 27, 1999. Covenants of
the letter of credit agreements substantially adopt the restrictive covenant
provisions of the revolving credit facility.
Avondale Mills has issued and outstanding $125 million of 10.25% senior
subordinated notes which mature on May 1, 2006. The notes are unsecured and the
guarantee of these notes by the Company is subordinated 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 28, 1998 and August 27, 1999, the market
value of the notes was approximately $131 million and $116 million,
respectively. The Company does not anticipate settlement of the notes at fair
value and currently expects the notes to remain outstanding through maturity.
On or after May 1, 2001, the senior subordinated 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 which apply to
Avondale Mills 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 27, 1999, 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>
2000 ....................................................... $ 3,250
2001 ....................................................... 2,500
2002 ....................................................... 86,775
2003 ....................................................... 1,000
2004 ....................................................... 1,000
Thereafter through 2006 .................................... 125,000
--------
$219,525
========
</TABLE>
35
<PAGE> 37
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 $25.4 million, $23.5 million and
$21.9 million in fiscal 1997, 1998 and 1999, 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.
During fiscal 1998, the Company repurchased approximately 592,000
shares of Class A Common Stock for an aggregate purchase price of $15.4 million.
These shares were repurchased pursuant to a tender offer, distributed to all
shareholders and vested stock option holders of the Company's Class A Common
Stock, to purchase for cash up to $18.0 million worth of Class A Common Stock.
All shares repurchased have been canceled and reinstated as authorized but
unissued shares of Class A Common Stock.
The Company maintains an employee Stock Option Plan that allows for the
grant of non-qualified and incentive stock options. Under this Stock Option
Plan, options to purchase up to 1,081,250 shares of Class A Common Stock may be
granted to full-time employees, including executive officers of the Company.
Activity under the plan is summarized as follows (option shares in thousands):
<TABLE>
<CAPTION>
Grant Price Per Share
---------------------
<S> <C> <C>
$12.50 $ 18.00
------ -------
Stock Options outstanding at August 30, 1996........... 590 390
Options forfeited.................................... -- (25)
------ -------
Stock Options outstanding at August 29, 1997........... 590 365
Options redeemed at $24.00 to $28.00 per share....... (85) (10)
Options forfeited.................................... -- (30)
------ -------
Stock Options outstanding at August 28, 1998 and
August 27, 1999...................................... 505 325
====== =======
Average contractual life remaining in years........... 5 6.5
====== =======
Stock Options Exercisable at August 27, 1999........... 387 193
====== =======
</TABLE>
The exercise prices of the options granted approximated the fair market value of
the Company's Common Stock on the dates of grant. In conjunction with the fiscal
1998 stock repurchase described above, certain participants in the Company's
Stock Option Plan redeemed options in exchange for an aggregate cash payment of
$1.2 million. The Company recorded the cost of the redemption as compensation
expense, which is included in selling and administrative expenses. Options
forfeited by employees leaving the Company are reinstated as available for
grant. All options granted vest ratably over five years and may be exercised for
a period of ten years. At August 27, 1999, there were 156,000 stock options
available for grant.
The Company adopted a Stock Option Plan for 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, each director will
automatically 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. Options
36
<PAGE> 38
granted are exercisable for a period of ten years, subject to certain
limitations. During fiscal 1998 and 1999, 12,000 non-qualified options were
granted in each respective year. At August 27, 1999, 24,000 non-qualified
options remain outstanding and exercisable.
Pro forma information regarding the effect on the Company's results of
operations, assuming employee and non-employee director stock options had been
accounted for under the fair value method of FAS 123, was calculated using the
"minimum value" method which is permitted for companies with nonpublic equity.
No options were granted during fiscal 1997. The following weighted average
assumptions were used in these calculations for options granted in fiscal 1998
and 1999:
<TABLE>
<S> <C>
Risk free interest rate............... 6.0%
Expected dividend yield............... 2.2%
Expected lives........................ 8 years
</TABLE>
The total value of the options granted during fiscal 1998 and 1999 was
computed as approximately $32,000 and $44,000, respectively, which would be
amortized over the vesting period of the options. If the Company had accounted
for these plans in accordance with FAS 123, the reported net income and net
income per share would have decreased by the following pro forma amounts (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported ............ $ 22,937 $ 34,313 $ 10,023
Pro forma .............. 22,752 34,128 9,805
Net income per share:
Basic
As reported .......... $ 1.73 $ 2.62 $ .79
Pro forma ............ 1.71 2.61 .77
Diluted
As reported .......... $ 1.70 $ 2.58 $ .77
Pro forma ............ 1.69 2.57 .76
</TABLE>
Because the accounting provisions of FAS 123 only apply to options
granted after December 1995, the pro forma compensation cost presented may not
be representative of that to be expected in future years.
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.
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 and
other parties against the Alabama Power Company, Russell Corporation, 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 and caused mental anguish to
37
<PAGE> 39
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 proceeded as to the individual claims of
the five plaintiffs.
On November 17, 1998, the court handed down a verdict of $155,200 in
compensatory damages and $52,398,000 in punitive damages against the Alabama
Power Company, Russell Corporation and the Company, on a joint and several
basis, in favor of the plaintiffs. The Company believes that there are numerous
grounds on which the verdict can be appealed and that the verdict was not
supported by the evidence. An appeal of the verdict is in progress, and the
Company intends to pursue such appeal vigorously.
Although the Company believes that it should be successful in its
appeal of the verdict, there can be no assurance regarding the outcome of the
appeal. If the Company is not successful in its appeal of the verdict, the
Company anticipates that its share of the liability incurred in connection with
the verdict could have a material adverse effect on its results of operations
for the fiscal quarter and year in which the liability is incurred; however, it
does not believe the outcome of this matter will have a material adverse effect
on its financial condition.
On February 28, 1999, a case was filed in the Circuit Court of
Jefferson County, Alabama by Chris and Regina Christian against Russell
Corporation, Russell Lands, Inc., Alabama Power, the Company and certain other
parties. The complaint alleges that the Company, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered mental anguish, bodily injury and other
pecuniary loss. The complaint seeks compensatory and punitive damages in an
undisclosed amount. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. While the outcome of
this case cannot be predicted with certainty, based upon currently available
information, the Company does not believe that it will have a material adverse
effect on the Company's financial condition or results of operations.
The Company is also a party to other litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation other than the Sullivan and Gould case disclosed above, 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.
The Company leases certain of its facilities and equipment, primarily a
warehouse, several sales offices and computer equipment. Future minimum rental
payments required under such leases that have lease terms in excess of one year
are as follows (in thousands):
<TABLE>
<S> <C>
2000........................... $1,690
2001........................... 1,592
2002........................... 1,255
2003........................... 1,054
2004........................... 989
Thereafter..................... 2,449
------
$9,029
======
</TABLE>
Rent expense for operating leases totaled $3.5 million, $2.6 million
and $2.7 million for fiscal 1997, 1998 and 1999, respectively.
38
<PAGE> 40
Commitments for future additions to plant and equipment were
approximately $6.0 million at August 27, 1999. Commitments for the purchase of
raw materials for fiscal 2000 and 2001 were approximately $81.0 million and $1.5
million, respectively, at August 27, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
39
<PAGE> 41
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................. 47 Chairman of the Board, President and Chief
Executive Officer of the Company and
Avondale Mills
Jack R. Altherr, Jr............... 50 Vice Chairman, Chief Financial Officer, and
Director of the Company and Avondale
Mills
T. Wayne Spraggins................ 62 Vice President of Avondale Mills and President,
Manufacturing Operations
Keith M. Hull..................... 46 Vice President of Avondale Mills and
President, Marketing and Sales
Bill W. Henry..................... 65 Vice President, Raw Material Purchasing of
Avondale Mills
Craig S. Crockard................. 57 Vice President, Planning and Development of
Avondale Mills
M. Delen Boyd..................... 43 Vice President, Controller of Avondale
Mills, and Secretary of the Company
and Avondale Mills
J. Elliott Woodward............... 47 Vice President, Treasurer of Avondale
Mills, and Assistant Secretary of the Company
and Avondale Mills
Sharon L. Rodgers................. 43 Vice President, Human Resources of Avondale
Mills
Kenneth H. Callaway(1)............ 44 Director of the Company and Avondale Mills
Robert B. Calhoun(1)(2)(3)........ 57 Director of the Company and Avondale Mills
Harry C. Howard(2)................ 70 Director of the Company and Avondale Mills
C. Linden Longino, Jr.(2)......... 63 Director of the Company and Avondale Mills
Dale J. Boden(1).................. 42 Director of the Company and Avondale Mills
John P. Stevens(1)................ 70 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 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 Chairman of the Georgia State Advisory Board of Wachovia Bank, N.A.
and was a director of Oneita Industries, Inc. until July 1999.
40
<PAGE> 42
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 of Avondale Mills since
October 1988 and a director of Avondale Mills since 1993. With the exception of
fiscal 1995, he served as Secretary of the Company and Avondale Mills from
August 1993 until November 1998. Mr. Altherr has served the Company and Avondale
Mills in various other capacities since July 1982. Mr. Altherr served as a
director of Oneita Industries, Inc. until July 1999.
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, Marketing and Sales, of Avondale
Mills, Inc. since August 1999, having served as President, Apparel Fabrics, the
apparel fabrics division of Avondale Mills since May 1996 and Vice President of
Avondale Mills since April 1989. He has served the Company in various other
capacities including Vice President, Marketing since 1977. Mr. Hull serves as a
director of Cherokee, Inc.
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.
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.
