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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MAY 26, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO _________
COMMISSION FILE NUMBER 33-68412
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AVONDALE INCORPORATED
(Exact name of registrant as specified in its charter)
GEORGIA 58-0477150
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
506 SOUTH BROAD STREET 30655
MONROE, GEORGIA (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 267-2226
Former name, former address and former fiscal year, if changed since
last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Description As Of Shares Outstanding
----------- ----- ------------------
<S> <C> <C>
Class A Common Stock July 3, 2000 11,566,994 Shares
Class B Common Stock July 3, 2000 978,939 Shares
</TABLE>
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<PAGE> 2
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at August 27, 1999 and May 26, 2000............. 1
Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
May 28, 1999 and May 26, 2000......................................................... 2
Condensed Consolidated Statements of Income for the Thirty-Nine Weeks Ended
May 28, 1999 and May 26, 2000......................................................... 3
Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended
May 28, 1999 and May 26, 2000......................................................... 4
Notes to Condensed Consolidated Financial Statements.................................. 5
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 8
Item 3: Quantitative and Qualitative Disclosures about Market Risk............................ 12
PART II - OTHER INFORMATION
Item 1: Legal Proceedings .................................................................... 13
Item 2: Changes in Securities and Use of Proceeds............................................. 13
Item 3: Defaults upon Senior Securities....................................................... 13
Item 4: Submission of Matters to a Vote of Security Holders................................... 13
Item 5: Other Information..................................................................... 13
Item 6: Exhibits and Reports on Form 8-K...................................................... 13
Signature ...................................................................................... 14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUG. 27, MAY 26,
1999 2000
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash $ 8,545 $ 3,268
Accounts receivable, less allowance for doubtful accounts
of $2,615 in fiscal 1999 and $3,364 in fiscal 2000 49,948 56,129
Inventories 106,559 107,826
Prepaid expenses 1,070 2,027
---------- ----------
Total current assets 166,122 169,250
Property, plant and equipment
Land 8,510 8,500
Buildings 84,515 85,698
Machinery and equipment 469,274 486,632
---------- ----------
562,299 580,830
Less accumulated depreciation (306,318) (336,549)
---------- ----------
255,981 244,281
Other assets 17,629 26,211
---------- ----------
$ 439,732 $ 439,742
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 30,773 $ 32,221
Accrued compensation, benefits and related expenses 18,378 24,762
Other accrued expenses 22,366 18,716
Long-term debt due in one year 3,250 2,250
Income taxes payable 3,411 6,786
---------- ----------
Total current liabilities 78,178 84,735
Long-term debt 216,275 192,700
Deferred income taxes and other long-term liabilities 40,283 41,067
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 1999 and
11,608 shares in 2000 117 116
Class B, $.01 par value; 5,000 shares
authorized, 979 issued and outstanding 10 10
Capital in excess of par value 39,835 39,800
Retained earnings 65,034 81,314
---------- ----------
Total shareholders' equity 104,996 121,240
---------- ----------
$ 439,732 $ 439,742
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
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AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
MAY 28, MAY 26,
1999 2000
---------- ----------
<S> <C> <C>
Net sales $ 221,601 $ 225,621
Operating costs and expenses
Cost of goods sold 192,015 181,671
Depreciation 10,971 10,457
Selling and administrative expenses 8,619 10,002
---------- ----------
Operating income 9,996 23,491
Interest expense 6,061 5,049
Discount and expenses on sale of receivables 1,177 1,382
Other expense, net 179 216
---------- ----------
Income before income taxes 2,579 16,844
Provision for income taxes 920 6,110
---------- ----------
Net income $ 1,659 $ 10,734
========== ==========
Per share data:
Net income - basic $ .13 $ .85
========== ==========
Net income - diluted $ .13 $ .84
========== ==========
Dividends declared $ .10 $ .10
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 5
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------
MAY 28, MAY 26,
1999 2000
-------- ---------
<S> <C> <C>
Net sales $651,629 $612,741
Operating costs and expenses
Cost of goods sold 558,100 496,633
Depreciation 31,857 31,395
Selling and administrative expenses 28,761 29,701
-------- --------
