<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED NOVEMBER 26, 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
---------------
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 January 2, 2000 11,718,184 Shares
Class B Common Stock January 2, 2000 978,939 Shares
</TABLE>
================================================================================
<PAGE> 2
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
PART I - FINANCIAL INFORMATION (UNAUDITED)
<S> <C> <C> <C>
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at August 27, 1999 and November 26, 1999........ 1
Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
November 27, 1998 and November 26, 1999............................................... 2
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
November 27, 1998 and November 26, 1999............................................... 3
Notes to Condensed Consolidated Financial Statements.................................. 4
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 7
Item 3: Quantitative and Qualitative Disclosures about Market Risk............................ 9
PART II - OTHER INFORMATION
Item 1: Legal Proceedings .................................................................... 10
Item 2: Changes in Securities and Use of Proceeds............................................. 10
Item 3: Defaults upon Senior Securities....................................................... 10
Item 4: Submission of Matters to a Vote of Security Holders................................... 10
Item 5: Other Information..................................................................... 10
Item 6: Exhibits and Reports on Form 8-K...................................................... 10
Signature ...................................................................................... 11
</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, NOV. 26,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 8,545 $ 4,882
Accounts receivable, less allowance for doubtful accounts
of $2,615 in fiscal 1999 and $2,893 in fiscal 2000 49,948 50,858
Inventories 106,559 117,607
Prepaid expenses 1,070 903
--------- ---------
Total current assets 166,122 174,250
Property, plant and equipment
Land 8,510 8,510
Buildings 84,515 85,140
Machinery and equipment 469,274 476,359
--------- ---------
562,299 570,009
Less accumulated depreciation (306,318) (316,684)
--------- ---------
255,981 253,325
Other assets 17,629 19,711
--------- ---------
$ 439,732 $ 447,286
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 30,773 $ 30,964
Accrued compensation, benefits and related expenses 18,378 20,212
Other accrued expenses 22,366 19,457
Long-term debt due in one year 3,250 3,250
Income taxes payable 3,411 8,428
--------- ---------
Total current liabilities 78,178 82,311
Long-term debt 216,275 214,325
Deferred income taxes and other long-term liabilities 40,283 40,496
Shareholders' equity
Preferred stock
$.01 par value; 10,000 shares authorized -- --
Common stock
Class A, $.01 par value; 100,000 shares
authorized, 11,702 issued and outstanding 117 117
Class B, $.01 par value; 5,000 shares
authorized, 979 issued and outstanding 10 10
Capital in excess of par value 39,835 39,923
Retained earnings 65,034 70,104
--------- ---------
Total shareholders' equity 104,996 110,154
--------- ---------
$ 439,732 $ 447,286
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 4
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
13 WEEKS ENDED
----------------------
NOV. 27, NOV. 26,
1998 1999
-------- --------
<S> <C> <C>
Net sales $223,519 $202,873
Operating costs and expenses
Cost of goods sold 186,035 165,469
Depreciation 10,534 10,437
Selling and administrative expenses 10,829 9,924
-------- --------
Operating income 16,121 17,043
Interest expense 5,654 5,287
Discount and expenses on sale of receivables 1,703 1,339
Other expense, net 263 158
-------- --------
Income before income taxes 8,501 10,259
Provision for income taxes 3,275 4,020
-------- --------
Net income $ 5,226 $ 6,239
======== ========
Per share data:
Net income-basic $ .41 $ .49
======== ========
Net income-diluted $ .40 $ .48
======== ========
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 CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------
NOV. 27, NOV. 26,
1998 1999
-------- --------
<S> <C> <C>
Operating activities
Net income $ 5,226 $ 6,239
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,704 10,579
Provision for (benefit of) deferred income taxes 843 (868)
Gain on sale of equipment (11) (1)
Changes in operating assets and liabilities (2,909) (1,701)
-------- --------
Net cash provided by operating activities 13,853 14,248
Investing activities
Purchases of property, plant and equipment (14,836) (7,782)
Proceeds from sale of property, plant and equipment 16 1
-------- --------
Net cash used in investing activities (14,820) (7,781)
Financing activities
Net borrowings (payments) on revolving line of credit 13,650 (1,950)
Sale of accounts receivable, net (14,000) (7,000)
Issuance of common stock -- 88
Dividends paid (1,268) (1,268)
-------- --------
Net cash used in financing activities (1,618) (10,130)
Decrease in cash (2,585) (3,663)
Cash at beginning of period 9,259 8,545
-------- --------
Cash at end of period $ 6,674 $ 4,882
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 6
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 26, 1999
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
thirteen weeks ended November 26, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 25, 2000.