M. Delen Boyd has served as Vice President, Controller of Avondale
Mills since May 1996 and Secretary of the Company and Avondale Mills since
November 1998. Mr. Boyd served as Assistant Secretary of the Company and
Avondale Mills from May 1996 until November 1998. 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 November 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 ended 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 manufacturer, 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. He is presently a Managing
Director and Co-founder of Monitor Clipper
41
<PAGE> 43
Partners. Mr. Calhoun is also President of Clipper Asset Management Corporation,
the sole general partner of The Clipper Group, L.P., a private investment firm,
since January 1991, and of Clipper Capital Corporation, the sole general partner
of Clipper, an affiliated private investment firm, since 1993. From 1975 to
1991, Mr. Calhoun was a Managing Director of Credit Suisse First Boston
Corporation, an investment banking firm. Mr. Calhoun is also a director of
Interstate Bakeries Corporation, Travel Centers of America, Inc., HVIDE Marine,
Inc., David's Bridal, Lord Abbett Family of Funds and Long John Silver's
Corporation until September 1999.
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.
C. Linden Longino, Jr. has served as a director of the Company since
November 1975 and of Avondale Mills since August 1993. Mr. Longino was a 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 positions. He now serves in various capacities with
several community and educational organizations.
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, 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, 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.
All executive officers of the Company are elected annually by and serve
at the discretion of the Board of Directors.
The directors of the Company are elected annually by the shareholders
of the Company. During the fiscal year ended August 27, 1999, the Board of
Directors of the Company held four meetings.
The Compensation Committee of the Board of Directors during fiscal 1999
consisted of John P. Stevens, Chairman of the Compensation Committee, Dale J.
Boden, Robert B. Calhoun and Kenneth H. Callaway. None of the Members of the
Compensation Committee is an employee of the Company. The Compensation
Committee's principal responsibilities consist of establishing the compensation
for the Company's Named Executive Officers and administering the Company's Stock
Option Plan. During the fiscal year ended August 27, 1999, the Compensation
Committee held one meeting. See Report on Executive Compensation.
The Audit Committee of the Board of Directors during fiscal 1999
consisted of Harry C. Howard, Chairman of the Audit Committee, Robert B. Calhoun
and C. Linden Longino, Jr. None of the members of the Audit Committee is an
employee of the Company. During the fiscal year ended August 27, 1999, the Audit
Committee held two meetings.
The Audit Committee meets with the independent public accountants,
management and internal auditors to assure that all are carrying out their
respective responsibilities. The Audit Committee reviews the performance and
fees of the independent public accountants prior to recommending their
appointment,
42
<PAGE> 44
and meets with them, without management present, to discuss the scope and
results of their audit work, including the adequacy of internal controls and the
quality of financial reporting. Both the independent public accountants and the
internal auditors have full access to the Audit Committee.
During fiscal 1999, the Company paid each non-employee director a
quarterly fee of $5,250 plus reimbursement of out-of-pocket expenses.
The Company adopted a stock option plan for its non-employee directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, each director will
automatically be granted annually, on the fifth day following the annual
shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. Options granted are exercisable for a period of
ten years, subject to certain limitations. During fiscal 1998 and 1999, 12,000
non-qualified options were granted in each respective year. At August 27, 1999,
24,000 non-qualified options remained outstanding and exercisable.
43
<PAGE> 45
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation Table. The table below sets forth certain
information concerning the compensation earned during fiscal 1999, 1998 and 1997
by the Company's Chief Executive Officer and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3)
- --------------------------- ---- --------- ----------- ------------------
<S> <C> <C> <C> <C>
G. Stephen Felker ........................................ 1999 800,016 236,898 2,210
Chairman of the Board, President and Chief ............. 1998 800,016 914,326 7,039
Executive Officer ...................................... 1997 800,016 1,073,601 16,783
Jack R. Altherr, Jr ...................................... 1999 326,668 54,822 5,133
Vice Chairman and Chief Financial Officer .............. 1998 308,340 174,731 10,413
1997 291,668 197,470 8,769
T. Wayne Spraggins ....................................... 1999 272,516 38,999 10,442
Vice President and President, Manufacturing ............ 1998 258,348 140,016 15,999
Operations ............................................. 1997 241,260 162,157 12,783
Keith M. Hull ............................................ 1999 272,516 38,933 3,705
Vice President and President, Marketing and Sales ...... 1998 258,348 134,940 9,036
1997 240,008 160,418 7,329
Bill W. Henry ............................................ 1999 133,336 16,816 1,200
Vice President, Raw Material Purchasing ................. 1998 124,180 48,054 6,232
1997 118,752 61,538 5,581
</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
management incentive plan, payments received in the Company's
distribution of cash profit sharing to all eligible associates of the
Company, payments received in lieu of profit sharing contributions
under the Company's Associate Profit Sharing and Savings Plan on
compensation in excess of qualified plan limits, and such other
payments as the Compensation Committee of the Board of Directors elects
to make based upon the Company's and respective officer's performance.
(3) 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 and $1,748 paid by the Company on behalf of
Messrs. Felker, Altherr, Spraggins and Hull, respectively. Amounts
shown reflect, for fiscal 1998, (i) matching 401(k) contributions made
by the Company to the Company's
44
<PAGE> 46
Associate Profit Sharing and Savings Plan of $1,200 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
$5,032 on behalf of each Named Executive Officer and (iii) life
insurance premiums of $4,181, $9,767 and $2,804 paid by the Company on
behalf of Messrs. Altherr, Spraggins and Hull, respectively and taxable
income of $807 to Mr. Felker, in conjunction with a split dollar
insurance agreement. Amounts shown reflect, for fiscal 1999, (i)
matching 401(k) contributions made by the Company to the Company's
Associate Profit Sharing and Savings Plan of $1,200 on behalf of each
Named Executive Officer, (ii) life insurance premiums of $3,933,
$9,242, and $2,505 paid by the Company on behalf of Messrs. Altherr,
Spraggins and Hull, respectively and taxable income of $1,010 to Mr.
Felker in conjunction with a split dollar insurance agreement.
Aggregated Options Table. The table below sets forth certain
information with respect to options held at the end of fiscal 1999 by each Named
Executive Officer. No options were granted to employees during fiscal 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS TABLE
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE(1)
------------- ----------------
<S> <C> <C>
G. Stephen Felker................ 207,000/58,000 $1,263,000/$322,000
Jack R. Altherr, Jr.............. 95,000/ 30,000 535,000/ 140,000
T. Wayne Spraggins............... 25,000/ 20,000 80,000/ 75,000
Keith M. Hull.................... 51,001/ 20,000 249,007/ 75,000
Bill W. Henry.................... 13,201/6,000 57,201/ 17,000
</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 27, 1999.
Long-Term Incentive Plans. The table below sets forth certain
information with respect to phantom units held at the end of fiscal 1999 by each
Named Executive Officer. No phantom units were awarded during fiscal 1999.
45
<PAGE> 47
LONG-TERM INCENTIVE PLANS -- UNITS HELD AT AUGUST 27, 1999
<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 17 $1,430,199
Jack R. Altherr, Jr....... 90 15 858,119
T. Wayne Spraggins........ 50 3 476,733
Keith M. Hull............. 90 18 858,119
Bill W. Henry............. 60 1 572,080
- -------------
</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, 1999, of vested and non-vested
phantom units held at the end of fiscal 1999 based on the results of
the Company for the 10 fiscal quarters ended August 27, 1999.
46
<PAGE> 48
REPORT ON EXECUTIVE COMPENSATION
Compensation Policy. The Company's executive compensation policy is
designed to attract, retain and motivate executive officers to maximize the
Company's performance and shareholder value by:
- providing base salaries that are market-competitive;
- rewarding the achievement of the Company's business plan goals
and earnings objectives; and
- creating stock ownership opportunities to align the interests
of executive officers with those of shareholders.
In light of the Company's compensation policy, the primary components
of its executive compensation program for fiscal 1999 included base salaries,
cash bonuses and stock options.
Base Salary. Each executive officer's base salary, including the Chief
Executive Officer's base salary, is determined based upon a number of factors
including the executive officer's responsibilities, contribution to the
achievement of the Company's business plan goals, demonstrated leadership skills
and overall effectiveness, and length of service. Base salaries are also
designed to be competitive with those offered in the various markets in which
the Company competes for executive talent and are analyzed with a view towards
desired base salary levels over a three-year to five-year time period. Each
executive officer's salary is reviewed annually and although these and other
factors are considered in setting base salaries, no specific weight is given to
any one factor. During fiscal 1999, the base salary of each Named Executive
Officer other than the Chief Executive Officer was increased by 3% to 8% over
each such executive officer's fiscal 1998 base salary. 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 management 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 1999, certain executive officers were eligible to earn
a cash bonus in an amount from 7.5% up to 125% of their respective base salaries
depending on a number of factors including, without limitation, the Company's
financial performance. In addition, the executive officers may receive
additional cash bonuses at the discretion of the Compensation Committee of the
Board of Directors based upon the Company's and the respective officer's
performance, including payments in lieu of profit sharing contributions under
the Company's Associate Profit Sharing and Savings Plan on compensation in
excess of qualified plan limits. During fiscal 1999, the Named Executive
Officers other than the Chief Executive Officer earned bonuses ranging from 13%
to 17% of their respective base salaries. Mr. Felker's bonus was equal to 30% 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 1999, the Named Executive Officers did not receive any
stock option grants.
47
<PAGE> 49
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.
48
<PAGE> 50
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 November 9, 1999, 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) ..................... 4,327,689 33.5% 978,939 100% 72.7%
Jack R. Altherr, Jr.(3) .................. 222,199 1.9% -- -- *
T. Wayne Spraggins(4) .................... 105,000 * -- -- *
Keith M. Hull (5) ........................ 111,001 * -- -- *
Bill W. Henry (6) ........................ 16,201 * -- -- *
Dale J. Boden(7) ......................... 107,000 * -- -- *
Kenneth H. Callaway(8) ................... 14,000 * -- -- *
Robert B. Calhoun(9)(10)(11) ............. 2,304,823 19.7% -- -- 7.4%
Harry C. Howard(12) ...................... 49,000 * -- -- *
C. Linden Longino, Jr.(13) ............... 29,250 * -- -- *
John P. Stevens(14) ...................... 107,000 * -- -- *
The Clipper Group(10)(11)(15) ............ 2,277,523 19.5% -- -- 7.3%
Grayward Company(16) ..................... 3,497,740 29.9% -- -- 11.2%
Felker Investments, Ltd.(17) ............. 2,093,750 17.9% -- -- 6.7%
Avondale Mills, Inc. Associate Profit
Sharing and Savings Plan(18) ........... 600,000 5.1% -- -- 1.9%
All directors and executive officers
As a group (16 persons) ................ 7,449,791 56.3% 978,939 100% 81.8%
</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 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) 255,000 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 115,000 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 35,000 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr. Spraggins, which shares are
deemed beneficially owned by Mr. Spraggins under Rule 13d-3 under the
Exchange Act.