Operating income 32,911 55,012
Interest expense 17,510 15,754
Discount and expenses on sale of receivables 4,299 3,999
Other expense, net 457 342
-------- --------
Income before income taxes 10,645 34,917
Provision for income taxes 4,080 13,195
-------- --------
Net income $ 6,565 $ 21,722
======== ========
Per share data:
Net income-basic $ .52 $ 1.71
======== ========
Net income-diluted $ .51 $ 1.69
======== ========
Dividends declared $ .30 $ .30
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 6
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------
MAY 28, MAY 26,
1999 2000
---------- ----------
<S> <C> <C>
Operating activities
Net income $ 6,565 $ 21,722
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,129 31,836
Benefit of deferred income taxes (1,396) (2,324)
Loss (gain) on sale of equipment 777 (82)
Changes in operating assets and liabilities 16,728 (763)
---------- ----------
Net cash provided by operating activities 54,803 50,389
Investing activities
Purchases of property, plant and equipment (40,580) (20,148)
Proceeds from sale of property, plant and equipment 1,198 534
---------- ----------
Net cash used in investing activities (39,382) (19,614)
Financing activities
Net borrowings (payments) on revolving line of credit
and long term debt 4,125 (24,575)
Sale of accounts receivable, net (17,000) (6,000)
Issuance of common stock -- 314
Purchase and retirement of treasury stock -- (1,984)
Dividends paid (3,803) (3,807)
---------- ----------
Net cash used in financing activities (16,678) (36,052)
Decrease in cash (1,257) (5,277)
Cash at beginning of period 9,259 8,545
---------- ----------
Cash at end of period $ 8,002 $ 3,268
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 7
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 26, 2000
1. Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements include the accounts of Avondale Incorporated
and its wholly owned subsidiaries, Avondale Mills, Inc. and Avondale Receivables
Company (collectively, the "Company"). These statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The August 27, 1999 balance sheet has been derived from
the audited financial statements at that date. The accounting policies and basis
of presentation followed by the Company are presented in Note 1 to the August
27, 1999 Audited Consolidated Financial Statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. Operating results for the
thirty-nine weeks ended May 26, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 25, 2000.
The Company's comprehensive income is equal to net income as reported.
2. Inventories: Components of inventories are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
AUG. 27, MAY 26,
1999 2000
---------- ----------
<S> <C> <C>
Finished goods $ 28,519 $ 37,124
Work in process 44,541 41,385
Raw materials 20,907 16,329
Dyes and chemicals 5,537 6,201
---------- ----------
Inventories at FIFO 99,504 101,039
Less allowance to reduce carrying value to
LIFO basis -- --
---------- ----------
99,504 101,039
Supplies at average cost 7,055 6,787
---------- ----------
$ 106,559 $ 107,826
========== ==========
</TABLE>
5
<PAGE> 8
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
MAY 26, 2000
Valuation of the Company's inventories under the last-in, first-out
(LIFO) method at May 26, 2000 and the related impact on the statement of income
for the thirty-nine weeks then ended has been determined using estimated
quantities and costs as of the fiscal 2000 year-end. As a result, interim
amounts are subject to the final year-end LIFO valuation.
3. 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 (amounts in thousands):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------- -----------------------
MAY 28, MAY 26, MAY 28, MAY 26,
1999 2000 1999 2000
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Weighted average shares outstanding -
basic 12,677 12,687 12,677 12,691
Effect of employee stock options 279 148 279 148
-------- -------- -------- --------
Weighted average shares outstanding -
diluted 12,956 12,835 12,956 12,839
======== ======== ======== ========
</TABLE>
4. Segment Information: Condensed segment information is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------
MAY 28, MAY 26,
1999 2000
---------- ----------
<S> <C> <C>
Revenues:
Apparel fabrics $ 469,667 $ 451,291
Greige and specialty fabrics 54,062 58,950
Yarns 147,614 143,930
---------- ----------
671,343 654,171
Less intersegment sales 19,714 41,430
---------- ----------
Total $ 651,629 $ 612,741
========== ==========
Income:
Apparel fabrics $ 51,053 $ 64,120
Greige and specialty fabrics 5,000 7,870
Yarns 348 8,115
Unallocated (23,490) (25,093)
---------- ----------
Total operating income 32,911 55,012
Interest expense 17,510 15,754
Discount and expenses on sale of
receivables 4,299 3,999
Other expense, net 457 342
---------- ----------
Income before income taxes $ 10,645 $ 34,917
========== ==========
</TABLE>
6
<PAGE> 9
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
MAY 26, 2000
5. 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 the Company's
future results of operations or financial condition.