2. Inventories: Components of inventories are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
AUG 27, NOV. 26,
1999 1999
-------- --------
<S> <C> <C>
Finished goods $ 28,519 $ 45,756
Work in process 44,541 40,195
Raw materials 20,907 18,816
Dyes and chemicals 5,537 5,885
-------- --------
Inventories at FIFO 99,504 110,652
Less allowance to reduce carrying value to
LIFO basis -- --
-------- --------
99,504 110,652
Supplies at average cost 7,055 6,955
-------- --------
$106,559 $117,607
======== ========
</TABLE>
4
<PAGE> 7
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOVEMBER 26, 1999
Valuation of the Company's inventories under the last-in, first-out
(LIFO) method at November 26, 1999 and the related impact on the statement of
income for the thirteen weeks then ended has been determined using estimated
quantities and costs as of the fiscal 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
-----------------------
NOV. 27, NOV. 26,
1998 1999
-------- --------
<S> <C> <C>
Weighted average shares outstanding - basic 12,677 12,679
Effect of employee stock options 279 189
--------- --------
Weighted average shares outstanding - diluted 12,956 12,868
========= ========
</TABLE>
4. Segment Information: Condensed segment information is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------
NOV. 27, NOV. 26,
1998 1999
--------- ---------
<S> <C> <C>
Revenues:
Apparel fabrics $ 161,458 $ 148,140
Greige and specialty fabrics 17,952 19,005
Yarns 50,448 51,405
--------- ---------
229,858 218,550
Less intersegment sales 6,339 15,677
--------- ---------
Total $ 223,519 $ 202,873
========= =========
Income:
Apparel fabrics $ 19,874 $ 21,982
Greige and specialty fabrics 2,356 2,210
Yarns 2,987 2,014
Unallocated (9,096) (9,163)
--------- ---------
Total operating income 16,121 17,043
Interest expense 5,654 5,287
Discount and expenses on sale of
receivables 1,703 1,339
Other expense, net 263 158
--------- ---------
Income before income taxes $ 8,501 $ 10,259
========= =========
</TABLE>
5
<PAGE> 8
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOVEMBER 26, 1999
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. 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 would have a material
adverse effect on the Company's financial condition or results of operations.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended November 26, 1999 Compared to Thirteen Weeks Ended November
27, 1998
NET SALES. Net sales decreased 9.2% to $202.9 million for the thirteen
weeks ended November 26, 1999 from $223.5 million for the thirteen weeks ended
November 27, 1998. 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 direct their production to the U.S.
consumer, increasing the importation of textile and apparel products into the
domestic marketplace. In response, the Company was able to take advantage of its
sourcing flexibility to increase its consumption of internally produced yarns
and greige fabrics in the production of finished apparel fabrics and,
accordingly, minimize the detrimental effects of underutilized manufacturing
capacity. The Company expects these conditions to continue for several months
and adversely impact sales in the second quarter of fiscal 2000.
Apparel fabric sales decreased 8.2% to $148.1 million for the thirteen
weeks ended November 26, 1999 from $161.4 million for the thirteen weeks ended
November 27, 1998. The decline in sales reflected a 1.6% decrease in yards sold
and a 6.7% decrease in average selling prices. The Company's unit shipments were
adversely impacted during the thirteen weeks ended November 26, 1999 as major
customers corrected excess fabric and garment inventories and deferred the
delivery of fabric orders. Additionally, imports of khaki and other sportswear
fabrics from Asia continued to add to the supply imbalance, increasing
competitive pressures on the pricing of apparel fabrics. Declines in selling
prices were experienced across the board, but particularly for denim where
market conditions remain highly competitive.
Greige and specialty fabric sales increased 2.0% to $13.7 million for
the thirteen weeks ended November 26, 1999 from $13.4 million for the thirteen
weeks ended November 27, 1998. The increase in sales reflected a 1.2% increase
in units sold and a 0.8% increase in average selling prices. Development of new
fabric offerings accounted for the improvement. Concurrent with the improvement
in sales, internal production of greige fabrics for consumption within the
Company's apparel fabric operation was also increased, allowing better
utilization of greige fabric manufacturing capacity.
Yarn sales decreased 15.8% to $41.0 million for the thirteen weeks ended
November 26, 1999 from $48.7 million for the thirteen weeks ended November 27,
1998, reflecting a 9.0% decrease in pounds sold and a 7.4% decrease in average
selling prices. The decline in pounds sold was the result of the Company's
decision to significantly increase its consumption of internally produced yarn
within its fabric weaving operations, following the closing of two higher cost
yarn spinning operations. The combination of increased internal yarn consumption
and reduction in overall yarn spinning capacity resulted in significant
improvement in the utilization of the Company's remaining yarn manufacturing
capacity. Market pricing for sales yarns remained very competitive, reflecting
continued excess production capacity within the industry and continued imports
of yarn and knitted apparel from Asia.