49
<PAGE> 51
(5) Includes 61,001 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 15,201 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr. Henry, which shares are
deemed beneficially owned by Mr. Henry under Rule 13d-3 under the
Exchange Act.
(7) Reflects (i) 4,000 shares of Class A Common Stock issuable upon
exercise of stock options beneficially owned by Mr. Boden, which shares
are deemed beneficially owned by Mr. Boden under Rule 13d-3 under the
Exchange Act, and (ii) 3,000 shares beneficially owned by Textile
Capital Partners with respect to which Mr. Boden has shared voting and
investment power, and (iii) 100,000 shares beneficially owned by The
Sterling Trust; Hilliard Lyons Trust Co. Trustee, with respect to which
Mr. Boden is a beneficiary and has shared voting and investment power.
Mr. Boden is the majority shareholder of 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) Includes 4,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Callaway, which shares are
deemed beneficially owned by Mr. Callaway under Rule 13d-3 under the
Exchange Act.
(9) The address of Mr. Calhoun is c/o Clipper Capital Partners, L.P., 650
Madison Avenue, New York, New York 10022.
(10) Includes (i) 4,000 shares of Class A Common Stock issuable upon
exercise of stock options beneficially owned by Mr. Calhoun, which
shares are deemed beneficially owned by Mr. Calhoun under Rule 13d-3
under the Exchange Act, (ii) shares beneficially owned by Clipper
Capital Associates, L.P. ("CCA"), Clipper/Merchant Partners, L.P.,
Clipper Equity Partners I, L.P., Clipper/Merban L.P. ("Merban"),
Clipper/European Re, L.P. and CS First Boston Merchant Investments
1995/96, L.P. ("Merchant"), (whose address is 650 Madison Avenue, 9th
Floor, New York, New York 10022).
(11) 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 5.9% of the outstanding Class A Common Stock
and Clipper/Merchant Partners, L.P., will beneficially own shares of
Class A Common Stock representing approximately 5.0% of the outstanding
Class A Common Stock. Each of the other members of the Clipper Group
will beneficially own less than 5.0% of the outstanding Class A Common
Stock.
(12) Includes 4,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Howard, which shares are deemed
beneficially owned by Mr. Howard under Rule 13d-3 under the Exchange
Act.
(13) Includes (i) 5,250 shares beneficially owned by Mr. Longino's spouse,
and (ii) 4,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Longino, which shares are
deemed beneficially owned by Mr. Longino under Rule 13d-3 under the
Exchange Act.
(14) Includes (i) 13,000 shares beneficially owned by Mr. Stevens' spouse,
for which Mr. Stevens shares neither voting nor investment power, and
(ii) 4,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Stevens, which shares are
deemed beneficially owned by Mr. Stevens under Rule 13d-3 under the
Exchange Act.
50
<PAGE> 52
(15) 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.
(16) 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.
(17) The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506
South Broad Street, Monroe, Georgia 30655.
(18) The address of the Avondale Mills, Inc. Associate Profit Sharing and
Savings Plan (the "Plan") is c/o Scudder Trust Company, P.O. Box 957,
Salem, New Hampshire 03079. Scudder Trust Company 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.
51
<PAGE> 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
52
<PAGE> 54
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 27,
1999 are included in Part II, Item 8.
Report of Independent Public Accountants
Consolidated Balance Sheets as of August 28, 1998 and August 27, 1999
Consolidated Statements of Income -- Fiscal Years Ended August 29,
1997, August 28, 1998 and August 27, 1999
Consolidated Statements of Shareholders' Equity -- Fiscal Years Ended
August 29, 1997, August 28, 1998 and August 27, 1999
Consolidated Statements of Cash Flows-- Fiscal Years Ended August 29,
1997, August 28, 1998 and August 27, 1999
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, 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, 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, N.A., as Agent for the Banks Which are parties to the
Amended and Restated Credit Agreement (incorporated by
</TABLE>
53
<PAGE> 55
<TABLE>
<S> <C> <C>
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, 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).
4.7 -- Third Amendment to Credit Agreement, dated August 27,
1999, among Avondale Mills, Inc., the Banks listed therein
and Wachovia Bank, N.A., as Agent.
4.8 -- Amendments to Letter of Credit Agreements, dated October
19, 1999, between and among Avondale Incorporated, Avondale
Mills, Inc. and SunTrust Bank, Atlanta related to Industrial
Development Board refunding revenue bonds issued to finance
improvements at four Company manufacturing facilities.
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 -- Amendment No. 1 to Pooling and Service Agreement and
Receivables Purchase Agreement; Dated November 21, 1997,
among Avondale Receivables Company, Avondale Mills, Inc.,
And Manufacturers and Traders Trust Company. (Incorporated
by reference to Exhibit 10.3 to Avondale Incorporated's 1998
Annual Report on Form 10-K, File No. 33-68412).
10.4 -- Amended and Restated Series 1996-1 Supplement to the
Pooling and Servicing Agreement, Dated November 21, 1997,
among Avondale Receivables Company, Avondale Mills, Inc. And
Manufacturers and Traders Trust Company. (Incorporated by
reference to Exhibit 10.4 to Avondale Incorporated's 1998
Annual Report on Form 10-K, File No. 33-68412).
10.5 -- Amended and Restated Certificate Purchase Agreement,
dated November 21, 1997, among Avondale Receivables Company,
Avondale Mills, Inc., the purchasers described therein And
First National Bank of Chicago, as Agent. (Incorporated by
reference to Exhibit 10.5 to Avondale Incorporated's 1998
Annual Report on Form 10-K, File No. 33-68412).
10.6 -- 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).
10.7 -- 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).
10.8 -- 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 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).
10.9 -- 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).
10.10 -- Avondale Incorporated Stock Option Plan (incorporated by
reference to Exhibit 10.12
</TABLE>
54
<PAGE> 56
<TABLE>
<S> <C> <C>
To Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
10.11 -- 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).
10.12 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for G. Stephen Felker.
10.13 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for Jack R. Altherr, Jr.
10.14 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for T. Wayne Spraggins.
10.15 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for Keith Hull.
10.16 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for Bill Henry.
10.17 -- 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).
10.18 -- 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).
10.19 -- 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).
10.20 -- Phantom Unit Awards to Keith M. Hull (incorporated by
reference to Exhibit 10.19 To Avondale Incorporated's 1996
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 -- Avondale Incorporated Stock Option Plan for Non-Employee
Directors, Dated April 10, 1997 (incorporated by reference
to Exhibit 10.23 to Avondale Incorporated's 1997 Annual
Report on Form 10-K, File No. 33-68412).
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 Index to Exhibits attached
hereto.
55
<PAGE> 57
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 4, 1999
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 4, 1999
- ---------------------- President and Chief Executive
G. Stephen Felker Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ JACK R. ALTHERR, JR. Vice Chairman, Chief November 4, 1999
- ------------------------- Financial Officer and
Jack R. Altherr, Jr. Director
DIRECTORS:
/s/ DALE J. BODEN Director November 4, 1999
- ------------------
Dale J. Boden
/s/ ROBERT B. CALHOUN Director November 4, 1999
- ----------------------
Robert B. Calhoun
/s/ KENNETH H. CALLAWAY Director November 4, 1999
- ------------------------
Kenneth H. Callaway
/s/ HARRY C. HOWARD Director November 4, 1999
- --------------------
Harry C. Howard
/s/ C. LINDEN LONGINO, JR. Director November 4, 1999
- ---------------------------
C. Linden Longino, Jr.
/s/ JOHN P. STEVENS Director November 4, 1999
- --------------------
John P. Stevens
</TABLE>
56
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------- -------------
<S> <C> <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, 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, 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, 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, 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).
4.7 -- Third Amendment to Credit Agreement, dated August 27,
1999, among Avondale Mills, Inc., the Banks listed therein
and Wachovia Bank, N.A., as Agent.
4.8 -- Amendments to Letter of Credit Agreements, dated October
19, 1999, between and among Avondale Incorporated, Avondale
Mills, Inc. and SunTrust Bank, Atlanta related to Industrial
Development Board refunding revenue bonds issued to finance
improvements at four Company manufacturing facilities.
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 -- Amendment No. 1 to Pooling and Service Agreement and
Receivables Purchase Agreement; Dated November 21, 1997,
among Avondale Receivables Company, Avondale Mills, Inc.,
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------- -------------
<S> <C> <C> <C>
And Manufacturers and Traders Trust Company. (Incorporated
by reference to Exhibit 10.3 to Avondale Incorporated's 1998
Annual Report on Form 10-K, File No. 33-68412).
10.4 -- Amended and Restated Series 1996-1 Supplement to the
Pooling and Servicing Agreement, Dated November 21, 1997,
among Avondale Receivables Company, Avondale Mills, Inc. And
Manufacturers and Traders Trust Company. (Incorporated by
reference to Exhibit 10.4 to Avondale Incorporated's 1998
Annual Report on Form 10-K, File No. 33-68412).
10.5 -- Amended and Restated Certificate Purchase Agreement,
dated November 21, 1997, among Avondale Receivables Company,
Avondale Mills, Inc., the purchasers described therein And
First National Bank of Chicago, as Agent. (Incorporated by
reference to Exhibit 10.5 to Avondale Incorporated's 1998
Annual Report on Form 10-K, File No. 33-68412).
10.6 -- 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).
10.7 -- 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).