For discussion of certain legal proceedings to which the Company is a
party, see Item 3 "Legal Proceedings" in the Company's Annual Report on Form
10-K for the fiscal year ended August 27, 1999 and Part II Other Information,
Item 1 "Legal Proceedings" in this quarterly report on Form 10-Q. 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 as referenced
above, that management, in consultation with legal counsel, believes will have a
material adverse effect on the Company's financial condition or results of
operations.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 26, 2000 COMPARED TO THIRTEEN WEEKS ENDED MAY 28, 1999
NET SALES. Net sales increased 1.8% to $225.6 million for the thirteen
weeks ended May 26, 2000 from $221.6 million for the thirteen weeks ended May
28, 1999, reflecting improved demand for denim and other bottomweight fabrics.
While unit sales of denim and bottomweight fabrics strengthened, selling prices
for all products remained highly competitive as global supply of textile and
apparel products continued to exceed demand. The Company anticipates continued
improvement in demand for denim and bottomweight fabrics through the end of the
calendar year but product pricing to remain highly competitive.
OPERATING INCOME. Operating income increased 135.0% to $23.5 million
for the thirteen weeks ended May 26, 2000 from $10.0 million for the thirteen
weeks ended May 28, 1999. The Company responded to strengthening demand for
denim by shifting some weaving capacity from greige fabrics to denim. In
addition, the Company continued its increased consumption of internally produced
yarns and greige fabrics in the production of finished apparel fabrics. These
actions improved capacity utilization and sales rationalization. This
improvement in capacity utilization, more favorable raw material costs and unit
cost reductions achieved through plant management programs and capital
expenditure projects resulted in a 5.4% decline in cost of goods sold to $181.7
million for the thirteen weeks ended May 26, 2000 from $192.0 million for the
thirteen weeks ended May 28, 1999. Cost of goods sold as a percentage of net
sales decreased to 80.5% for the thirteen weeks ended May 26, 2000 from 86.7%
for the thirteen weeks ended May 28, 1999.
Selling and administrative expenses increased 16.1% to $10.0 million
for the thirteen weeks ended May 26, 2000 from $8.6 million for the thirteen
weeks ended May 28, 1999, primarily reflecting increased accrual of certain
associate benefits and performance based incentives corresponding to the
improvement in operating income for the period. Selling and administrative
expenses as a percentage of net sales increased to 4.4% for the thirteen weeks
ended May 26, 2000 from 3.9% for the thirteen weeks ended May 28, 1999.
SEGMENT PERFORMANCE. Apparel fabrics sales increased 6.0% to $170.4
million for the thirteen weeks ended May 26, 2000 from $160.7 million for the
thirteen weeks ended May 28, 1999. The increase in sales reflected an 11.7%
increase in yards sold as demand for denim and bottomweight fabrics
strengthened. Average selling prices declined 5.2% due to the highly competitive
market conditions for denim and other sportswear fabrics. Operating income for
apparel fabrics increased 59.9% to $25.9 million for the thirteen weeks ended
May 26, 2000 from $16.2 million for the thirteen weeks ended May 28, 1999. The
improvement in operating income was due to lower raw material costs and
continued reduction of manufacturing costs.
Greige and specialty fabrics sales increased 9.5% to $20.7 million for
the thirteen weeks ended May 26, 2000 from $18.9 million for the thirteen weeks
ended May 28, 1999. The increase in sales reflected a 16.1% increase in units
sold and a 5.7% decrease in average selling prices. Unit sales of specialty
fabrics experienced significant improvement during the thirteen weeks ended May
26, 2000 while capacity utilization within the greige fabrics operation
benefited from increased production of yarns for consumption within the apparel
fabrics operation. Operating income for greige and specialty fabrics increased
74.8% to $2.9 million for the thirteen weeks ended May 26, 2000 from $1.6
million for the thirteen weeks ended May 28, 1999 reflecting higher unit sales,
lower raw material costs and continued reduction of manufacturing costs.
8
<PAGE> 11
RESULTS OF OPERATIONS (CONTINUED)
Yarns sales decreased 8.3% to $47.6 million for the thirteen weeks
ended May 26, 2000 from $51.9 million for the thirteen weeks ended May 28, 1999,
reflecting a 4.5% increase in pounds sold and a 12.2% decrease in average
selling prices. Although the Company's decision to significantly increase its
consumption of internally produced yarns within its fabrics operations resulted
in a decline in outside yarn sales, the improvement in capacity utilization
generated the improvement in overall yarn volume. Market pricing for sales yarns
remained very competitive, reflecting continued excess production capacity
within the domestic industry and continued imports of yarns and knitted apparel
from Asia. Operating income for yarns increased to $2.7 million for the thirteen
weeks ended May 26, 2000 from a loss of $0.8 million for the thirteen weeks
ended May 28, 1999. Operating income was positively impacted by lower raw
material costs and unit cost reductions related to the improved capacity
utilization.
Intersegment sales increased 32.8% percent to $13.1 million for the
thirteen weeks ended May 26, 2000 from $9.8 million for the thirteen weeks ended
May 28, 1999, primarily reflecting the significant increase in consumption of
internally produced yarns within the Company's fabrics operations.
INTEREST EXPENSE, NET. Interest expense, net decreased 16.7% to $5.1
million for the thirteen weeks ended May 26, 2000 from $6.1 million for the
thirteen weeks ended May 28, 1999, reflecting the lower average balance of
borrowings outstanding during the thirteen weeks ended May 26, 2000.
DISCOUNT AND EXPENSES ON SALE OF RECEIVABLES. Discount and expenses on
sale of receivables were $1.4 million for the thirteen weeks ended May 26, 2000
compared to $1.2 million for the thirteen weeks ended May 28, 1999. The increase
was primarily attributable to higher discount rates on the accounts receivable
sold under the securitization facility as market rates have risen.
PROVISION FOR INCOME TAXES. Provision for income taxes increased to
$6.1 million for the thirteen weeks ended May 26, 2000 from a provision of $0.9
million for the thirteen weeks ended May 28, 1999, reflecting the increase in
income before income taxes. The Company's effective income tax rate was 36.3%
for the thirteen weeks ended May 26, 2000 compared to 35.6% for the thirteen
weeks ended May 28, 1999.
THIRTY-NINE WEEKS ENDED MAY 26, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED MAY 28,
1999
NET SALES. Net sales decreased 6.0% to $612.7 million for the
thirty-nine weeks ended May 26, 2000 from $651.6 million for the thirty-nine
weeks ended May 28, 1999. Global supply of textile and apparel products
continued to exceed demand, creating highly competitive market conditions
worldwide. As a result, weak foreign economies continued to offer their textile
and apparel production to the U.S. market, driving prices down in the Company's
principal distribution channels. Although the Company expects the recent
improvement in demand for denim and bottomweight fabrics to continue through the
end of the calendar year, product pricing is expected to remain highly
competitive.
OPERATING INCOME. Operating income increased 67.2% to $55.0 million for
the thirty-nine weeks ended May 26, 2000 from $32.9 million for the thirty-nine
weeks ended May 28, 1999. In response to the intensely competitive market
conditions, the Company significantly increased its consumption of internally
produced yarns and greige fabrics in the production of finished apparel fabrics
and thereby improved capacity utilization and sales rationalization. This
improvement in capacity utilization, more favorable raw material costs and unit
cost reductions achieved through plant management programs and capital
expenditure projects resulted in an 11.0% decline in cost of goods sold to
$496.6 million for the thirty-nine weeks ended May 26, 2000 from $558.1 million
for the thirty-nine weeks ended May 28, 1999. Cost of goods sold as a percentage
of net sales decreased to 81.1% for the thirty-nine weeks ended May 26, 2000
from 85.7% for the thirty-nine weeks ended May 28, 1999.