10.8 -- 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 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).
10.9 -- 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).
10.10 -- 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).
10.11 -- 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).
10.12 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for G. Stephen Felker.
10.13 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for Jack R. Altherr, Jr.
10.14 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive
Plan for T. Wayne Spraggins.
10.15 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for Keith Hull.
10.16 -- Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
for Bill Henry.
10.17 -- 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).
10.18 -- 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).
10.19 -- 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).
10.20 -- Phantom Unit Awards to Keith M. Hull (incorporated by
reference to Exhibit 10.19 To Avondale Incorporated 's 1996
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).
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ----------------------- -------------
<S> <C> <C> <C>
10.22 -- Avondale Incorporated Stock Option Plan for Non-Employee
Directors, Dated April 10, 1997 (incorporated by reference
to Exhibit 10.23 to Avondale Incorporated's 1997 Annual
Report on Form 10-K, File No. 33-68412).
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 Index to Exhibits attached
hereto.
<PAGE> 1
EXHIBIT 4.7
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is
dated as of the 27th day of August, 1999 among AVONDALE MILLS, INC. (the
"Borrower"), WACHOVIA BANK, N.A., as Agent (the "Agent"), THE FIRST NATIONAL
BANK OF CHICAGO, as Documentation Agent (the "Documentation Agent"), and
WACHOVIA BANK, N.A., THE FIRST NATIONAL BANK OF CHICAGO, BANK OF AMERICA, N.A.
(formerly Nationsbank, N.A.), REGIONS BANK (formerly First Alabama Bank) and
FIRST UNION NATIONAL BANK (collectively, the "Banks");
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent, the Documentation Agent and the Banks
executed and delivered that certain Amended and Restated Credit Agreement, dated
as of April 29, 1996, as amended by First Amendment to Credit Agreement dated as
of March 20, 1997 and Second Amendment to Credit Agreement dated as of August
29, 1997 (as so amended, the "Credit Agreement");
WHEREAS, the Borrower has requested and the Agent, the Documentation
Agent and the Banks have agreed to certain amendments to the Credit Agreement,
subject to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Borrower, the Agent, the
Documentation Agent and the Banks hereby covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein, each term
used herein which is defined in the Credit Agreement (including defined terms
added by this Third Amendment) shall have the meaning assigned to such term in
the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and
"hereby" and each other similar reference and each reference to "this Agreement"
and each other similar reference contained in the Credit Agreement shall from
and after the date hereof refer to the Credit Agreement as amended hereby.
2. Amendment to Section 1.01. Section 1.01 of the Credit Agreement
hereby is amended by deleting the definitions of "Cash Flow" and "Termination
Date" and substituting the following therefor:
"Cash Flow" means Consolidated Net Income, plus (i) Net Interest
Expense (including interest on the Subordinated Debt), plus (ii) income taxes,
plus (iii)
<PAGE> 2
depreciation, plus (iv) amortization, plus or minus, as the case may be, (v)
LIFO Adjustments and plus (vi) the amount of any non-cash writeoffs of obsolete
or surplus equipment, spare parts or real property, up to but not in excess of
$10,000,000 during any period of 4 consecutive Fiscal Quarters.
"Termination Date" means October 31, 2001.
3. Substitution of New Compliance Certificate. In order to give effect
to the revised definition of "Cash Flow" (which affects the calculations in
Sections 5.03, 5.04 and 5.06), Exhibit F to the Credit Agreement hereby is
deleted and Exhibit F attached hereto is substituted therefor.
4. Restatement of Representations and Warranties. The Borrower hereby
restates and renews each and every representation and warranty heretofore made
by it in the Credit Agreement and the other Loan Documents as fully as if made
on the date hereof and with specific reference to this Third Amendment and all
other Loan Documents executed and/or delivered in connection herewith, except
for events which have been disclosed in writing to the Banks and which are
described in any of Sections 4.04, 4.06(a), 4.07(except the first sentence),
4.14(b) and (c) or 4.15.
5. Effect of Amendment. Except as set forth expressly hereinabove, all
terms of the Credit Agreement and the other Loan Documents shall be and remain
in full force and effect, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower. The amendments contained herein shall
be deemed to have prospective application only from and after the date of this
Third Amendment, unless otherwise specifically stated herein.
6. Ratification. The Borrower hereby restates, ratifies and reaffirms
each and every term, covenant and condition set forth in the Credit Agreement
and the other Loan Documents effective as of the date hereof.
7. Counterparts. This Third Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
8. Section References. Section titles and references used in this Third
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
9. No Default. To induce the Agent and the Banks to enter into this
Third Amendment and to continue to make advances pursuant to the Credit
Agreement, the Borrower hereby acknowledges and agrees that, as of the date
hereof, and after giving effect to the terms hereof, there exists (i) no Default
or Event of Default and (ii) no right of offset, defense, counterclaim, claim or
objection in favor of the Borrower arising out of or with respect to any of the
Loans or other obligations of the Borrower owed to the Banks under the Credit
Agreement.
10. Further Assurances. The Borrower agrees to take such further
actions as the Agent shall reasonably request in connection herewith to evidence
the amendments herein contained to the Borrower.
11. Governing Law. This Third Amendment shall be governed by and
construed and interpreted in accordance with, the laws of the State of Georgia.
2
<PAGE> 3
12. Conditions Precedent. This Third Amendment shall become effective
as of the date of this Third Amendment only upon (i) execution and delivery of
this Third Amendment by each of the parties hereto, (ii) execution and delivery
of the Consent and Reaffirmation of Guarantors at the end hereof by the Parent
and Avondale Mills Graniteville Fabrics, Inc. and (iii) payment to the Agent,
for the ratable account of the Banks, of an amendment fee in an amount equal to
0.025% of the Aggregate Commitments.
13. Certain Acknowledgments. Each of the parties acknowledges that, for
purposes of notices pursuant to Section 9.01 of the Credit Agreement, (i) the
names of NationsBank, N.A. and First Alabama Bank have been changed to Bank of
America, N.A. and Regions Bank, respectively, and (ii) on September 13, 1999,
the name of The First National Bank of Chicago will change to Bank One, N.A.
IN WITNESS WHEREOF, the Borrower, the Agent, the Documentation Agent
and each of the Banks has caused this Third Amendment to be duly executed, under
seal, by its duly authorized officer as of the day and year first above written.
AVONDALE MILLS, INC. (SEAL) WACHOVIA BANK, N.A.,
as Agent and as a Bank (SEAL)
By: /s/ Jack R. Altherr , Jr. By: /s/ W. Tompkins Rison, Jr.
-------------------------- ------------------------------
Title:Vice Chairman & CFO Title: Vice President
THE FIRST NATIONAL BANK OF BANK OF AMERICA, N.A. (formerly
CHICAGO, as Documentation Agent NationsBank, N.A.), as a Bank (SEAL)
and as a Bank (SEAL)
By: /s/ Judith Cornwell By: /s/ Deirdre B. Doyle
-------------------------- ------------------------------
Title: Vice President Title: Vice President
REGIONS BANK, FIRST UNION NATIONAL BANK,
(formerly First Alabama Bank), as a Bank (SEAL)
as a Bank (SEAL)
By: /s/ Mark Howze By: /s/ Roger Pelz
-------------------------- ------------------------------
Title: Vice President Title: Senior Vice President
3
<PAGE> 4
EXHIBIT F
COMPLIANCE CERTIFICATE
Reference is made to the Amended and Restated Credit Agreement dated as
of April 29, 1996, as amended by First Amendment to Credit Agreement dated as of
March 20, 1997, Second Amendment to Credit Agreement dated as of August 29, 1997
and Third Amendment to Credit Agreement dated as of August 27, 1999 (as so
amended and as hereafter modified and supplemented and in effect from time to
time, the "Credit Agreement") among Avondale Mills, Inc., the Banks from time to
time parties thereto, Wachovia Bank, N.A., as Agent, and The First National Bank
of Chicago, as Documentation Agent. Capitalized terms used herein shall have the
meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 5.01(c) of the Credit Agreement, (i)
________________, the duly authorized __________________of Avondale
Incorporated, hereby certifies to the Agent and the Banks that the information
contained in the Compliance Check List attached hereto is true, accurate and
complete as of ____________, __, and (ii) ____________, the duly authorized
___________________of Avondale Mills, Inc. hereby (A) certifies to the Agent and
the Banks that to the Knowledge of such officer, no Default is in existence on
and as of the date hereof and (B) restates and reaffirms that to the Knowledge
of such officer, the representations and warranties contained in Article IV of
the Credit Agreement are true on and as of the date hereof as though restated on
and as of this date, except for events which have been disclosed in writing to
the Banks and which are described in any of Sections 4.04, 4.06(a), 4.07 (except
the first sentence), 4.14(b) and (c) or 4.15.
AVONDALE INCORPORATED
By:
-----------------------
Title:
AVONDALE MILLS, INC.
By:
-----------------------
Title:
4
<PAGE> 5
COMPLIANCE CHECK LIST
Avondale Incorporated
------------, ----
1. Fixed Charge Coverage Ratio (Section 5.03)
The Fixed Charge Coverage Ratio, calculated at the end of each Fiscal
Quarter, shall be greater than: (i) 1.75 to 1.0 from the end of the
third Fiscal Quarter of the 1996 Fiscal Year through the first Fiscal
Quarter of the 1997 Fiscal Year; (ii) 2.00 to 1.0 for the second Fiscal
Quarter of the 1997 Fiscal Year; (iii) 2.25 to 1.0 for the third and
fourth Fiscal Quarters of the 1997 Fiscal Year; and (iv) 2.50 to 1.0
thereafter.
<TABLE>
<S> <C> <C>
(a) Consolidated Net Income - Schedule 1 $
-----------
(b) Net Interest Expense - Schedule 1 $
-----------
(c) income taxes - Schedule 1 $
-----------
(d) depreciation - Schedule 1 $
-----------
(e) amortization - Schedule 1 $
-----------
(f) Dividends - Schedule 1 $
-----------
(g) LIFO Adjustments -Schedule 1 $
-----------
(h) non-cash writeoffs of obsolete or
surplus equipment, spare parts or
real property
Schedule 1(1) $
-----------
(i) sum of (a) plus (b) plus (c)
plus (d) plus (e) less (f), less or
plus (g), as applicable, plus (h) $
-----------
(j) Current Maturities of Long Term
Debt - Schedule 1 $
-----------
</TABLE>
- ------------
(1) Not to exceed $10,000,000 during any period of 4 consecutive Fiscal Quarters
5
<PAGE> 6
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
<TABLE>
<S> <C> <C>
(k) Net Interest Expense(2) $
---------
(l) sum of (j) plus (k) $
---------
Ratio of (i) to (l)
Requirement >2.50 to 1.0
2. Senior Debt to Cash Flow Ratio (Section 5.04)
The Senior Debt to Cash Flow Ratio, calculated at the end of each
Fiscal Quarter, shall be less than 4.00 to 1.0.
(a) Consolidated Total Debt - Schedule 2 $
---------
(b) Subordinated Debt $
---------
(c) (a) less (b) $
---------
(d) Consolidated Net Income - Schedule 1 $
---------
(e) Net Interest Expense - Schedule 1 $
---------
(f) income taxes - Schedule 1 $
---------
(g) depreciation - Schedule 1 $
---------
(h) amortization - Schedule 1 $
---------
</TABLE>
- -----------------------
(2) Calculate only on Fiscal Quarters ending after the Closing Date (and for the
Fiscal Quarter in which the Closing Date occurs, on the portion thereof on and
after the Closing Date), on an annualized basis.
6
<PAGE> 7
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
<TABLE>
<S> <C> <C>
(i) LIFO Adjustments -Schedule 1 $
-----------
(j) non-cash writeoffs of obsolete or
surplus equipment, spare
parts or real property
Schedule 1(3) $
-----------
(k) sum of (d) plus (e) plus (f)
plus (g) plus (h) plus or less (i),
as applicable, plus (j) $
-----------
Ratio of (c) to (k) -----------
Requirement <4.0 to 1.0
3. Senior Debt to Capitalization Ratio (Section 5.05)
The Senior Debt to Capitalization Ratio, calculated at the end of each
Fiscal Quarter, shall be less than 0.65 to 1.0.
(a) Consolidated Senior Debt - Schedule 2 $
-----------
(b) Consolidated Adjusted Tangible
Net Worth - Schedule 3 $
-----------
(c) Subordinated Debt $
(d) Sum of (a) plus (b) plus (c) $
-----------
Ratio of (a) to (d) -----------
Requirement <0.65 to 1.0
</TABLE>
- ------------------
(3) Not to exceed $10,000,000 during any period of 4 consecutive Fiscal Quarters
7
<PAGE> 8
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
4. Total Debt to Cash Flow Ratio (Section 5.06)
The Total Debt to Cash Flow Ratio, calculated at the end of each Fiscal
Quarter, shall be less than: (i) 5.60 to 1.0 from the end of the third
Fiscal Quarter of the 1996 Fiscal Year through the first Fiscal Quarter
of the 1997 Fiscal Year; and (ii) 5.0 to 1.0 thereafter.
<TABLE>
<S> <C> <C>
(a) Consolidated Total Debt - Schedule 2 $
----------
(b) Consolidated Net Income - Schedule 1 $
----------
(c) Net Interest Expense - Schedule 1 $
----------
(d) income taxes - Schedule 1 $
----------
(e) depreciation - Schedule 1 $
----------
(f) amortization - Schedule 1 $
----------
(g) LIFO Adjustments - Schedule 1 $
----------
(h) non-cash writeoffs of obsolete or
surplus equipment, spare
parts or real property
Schedule 1(4) $
-----------
(i) sum of (b) plus (c) plus (d)
plus (e) plus (f) less or plus (g),
as applicable, plus (h) $
-----------
Ratio of (a) to (i) -----------
Requirement <5.0 to 1.0
</TABLE>
- ------------------
(4) Not to exceed $10,000,000 during any period of 4 consecutive Fiscal Quarters
8
<PAGE> 9
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
5. Restricted Payments (Section 5.07)
The Parent and the Borrower will not make any Restricted Payment,
except, so long as no Default shall have occurred and be continuing, a
Restricted Payment may be made if at the time of such Restricted
Payment and after giving effect thereto, the aggregate amount of such
Restricted Payment and all other Restricted Payments since the
beginning of the Restricted Payment Calculation Period would not exceed
the sum of (x) $10,000,000, plus (y) 50% of Consolidated Net Income
during the Restricted Payment Calculation Period (treated as one
accounting period) (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit).
<TABLE>
<S> <C> <C>
(a) Cumulative Consolidated Net Income
during Restricted Payment Calculation
Period $
-----------
(b) 50% of (a) $
-----------
(c) Sum of (b) and $10,000,000 $
-----------
(d) Aggregate Restricted Payments
made during Restricted Payment
Calculation Period $
-----------
Limitation (d) may not exceed (c)
</TABLE>
6. Loans and Advances (Section 5.09)
Neither the Parent, the Borrower nor any of the Material Subsidiaries
shall make loans or advances to any Person except, so long as no Event
of Default is in existence:
(A)(i) loans or advances to employees not exceeding
$2,000,000 in the aggregate principal amount outstanding at any time,
in each case made in the ordinary course of business and consistent
with practices existing on August 25, 1995; (ii) deposits required by
government agencies or public utilities; and (iii) loans or advances to
Wholly Owned Subsidiaries (other than from the Parent to the Borrower
or as provided in Section 5.09(C)) not exceeding $1,000,000 in the
aggregate outstanding; provided that after giving effect to the making
of any loans, advances or deposits permitted by this Section 5.09(A),
the aggregate of all loans and advances permitted in this Section
5.09(A) does not exceed $4,000,000;
9
<PAGE> 10
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
(B) loans or advances from the Parent to the Borrower or from
the Borrower to the Parent, or from the Borrower to AMGF (i) pursuant
to the AMGF/Graniteville Transaction and within the limits contained in
the definition thereof and (ii) otherwise to fund the ongoing working
capital needs and capital expenditures of AMGF in the ordinary course
of business;
(C) loans or advances to the Receivables Subsidiary evidenced
by a Purchase Money Note; and
(D) other loans or advances (not including any loans and
advances of the types described in clauses (A), (B) or (C) above) in an
aggregate amount, together with Investments permitted by clause (viii)
of Section 5.10, not exceeding the sum of $15,000,000, including
Investments in Oneita Industries, Inc. in the amount of $7,500,000
through subordinated debt (and any conversion thereof to Capital
Stock), plus 10% of positive Consolidated Adjusted Tangible Net Worth
as of the date of measurement.
Calculations with respect to Section 5.09(A):
<TABLE>
<S> <C>
(a) loans and advances to employees $
-----------
Limitation $2,000,000
(b) deposits required by government
agencies or public utilities $
-----------
</TABLE>
10
<PAGE> 11
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
<TABLE>
<S> <C> <C>
(c) loans or advances to Wholly Owned
Subsidiaries (other than stated
exceptions) $
----------
Limitation $1,000,000
(d) sum of (a) plus (b) plus (c) $
----------
Limitation $4,000,000
Calculations with respect to Section 5.09(D):
(e) loans and advances not permitted by
clauses (A), (B) or (C) $
----------
(f) sum of (a) and amount in paragraph 7(a) $
----------
(g) Consolidated Adjusted Tangible
Net Worth - Schedule 3 $
----------
(g) 10% of (g) $
----------
(h) Sum of (h) and $15,000,000 $
----------
</TABLE>
Limitation--(f) may not exceed (i)
7. Investments (Section 5.10)
Neither the Parent, the Borrower nor any of the Consolidated
Subsidiaries shall make Investments in any Person except as permitted
by Section 5.09 and except Investments in (i) direct obligations of the
United States Government maturing within one year, (ii) certificates of
deposit issued by a commercial bank whose credit is satisfactory to the
Agent, (iii) commercial paper rated A1 or the equivalent thereof by
Standard & Poor's Corporation or P1 or the equivalent thereof by
Moody's Investors Service, Inc. and in either case maturing within 6
months after the date of acquisition, (iv) tender bonds the payment of
the principal of and interest on which is fully supported by a letter
of credit issued by a United States bank whose long-term certificates
of deposit are rated at least AA or the equivalent thereof by Standard
& Poor's Corporation and Aa or the equivalent thereof by Moody's
Investors Service, Inc., (v) Investments by Borrower in the Receivables
Subsidiary and obligations consisting of Standard Securitization
11
<PAGE> 12
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
Undertakings, (vi) Investments by the Receivables Subsidiary in a
Special Purpose Vehicle and obligations consisting of Standard
Securitization Undertakings, (vii) loans and advances permitted by
Section 5.09, and Investments by the Borrower in AMGF (x) pursuant to
the AMGF/Graniteville Transaction and within the limits contained in
the definition thereof and (y) otherwise to fund the ongoing working
capital needs and capital expenditures of AMGF in the ordinary course
of business, and (viii) other Investments in an aggregate amount after
the Closing Date not exceeding the sum of $15,000,000, including
Investments in Oneita Industries, Inc. in the amount of $7,500,000
through subordinated debt (and any conversion thereof to Capital
Stock), plus 10% of positive Consolidated Adjusted Tangible Net Worth
as of the date of measurement.