9
<PAGE> 12
RESULTS OF OPERATIONS (CONTINUED)
Selling and administrative expenses increased 3.3% to $29.7 million for
the thirty-nine weeks ended May 26, 2000 from $28.8 million for the thirty-nine
weeks ended May 28, 1999, primarily reflecting increased accrual of certain
associate benefits and performance based incentives corresponding to the
improvement in operating income for the period. Selling and administrative
expenses as a percentage of net sales increased to 4.9% for the thirty-nine
weeks ended May 26, 2000 from 4.4% for the thirty-nine weeks ended May 28, 1999.
SEGMENT PERFORMANCE. Apparel fabrics sales decreased 3.9% to $451.3
million for the thirty-nine weeks ended May 26, 2000 from $469.7 million for the
thirty-nine weeks ended May 28, 1999. The decline in sales reflected a 1.8%
increase in yards sold and a 5.7% decrease in average selling prices. Declines
in average selling prices were experienced across the board. The slight
improvement in unit shipments reflected the recent improvement in demand for
denim and other bottomweight fabrics. Operating income for apparel fabrics
increased 25.6% to $64.1 million for the thirty-nine weeks ended May 26, 2000
from $51.1 million for the thirty-nine weeks ended May 28, 1999. The improvement
in operating income was largely due to more favorable raw material costs and
lower unit costs achieved through improved capacity utilization, plant
management programs and capital expenditure projects.
Greige and specialty fabrics sales increased 9.0% to $59.0 million for
the thirty-nine weeks ended May 26, 2000 from $54.1 million for the thirty-nine
weeks ended May 28, 1999. The increase in sales reflected a 12.4% increase in
units sold and a 3.0% decrease in average selling prices. Unit sales of
specialty fabrics experienced significant improvement during the thirty-nine
weeks ended May 26, 2000 while capacity utilization within the greige fabrics
operation benefited from increased production of yarns for consumption within
the apparel fabrics operation. Operating income for greige and specialty fabrics
increased 57.4% to $7.9 million for the thirty-nine weeks ended May 26, 2000
from $5.0 million for the thirty-nine weeks ended May 28, 1999, reflecting
higher unit sales, lower raw material costs and continued reduction of
manufacturing costs.
Yarns sales decreased 2.5% to $143.9 million for the thirty-nine weeks
ended May 26, 2000 from $147.6 million for the thirty-nine weeks ended May 28,
1999, reflecting an 8.4% increase in pounds sold and a 10.1% decrease in average
selling prices. Although the Company's decision to significantly increase its
consumption of internally produced yarns within its fabrics operations resulted
in a decline in outside yarn sales, the improvement in capacity utilization
generated the improvement in overall yarn volume. Market pricing for sales yarns
remained very competitive, reflecting continued excess production capacity
within the domestic industry and continued imports of yarns and knitted apparel
from Asia. Operating income for yarns increased to $8.1 million for the
thirty-nine weeks ended May 26, 2000 from $0.3 million for the thirty-nine weeks
ended May 28, 1999. Operating income was positively impacted by lower raw
material costs and unit cost reductions related to the improved capacity
utilization.
Intersegment sales increased 110.2% percent to $41.4 million for the
thirty-nine weeks ended May 26, 2000 from $19.7 million for the thirty-nine
weeks ended May 28, 1999, primarily reflecting the significant increase in
consumption of internally produced yarns within the Company's fabrics
operations.
INTEREST EXPENSE, NET. Interest expense, net decreased 10.0% to $15.8
million for the thirty-nine weeks ended May 26, 2000 from $17.5 million for the
thirty-nine weeks ended May 28, 1999, reflecting the lower average balance of
borrowings outstanding during the thirty-nine weeks ended May 26, 2000.