<TABLE>
<S> <C>
(a) Other Investments (not permitted by
clauses (i) through (vii) $
-----------
(b) Sum of (a) and Paragraph 6(e) $
-----------
(c) Consolidated Adjusted Tangible
Net Worth - Schedule 3 $
-----------
(d) 10% of (c) $
-----------
(e) sum of (d) and $15,000,000 $
-----------
Limitation--(b) may not exceed (e)
8. Negative Pledge (Section 5.11)
Amount of Debt secured by Liens not
permitted by Sections 5.11(b)
through 5.11(e), inclusive, and
(i) Schedule - 4 $
------------
Limitation $1,000,000
Amount of Debt secured by all Liens
(Schedule 4 and Schedule 5.11 to
Credit Agreement) $
-----------
Limitation $2,000,000
</TABLE>
12
<PAGE> 13
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
9. List of Consolidated Subsidiaries (Section 5.01(c)(iii)
------------
------------
------------
10. List of Material Subsidiaries (other than the Borrower), if any, as to
which there has been a change in excess of $100,000 in the assets,
liabilities or shareholders' equity thereof since the immediately
preceding Fiscal Quarter.
------------
------------
------------
13
<PAGE> 14
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
Schedule - 1
Consolidated Net Income for:
<TABLE>
<S> <C>
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Total $
============
Net Interest Expense for:
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Total $
============
Income Taxes for:
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Total $
============
Depreciation for:
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Total $
============
</TABLE>
14
<PAGE> 15
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
Amortization for:
<TABLE>
<S> <C>
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Total $
============
LIFO adjustments for:
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Total $
============
Dividends for:
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Non-cash writeoffs of obsolete or
surplus equipment, spare parts or real
property for:
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
quarter 199 $
- ----- -- ------------
Current Maturities of Long Term Debt for:
quarter 199 $
- ----- -- ------------
Total $
============
</TABLE>
15
<PAGE> 16
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
Schedule - 2
<TABLE>
<CAPTION>
Consolidated Senior Debt and Consolidated Total Debt
INTEREST
RATE MATURITY TOTAL
---- -------- -----
<S> <C> <C> <C>
Secured
- -------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
Total Secured $
-----
Unsecured (including Capitalized Leases)
- ---------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
Total Unsecured $
-----
Redeemable Preferred Stock $
- ------------------------------------------- -------
Total $
-----
Receivable Securitization Program $
- ------------------------------------------- -----
Other Consolidated Senior Debt
- ------------------------------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
$
- ------------------------------------------- -------
Total Consolidated Senior Debt $
=====
Plus Subordinated Debt $
- ---------------------- -----
Total Consolidated Total Debt $
-----
</TABLE>
16
<PAGE> 17
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
Schedule - 3
Consolidated Adjusted Tangible Net Worth
<TABLE>
<S> <C> <C>
(a) Stockholders' Equity $
----------
(b) surplus from write-up of assets
subsequent to August 25, 1995(5) $
----------
(c) intangible assets(6) $
----------
(d) Capital Stock shown as assets(7) $
----------
Consolidated Adjusted Tangible Net Worth
(sum of (a) less (b) less (c) less (d)) $
==========
</TABLE>
- -----------------
(5) Exclude any write-up in connection with the acquisition of the Graniteville
Assets
(6) Include only to the extent created, incurred or arising on or after the
Closing Date, and exclude capitalized transaction costs incurred in
connection with the acquisition of the Graniteville Assets
(7) Include only to the extent created, incurred or arising on or after the
Closing Date
17
<PAGE> 18
COMPLIANCE CHECK LIST
Avondale Incorporated
----------------, ----
Schedule - 4
Liens Securing Debt In The Principal
Amount of $50,000 or More which are
Not shown on Schedule 5.11 to Credit Agreement
<TABLE>
<CAPTION>
Relevant Provision
of Section 5.11
Description of Lien Amount of Debt Secured Permitting Same
<S> <C> <C>
1. $
---------------- --------------------- ----------------
2. $
---------------- --------------------- ----------------
3. $
---------------- --------------------- ----------------
4. $
---------------- --------------------- ----------------
5. $
---------------- --------------------- ----------------
6. $
---------------- --------------------- ----------------
7. $
---------------- --------------------- ----------------
8. $
---------------- --------------------- ----------------
9. $
---------------- --------------------- ----------------
</TABLE>
18
<PAGE> 19
CONSENT AND REAFFIRMATION OF GUARANTORS
The undersigned (i) acknowledges receipt of the foregoing Third Amendment
to Credit Agreement (the "Third Amendment"), (ii) consents to the execution and
delivery of the Third Amendment by the parties thereto and (iii) reaffirms all
of its obligations and covenants under (as applicable) the Amended and Restated
Parent Guaranty dated as of April 29, 1996 executed by Avondale Incorporated,
and the Limited Guaranty Agreement dated as of August 29, 1997 executed by
Avondale Mills Graniteville Fabrics, Inc., and agrees that none of such
obligations and covenants shall be affected by the execution and delivery of the
Third Amendment.
AVONDALE INCORPORATED AVONDALE MILLS GRANITEVILLE
FABRICS, INC.
By: /s/Jack R. Altherr, Jr. By: /s/ Jack R. Altherr, Jr.
----------------------- ---------------------------
Title: Vice Chairman Title: Assistant Secretary
19
<PAGE> 1
EXHIBIT 4.8
AMENDMENT NO. 5
TO
LETTER OF CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO LETTER OF CREDIT AGREEMENT, dated as of October
19, 1999, between and among Avondale Mills, Inc., an Alabama corporation (the
"Company"), Avondale Incorporated, a Georgia Corporation, formerly known as
Walton Monroe Mills, Inc. (the "Parent"), and SunTrust Bank, Atlanta, Georgia, a
state banking corporation organized and existing under the laws of the State of
Georgia (the "Bank");
WITNESSETH:
WHEREAS, The Lee County Industrial Facilities and Pollution Control
Financing Authority (the "Issuer") has heretofore issued $5,000,000 in aggregate
principal amount of The Lee County Industrial Facilities and Pollution Control
Financing Authority Refunding Revenue Bonds (Avondale Mills, Inc. Project),
Series 1989 (the "Bonds"), for the purpose of refunding certain industrial
development revenue bonds previously issued by the Issuer to finance certain
yarn and textile products manufacturing facilities in Lee County, North
Carolina, for the benefit of the Company; and
WHEREAS, the Bank originally issued its irrevocable Letter of Credit
No. SB52403, dated July 13,1989, as amended and reissued, (the "Letter of
Credit"), in connection with the issuance of the Bonds, pursuant to the terms of
a Letter of Credit Agreement, dated as of June 1, 1989, (as heretofore or
hereafter amended, the "Letter of Credit Agreement"), between the Company and
the Bank; and
WHEREAS, the Parent merged, effective August 27, 1993, with the AM
Acquisition, Inc., and, in connection therewith, changed its name from Walton
Monroe Mills, Inc. to Avondale Incorporated, and the Parent now owns 100% of the
outstanding capital stock of the Company; and
WHEREAS, in connection with such merger, the Parent became a joint and
several obligor with the Company under the Letter of Credit Agreement, as more
fully described in that certain Amendment No. 2 to the Letter of Credit
Agreement, dated as of August 27, 1993, by and among the Parent, the Company and
the Bank, entered into in connection therewith; and
WHEREAS, the Parent, the Company and the Bank have determined that it
would be desirable to amend certain definitions contained in the Letter of
Credit Agreement; and
WHEREAS, Section 11A of the Letter of Credit Agreement provides that an
amendment of the Letter of Credit Agreement shall require the written consent of
the Bank;
<PAGE> 2
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parent, the Company and the Bank hereby agree as follows:
Section 1. Definitions. Effective August 27, 1999, Paragraph 9A of the
Letter of Credit Agreement is hereby amended by deleting the definition of "Cash
Flow" in its entirety and substituting in lieu thereof the following definition:
"Cash Flow" means Consolidated Net Income, plus (i) Net Interest
Expense (including interest on the Subordinated Debt), plus (ii) income taxes,
plus (iii) depreciation, plus (iv) amortization, plus or minus, as the case may
be, (v) LIFO Adjustments and plus (vi) the amount of any non-cash write-offs of
obsolete or surplus equipment, spare parts or real property, up to but not in
excess of $10,000,000 during any period of 4 consecutive Fiscal Quarters.
Section 2. Letter of Credit Agreement Ratified and Confirmed. Except as
provided above, all other terms and provisions of the Letter of Credit Agreement
are hereby ratified and confirmed in each respect.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5
to the Credit Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
SUNTRUST BANK, ATLANTA
[CORPORATE SEAL]
By: \s\ David C. Meek
---------------------
Title: Manager Director
<PAGE> 4
AVONDALE MILLS, INC.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
-------------------------
Title: Vice Chairman & CFO
ATTEST:
By: \s\ Shere E. McBryde
--------------------
Title: Assistant Secretary
<PAGE> 5
AVONDALE INCORPORATED.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
------------------------
Title: Vice Chairman & CFO
ATTEST:
By: \s\ Shere E. McBryde
---------------------
Title: Assistant Secretary
<PAGE> 6
AMENDMENT NO. 5
TO
LETTER OF CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO LETTER OF CREDIT AGREEMENT, dated as of October
19, 1999, between and among Avondale Mills, Inc., an Alabama corporation (the
"Company"), Avondale Incorporated, a Georgia Corporation, formerly known as
Walton Monroe Mills, Inc. (the "Parent"), and SunTrust Bank, Atlanta, Georgia, a
state banking corporation organized and existing under the laws of the State of
Georgia (the "Bank");
WITNESSETH:
WHEREAS, the City of Walhalla, South Carolina (the "Issuer") has
heretofore issued $5,000,000 in aggregate principal amount of the City of
Walhalla, South Carolina Refunding Revenue Bonds (Avondale Mills, Inc. Project),
Series 1990 (the "Bonds"), for the purpose of refunding certain industrial
development revenue bonds previously issued by the Issuer to finance the
acquisition, construction and equipping of certain textile plant facilities and
certain machinery, equipment and related personal property located in the City
of Walhalla, South Carolina for the benefit of the Company; and
WHEREAS, the Bank originally issued its irrevocable Letter of Credit
No. SB52927, dated December 20, 1990, as amended and reissued, (the "Letter of
Credit"), in connection with the issuance of the Bonds, pursuant to the terms of
a Letter of Credit Agreement, dated as of December 1, 1990, (as heretofore or
hereafter amended, the "Letter of Credit Agreement"), between the Company and
the Bank; and
WHEREAS, the Parent merged, effective August 27, 1993, with AM
Acquisition, Inc., and, in connection therewith, changed its name from Walton
Monroe Mills, Inc. to Avondale Incorporated, and the Parent now owns 100% of the
outstanding capital stock of the Company; and
WHEREAS, in connection with such merger, the Parent became a joint and
several obligor with the Company under the Letter of Credit Agreement, as more
fully described in that certain Amendment No. 2 to the Letter of Credit
Agreement, dated as of August 27, 1993, by and among the Parent, the Company and
the Bank, entered into in connection therewith; and
WHEREAS, the Parent, the Company and the Bank have determined that it
would be desirable to amend certain definitions contained in the Letter of
Credit Agreement; and
WHEREAS, Section 11A of the Letter of Credit Agreement provides that an
amendment of the Letter of Credit Agreement shall require the written consent of
the Bank;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parent, the Company and the Bank hereby agree as follows:
<PAGE> 7
Section 1. Definitions. Effective August 27, 1999, Paragraph 9A of the
Letter of Credit Agreement is hereby amended by deleting the definition of "Cash
Flow" in its entirety and substituting in lieu thereof the following definition:
"Cash Flow" means Consolidated Net Income, plus (i) Net Interest
Expense (including interest on the Subordinated Debt), plus (ii) income taxes,
plus (iii) depreciation, plus (iv) amortization, plus or minus, as the case may
be, (v) LIFO Adjustments and plus (vi) the amount of any non-cash write-offs of
obsolete or surplus equipment, spare parts or real property, up to but not in
excess of $10,000,000 during any period of 4 consecutive Fiscal Quarters.