DISCOUNT AND EXPENSES ON SALE OF RECEIVABLES. Discount and expenses on
sale of receivables were $4.0 million for the thirty-nine weeks ended May 26,
2000 compared to $4.3 million for the thirty-nine weeks ended May 28, 1999. The
decrease was primarily attributable to a net decrease in the amount of accounts
receivable sold under the securitization facility, partially offset by higher
discount rates on the accounts receivable sold.
PROVISION FOR INCOME TAXES. Provision for income taxes increased to
$13.2 million for the thirty-nine weeks ended May 26, 2000 from $4.1 million for
the thirty-nine weeks ended May 28, 1999, reflecting the increase in income
before income taxes. The Company's effective income tax rate was 37.8% for the
thirty-nine weeks ended May 26, 2000 compared to 38.3% for the thirty-nine weeks
ended May 28, 1999.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $50.4 million for the
thirty-nine weeks ended May 26, 2000. Principal working capital changes included
a $1.3 million increase in inventories, a $1.2 million increase in prepaid
expenses and a $2.2 million increase in accrued expenses. Investing activities
were predominantly equipment purchases and plant improvements of $20.1 million
made in connection with the ongoing modernization of the Company's manufacturing
facilities. Financing activities included proceeds from a $7.5 million
industrial revenue bond issue, a $30.1 million net payment against the revolving
line of credit, repayment of $2.0 million of long term debt, payment of $3.8
million in dividends on outstanding common stock, purchase and retirement of
$2.0 million of treasury stock and payment of $6.0 million due to the decrease
in accounts receivable sold under the securitization facility.
At May 26, 2000, the Company had borrowings of $56.2 million
outstanding under its revolving line of credit and $143.8 million of borrowing
availability thereunder.
The Company's capital expenditures, aggregating $20.1 million for the
thirty-nine weeks ended May 26, 2000, were used primarily to continue the
modernization of a fabric finishing facility in South Carolina, purchase new
high speed air jet looms for a weaving facility in South Carolina and initiate
the modernization of a ring spinning facility in Alabama. Management estimates
that capital expenditures for the balance of fiscal 2000 will be approximately
$15.0 million. In addition, the Company has announced plans to convert two
existing open end yarn operations in Alabama and South Carolina to linked ring
spinning facilities, purchase new high speed air jet looms for a denim facility
in Alabama and complete several smaller modernization projects at an aggregate
cost of $115 million, inclusive of the fiscal 2000 capital expenditures.
Management expects these projects to be completed by the end of fiscal 2001.
Management believes that cash generated from operations, together with
borrowings available under its revolving line of credit and proceeds received in
connection with sales of trade receivables, will be sufficient to meet the
Company's working capital and capital expenditure needs in the foreseeable
future.
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.
FORWARD LOOKING STATEMENTS
Statements herein regarding the Company's anticipated capital
expenditures 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. 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 selling 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.
11
<PAGE> 14
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>
THIRTY-NINE WEEKS ENDED
-----------------------
MAY 28, MAY 26,
1999 2000
-------- ---------
<S> <C> <C>
Net income $ 6,565 $ 21,721
Interest expense 17,510 15,754
Discount and expenses on sale of receivables 4,299 3,999
Provision for income taxes 4,080 13,195
Depreciation and amortization 32,129 31,836
Net change in allowance to reduce carrying
value of inventory to LIFO basis -- --
-------- --------
EBITDA $ 64,583 $ 86,505
======== ========
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For discussion of certain market risks related to the Company see Part
II, Item 7a. "Quantitative and Qualitative Disclosures about Market Risk" in the
Company's Annual Report on Form 10-K for fiscal year ended August 27, 1999.
12
<PAGE> 15
AVONDALE INCORPORATED
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings
On January 13, 2000, a case was filed in the Circuit Court of
Jefferson County, Alabama by Larry and Cynthia Locke and the
owners of fourteen other residences in the Raintree
subdivision of Lake Martin, against Russell Corporation,
Alabama Power and the Company. 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 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.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
</TABLE>
13
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVONDALE INCORPORATED
By: /s/ JACK R. ALTHERR, JR.
-----------------------------------------
Jack R. Altherr, Jr.
Vice Chairman and Chief Financial Officer
Date: July 7, 2000
14