Section 2. Letter of Credit Agreement Ratified and Confirmed. Except as
provided above, all other terms and provisions of the Letter of Credit Agreement
are hereby ratified and confirmed in each respect.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5
to the Credit Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
SUNTRUST BANK, ATLANTA
[CORPORATE SEAL]
By: \s\ David C. Meek
----------------------
Title: Manager Director
<PAGE> 9
AVONDALE MILLS, INC.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
-------------------------
Title: Vice Chairman & CFO
ATTEST:
By: \s\ Shere E. McBryde
---------------------
Title: Assistant Secretary
<PAGE> 10
AVONDALE INCORPORATED.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
---------------------------
Title: Vice Chairman & CFO
ATTEST:
By: \s\ Shere E. McBryde
---------------------
Title: Assistant Secretary
<PAGE> 11
AMENDMENT NO. 5
TO
LETTER OF CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO LETTER OF CREDIT AGREEMENT, dated as of October
19, 1999, between and among Avondale Mills, Inc., an Alabama corporation (the
"Company"), Avondale Incorporated, a Georgia Corporation, formerly known as
Walton Monroe Mills, Inc. (the "Parent"), and SunTrust Bank, Atlanta, Georgia, a
state banking corporation organized and existing under the laws of the State of
Georgia (the "Bank");
WITNESSETH:
WHEREAS, The Industrial Development Board of the Town of Bon Air (the
"Issuer") has heretofore issued $3,000,000 in aggregate principal amount of The
Industrial Development Board of the Town of Bon Air Refunding Revenue Bonds
(Avondale Mills, Inc. Project), Series 1992 (the "Bonds"), for the purpose of
refunding certain industrial development revenue bonds previously issued by the
Issuer to finance the construction of certain improvements to the Company's
existing yarn manufacturing facility located in Bon Air, Alabama and for the
acquisition and installation therein of certain machinery and equipment, for the
benefit of the Company; and
WHEREAS, the Bank originally issued its irrevocable Letter of Credit
No. SB53527, dated April 23, 1992, as amended or reissued, (the "Letter of
Credit"), in connection with the issuance of the Bonds, pursuant to the terms of
a Letter of Credit Agreement, dated as of April 1, 1992, (as heretofore or
hereafter amended, the "Letter of Credit Agreement"), between the Company and
the Bank; and
WHEREAS, the Parent merged, effective August 27, 1993, with AM
Acquisition, Inc., and, in connection therewith, changed its name from Walton
Monroe Mills, Inc. to Avondale Incorporated, and the Parent now owns 100% of the
outstanding capital stock of the Company; and
WHEREAS, in connection with such merger, the Parent became a joint and
several obligor with the Company under the Letter of Credit Agreement, as more
fully described in that certain Amendment No. 2 to the Letter of Credit
Agreement, dated as of August 27, 1993, by and among the Parent, the Company and
the Bank, entered into in connection therewith; and
WHEREAS, the Parent, the Company and the Bank have determined that it
would be desirable to amend certain definitions contained in the Letter of
Credit Agreement; and
WHEREAS, Section 11A of the Letter of Credit Agreement provides that an
amendment of the Letter of Credit Agreement shall require the written consent of
the Bank;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parent, the Company and the Bank hereby agree as follows:
<PAGE> 12
Section 1. Definitions. Effective August 27, 1999, Paragraph 9A of the
Letter of Credit Agreement is hereby amended by deleting the definition of "Cash
Flow" in its entirety and substituting in lieu thereof the following definition:
"Cash Flow" means Consolidated Net Income, plus (i) Net Interest
Expense (including interest on the Subordinated Debt), plus (ii) income taxes,
plus (iii) depreciation, plus (iv) amortization, plus or minus, as the case may
be, (v) LIFO Adjustments and plus (vi) the amount of any non-cash write-offs of
obsolete or surplus equipment, spare parts or real property, up to but not in
excess of $10,000,000 during any period of 4 consecutive Fiscal Quarters.
Section 2. Letter of Credit Agreement Ratified and Confirmed. Except as
provided above, all other terms and provisions of the Letter of Credit Agreement
are hereby ratified and confirmed in each respect.
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5
to the Credit Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
SUNTRUST BANK, ATLANTA
[CORPORATE SEAL]
By: \s\ David C. Meek
-------------------------
Title: Manager Director
<PAGE> 14
AVONDALE MILLS, INC.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
-------------------------
Title: Vice Chairman & CFO
ATTEST:
By:\s\ Shere E. McBryde
---------------------
Title: Assistant Secretary
<PAGE> 15
AVONDALE INCORPORATED.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
-------------------------
Title: Vice Chairman & CFO
ATTEST:
By:\s\ Shere E. McBryde
--------------------
Title: Assistant Secretary
<PAGE> 16
AMENDMENT NO. 4
TO
LETTER OF CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO LETTER OF CREDIT AGREEMENT, dated as of October
19, 1999, between and among Avondale Mills, Inc., an Alabama corporation (the
"Company"), Avondale Incorporated, a Georgia Corporation, formerly known as
Walton Monroe Mills, Inc. (the "Parent"), and SunTrust Bank, Atlanta, Georgia, a
state banking corporation organized and existing under the laws of the State of
Georgia (the "Bank");
WITNESSETH:
WHEREAS, Development Authority of Walton County (the "Issuer") has
heretofore issued $4,000,000 in original principal amount of Development
Authority of Walton County Industrial Development Revenue Bonds (Walton Monroe
Mills, Inc. Project), Series 1992A and $2,000,000 in original principal amount
Development Authority of Walton County Industrial Revenue Refunding Bonds
(Walton Monroe Mills, Inc. Project), Series 1992B (collectively, the "Bonds"),
for the benefit of Walton Monroe Mills, Inc.; and
WHEREAS, the Bank originally issued its irrevocable Letter of Credit
No. SB53583, dated June 11, 1992, as amended or reissued, (the "Letter of
Credit"), in connection with the issuance of the Bonds, pursuant to the terms of
a Letter of Credit Agreement, dated as of June 1, 1992, (as heretofore or
hereafter amended, the "Letter of Credit Agreement"), between the Bank and
Walton Monroe Mills, Inc.; and
WHEREAS, the Parent merged, effective August 27, 1993, with the AM
Acquisition, Inc., and, in connection therewith, changed its name from Walton
Monroe Mills, Inc. to Avondale Incorporated, and the Parent now owns 100% of the
outstanding capital stock of the Company; and
WHEREAS, in connection with such merger, the Parent, the Company and
the Bank, (in various capacities), entered into an Assignment and Assumption
Agreement, dated as August 27, 1993 (the "Assumption Agreement"), pursuant to
the terms of which the Parent assigned to the Company, and the Company assumed
from the Parent, all right, title and interest of the Parent in, to and under
certain Bond Documents more fully described in the Assumption Agreement,
including, without limitation, the Letter of Credit Agreement, subject to the
requirement that the Parent remain absolutely, irrevocably and unconditionally
liable, jointly and severally with the Company, under the Bond Documents, all as
more fully described in the Assumption Agreement and in that certain Amendment
No. 1 to the Letter of Credit Agreement, dated as of August 27, 1993, by and
among the Parent, the Company and the Bank, entered into in connection
therewith; and
WHEREAS, the Parent, the Company and the Bank have determined that it
would be desirable to amend certain definitions contained in the Letter of
Credit Agreement; and
<PAGE> 17
WHEREAS, Section 11A of the Letter of Credit Agreement provides that an
amendment of the Letter of Credit Agreement shall require the written consent of
the Bank;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parent, the Company and the Bank hereby agree as follows:
Section 1. Definitions. Effective August 27, 1999, Paragraph 9A of the
Letter of Credit Agreement is hereby amended by deleting the definition of "Cash
Flow" in its entirety and substituting in lieu thereof the following definition:
"Cash Flow" means Consolidated Net Income, plus (i) Net Interest
Expense (including interest on the Subordinated Debt), plus (ii) income taxes,
plus (iii) depreciation, plus (iv) amortization, plus or minus, as the case may
be, (v) LIFO Adjustments and plus (vi) the amount of any non-cash write-offs of
obsolete or surplus equipment, spare parts or real property, up to but not in
excess of $10,000,000 during any period of 4 consecutive Fiscal Quarters.
Section 2. Letter of Credit Agreement Ratified and Confirmed. Except as
provided above, all other terms and provisions of the Letter of Credit Agreement
are hereby ratified and confirmed in each respect.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4
to the Credit Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
SUNTRUST BANK, ATLANTA
[CORPORATE SEAL]
By: \s\ David C. Meek
------------------------
Title: Manager Director
<PAGE> 19
AVONDALE MILLS, INC.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
------------------------
Title: Vice Chairman & CFO
ATTEST:
By: \s\ Shere E. McBryde
--------------------
Title: Assistant Secretary
<PAGE> 20
AVONDALE INCORPORATED.
[CORPORATE SEAL]
By: \s\ Jack R. Altherr, Jr.
------------------------
Title: Vice Chairman & CFO
ATTEST:
By: \s\ Shere E. McBryde
--------------------
Title: Assistant Secretary
<PAGE> 1
EXHIBIT 10.12
INTER
OFFICE
MEMO
DATE: January 15, 1999
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 1999. You will participate in the
plan based on an individual percentage award of 100%.
For fiscal 1999, 75% of your actual incentive award will be based on
achievement of Financial Goals, as set forth below, and 50% of your actual
incentive award will be discretionary, as outlined below.
Financial Goals
The Financial Goals for your fiscal 1999 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBITDAL)
----------- ---------------------
<S> <C>
30% 101,000
45% 109,000
60% 117,000
75% 125,000
</TABLE>
75% 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 1999 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 30% and 75% levels. No incentive award will be
paid if the Performance Level is below 30%, and no
<PAGE> 2
additional incentive award will be paid for any financial results which exceed
the 75% Performance Level.
Discretionary
50% of your actual incentive award will be based upon successful
progress, as determined by the Compensation Committee of the Board of Directors,
towards objectives established between you and the Compensation Committee. The
award will be up to 50% and may be prorated at the discretion of the
Compensation Committee.
The general guidelines of the plan for fiscal 1999 are as follows:
1. Corporate Operating Earnings (EBITDAL) 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/kjw
Acknowledged: \s\ G. Stephen Felker
----------------------
Date: January 25, 1999
-----------------
-2-
<PAGE> 1
EXHIBIT 10.13
INTER
OFFICE
MEMO
DATE: January 15, 1999
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 1999. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1999, 75% of your actual incentive award will be based on
achievement of Financial Goals, as set forth below, and 50% of your actual
incentive award will be discretionary, as outlined below.
Financial Goals
The Financial Goals for your fiscal 1999 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBITDAL)
----------- ---------------------
<S> <C>
30% 101,000
45% 109,000
60% 117,000
75% 125,000
</TABLE>
75% 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 1999 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 30% and 75% levels. No incentive award will be
paid if the Performance Level is below 30%, and no
<PAGE> 2
additional incentive award will be paid for any financial results which exceed
the 75% Performance Level.
Discretionary
50% of your actual incentive award will be based upon successful
progress, as determined by the Chief Executive Officer, towards objectives
established between you and the Chief Executive Officer. The award will be up to
50% and may be prorated at the discretion of the Chief Executive Officer.
The general guidelines of the plan for fiscal 1999 are as follows:
1. Corporate Operating Earnings (EBITDAL) 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/kjw
Acknowledged: \s\ Jack R. Altherr, Jr.
------------------------
Date: January 19, 1999
----------------
-2-
<PAGE> 1
EXHIBIT 10.14
INTER
OFFICE
MEMO
DATE: January 15, 1999
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 1999. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1999, 75% of your actual incentive award will be based on
achievement of Financial Goals, as set forth below, and 50% of your actual
incentive award will be discretionary, as outlined below.
Financial Goals
The Financial Goals for your fiscal 1999 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBITDAL)
----------- ----------------------
<S> <C>
30% 101,000
45% 109,000
60% 117,000
75% 125,000
</TABLE>
75% 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 1999 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 30% and 75% levels. No incentive award will be
paid if the Performance Level is below 30%, and no
<PAGE> 2
additional incentive award will be paid for any financial results which exceed
the 75% Performance Level.
Discretionary
50% of your actual incentive award will be based upon successful
progress, as determined by the Chief Executive Officer, towards objectives
established between you and the Chief Executive Officer. The award will be up to
50% and may be prorated at the discretion of the Chief Executive Officer.
The general guidelines of the plan for fiscal 1999 are as follows:
1. Corporate Operating Earnings (EBITDAL) 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/kjw
Acknowledged: \s\ Wayne Spraggins
----------------------
Date: January 18, 1999
----------------
-2-
<PAGE> 1
EXHIBIT 10.15
INTER
OFFICE
MEMO
DATE: January 15, 1999
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 1999. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1999, 75% of your actual incentive award will be based on
achievement of Financial Goals, as set forth below, and 50% of your actual
incentive award will be discretionary, as outlined below.
Financial Goals
The Financial Goals for your fiscal 1999 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBITDAL)
----------- ----------------------
<S> <C>
30% 101,000
45% 109,000
60% 117,000
75% 125,000
</TABLE>
75% 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 1999 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 30% and 75%
<PAGE> 2
levels. No incentive award will be paid if the Performance Level is below 30%,
and no additional incentive award will be paid for any financial results which
exceed the 75% Performance Level.
Discretionary
50% of your actual incentive award will be based upon successful
progress, as determined by the Chief Executive Officer, towards objectives
established between you and the Chief Executive Officer. The award will be up to
50% and may be prorated at the discretion of the Chief Executive Officer.
The general guidelines of the plan for fiscal 1999 are as follows:
1. Corporate Operating Earnings (EBITDAL) 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/kjw
Acknowledged: \s\ Keith M. Hull
-----------------
Date: January 22, 1999
----------------
-2-
<PAGE> 1
EXHIBIT 10.16
INTER
OFFICE
MEMO
DATE: January 15, 1999
TO: Mr. Bill Henry
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1999. You will participate in the
plan based on an individual percentage award of 40%.
For fiscal 1999, 75% of your actual incentive award will be based on
achievement of Financial Goals, as set forth below, and 50% of your actual
incentive award will be discretionary, as outlined below.
Financial Goals
The Financial Goals for your fiscal 1999 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBITDAL)
----------- --------------------
<S> <C>
30% 101,000
45% 109,000
60% 117,000
75% 125,000
</TABLE>
75% 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 1999 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 30% and 75% levels. No incentive award will be
paid if the Performance Level is below 30%, and no
<PAGE> 2
additional incentive award will be paid for any financial results which exceed
the 75% Performance Level.
Discretionary
50% of your actual incentive award will be based upon successful
progress, as determined by the Chief Executive Officer, towards objectives
established between you and the Chief Executive Officer. The award will be up to
50% and may be prorated at the discretion of the Chief Executive Officer.
The general guidelines of the plan for fiscal 1999 are as follows:
1. Corporate Operating Earnings (EBITDAL) 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/kjw
Acknowledged: \s\ Bill Henry
--------------
Date: January 19, 1999
----------------
-2-
<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
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 14.3 $ 18.5 $ 26.2 $ 23.3 $ 23.0
Discount and expenses on sale of
accounts receivable -- 3.7 6.6 7.3 5.6
Amortization of debt issuance costs -- .9 1.1 1.1 1.1
--------- --------- --------- --------- ---------
Fixed Charges $ 14.3 $ 23.1 $ 33.9 $ 31.7 $ 29.7
========= ========= ========= ========= =========
Earnings
Pretax income before
extraordinary item $ 34.0 $ 22.7 $ 37.9 $ 55.4 $ 16.3
Fixed charges 14.3 23.1 33.9 31.7 29.7
--------- --------- --------- --------- ---------
Earnings $ 48.3 $ 45.8 $ 71.8 87.1 46.0
========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 3.4x 2.0x 2.1x 2.8x 1.5x
</TABLE>
<PAGE> 2
SCHEDULE II
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS (in thousands)
<TABLE>
<CAPTION>
CHARGED (B)
BALANCE AT TO COSTS BALANCE
BEGINNING AND (A) AT END OF
DESCRIPTION PERIOD EARNINGS DEDUCTIONS PERIOD
----------- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year Ended August 29, 1997 Allowance for doubtful $ 11,160 $ 3,473 $ (1,550) $ 13,083
accounts
Year Ended August 28, 1998 Allowance for doubtful 13,083 1,532 (7,572) 7,043
accounts
Year Ended August 27, 1999 Allowance for doubtful 7,043 1,464 (857) 7,650
accounts
</TABLE>
- ------------------------------------------
(A) Deductions represent customer account balances written off during the
period.
(B) At August 29, 1997, August 28, 1998, and August 27, 1999, the Balance at end
of period includes $7,565, $4,510, and $5,035 respectively, related to accounts
receivable sold. These amounts are included in other accrued expenses in the
Consolidated Balance Sheets.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF AVONDALE, INC. FOR THE FISCAL YEAR ENDED
AUGUST 27, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-27-1999
<PERIOD-START> AUG-28-1998
<PERIOD-END> AUG-27-1999
<CASH> 8,545
<SECURITIES> 0
<RECEIVABLES> 49,948
<ALLOWANCES> 2,615
<INVENTORY> 106,559
<CURRENT-ASSETS> 166,122
<PP&E> 562,299
<DEPRECIATION> 306,318
<TOTAL-ASSETS> 439,732
<CURRENT-LIABILITIES> 78,178
<BONDS> 216,275
0
0
<COMMON> 127
<OTHER-SE> 104,869
<TOTAL-LIABILITY-AND-EQUITY> 439,732
<SALES> 880,855
<TOTAL-REVENUES> 880,855
<CGS> 748,910
<TOTAL-COSTS> 835,517
<OTHER-EXPENSES> 6,047
<LOSS-PROVISION> 1,464
<INTEREST-EXPENSE> 22,998
<INCOME-PRETAX> 16,293
<INCOME-TAX> 6,270
<INCOME-CONTINUING> 10,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,023
<EPS-BASIC> .79
<EPS-DILUTED> .77
</TABLE>