COST OF GOODS SOLD. Cost of goods sold decreased 11.1% to $165.5
million for the thirteen weeks ended November 26, 1999 from $186.0 million for
the thirteen weeks ended November 27, 1998. Cost of goods sold as a percentage
of net sales decreased to 81.6% for the thirteen weeks ended November 26, 1999
from 83.2% for the thirteen weeks ended November 27, 1998. The improvement in
cost of goods sold reflected more favorable raw material costs, improved
capacity utilization and unit cost reductions achieved through plant management
programs and capital expenditure projects.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses decreased 8.4% to $9.9 million for the thirteen weeks ended November
26, 1999 from $10.8 million for the thirteen weeks ended November 27, 1998,
primarily reflecting continued efforts to reduce internal and external selling
expenses commensurate with the decline in the Company's sales. Selling and
administrative expenses as a percentage of net sales increased to 4.9% for the
thirteen weeks ended November 26, 1999 from 4.8% for the thirteen weeks ended
November 27, 1998.
7
<PAGE> 10
RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE, NET. Interest expense, net decreased 6.5% to $5.3
million for the thirteen weeks ended November 26, 1999 from $5.7 million for the
thirteen weeks ended November 27, 1998, reflecting the lower average balance of
borrowings outstanding in the current fiscal quarter.
DISCOUNT AND EXPENSES ON SALE OF RECEIVABLES. Discount and expenses on
sale of receivables were $1.3 million for the thirteen weeks ended November 26,
1999 compared to $1.7 million for the thirteen weeks ended November 27, 1998.
The decrease was primarily attributable to a net decrease in the amount of
accounts receivable sold under the securitization facility.
PROVISION FOR INCOME TAXES. Provision for income taxes increased to
$4.0 million for the thirteen weeks ended November 26, 1999 from $3.3 million
for the thirteen weeks ended November 27, 1998, reflecting the increase in
income before income taxes. The Company's effective income tax rate was 39.2%
for the thirteen weeks ended November 26, 1999 compared to 38.5% for the
thirteen weeks ended November 27, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $14.2 million
for the thirteen weeks ended November 26, 1999. Principal working capital
changes included a $6.1 million decrease in accounts receivable and an $11.0
million increase in inventories. Investing activities were predominantly
equipment purchases and plant improvements of $7.8 million made in connection
with the ongoing modernization of the Company's manufacturing facilities.
Financing activities included a $2.0 million net payment under the revolving
line of credit, payment of $1.3 million in dividends on outstanding common stock
and payment of $7.0 million due to the decrease in accounts receivable sold
under the securitization facility.
At November 26, 1999, the Company had borrowings of $84.3
million outstanding under its revolving line of credit and $115.7 million of
borrowing availability thereunder.
The Company's capital expenditures, aggregating $7.8 million
for the thirteen weeks ended November 26, 1999, were primarily used to fund the
modernization of a fabric finishing facility in South Carolina and other
equipment purchases. Management estimates that capital expenditures for the
balance of fiscal 2000 will be approximately $38.0 million, and that such
amounts will be used primarily to continue the improvement of fabric finishing
and to purchase yarn spinning equipment.
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.
8
<PAGE> 11
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>
13 WEEKS ENDED
----------------------
NOV. 27, NOV. 26,
1998 1999
------- -------
<S> <C> <C>
Net income $ 5,226 $ 6,239
Interest expense 5,654 5,287
Discount and expenses on sale of receivables 1,703 1,339
Provision for income taxes 3,275 4,020
Depreciation and amortization 10,704 10,579
Net change in allowance to reduce carrying
value of inventory to LIFO basis -- --
------- -------
EBITDA $26,562 $27,464
======= =======
</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.
9
<PAGE> 12
AVONDALE INCORPORATED
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders
on November 18, 1999.
(b) Eight directors were elected at the Annual Meeting
to serve until the Annual Meeting of Shareholders in
2000. The names of these Directors are as follows:
G. Stephen Felker
Jack R. Altherr, Jr.
Dale J. Boden
Robert B. Calhoun
Kenneth H. Callaway
Harry C. Howard
C. Linden Longino, Jr.
John P. Stevens
(c) The Company had outstanding shares of Class A Common
Stock and Class B Common Stock having an aggregate of
31,281,164 votes entitled to be cast at the Annual
Meeting. Of such aggregate outstanding votes, 208,577
votes were not present at the Annual Meeting in
person or by proxy. The remaining outstanding
31,072,587 votes were present at the Annual Meeting
in person or by proxy and voted unanimously for the 8
directors that were elected at the Annual Meeting.
There were no abstentions or broker non-votes and no
votes were withheld.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
1. On October 19, 1999, the Company filed a
current report on Form 8-K regarding its
press release announcing sales and earnings
for the fiscal year ended August 27, 1999.
10
<PAGE> 13
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: January 5, 2000
---------------
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AVONDALE, INC. FOR THE QUARTER
ENDED NOVEMBER 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-25-2000
<PERIOD-END> NOV-26-1999
<CASH> 4,882
<SECURITIES> 0
<RECEIVABLES> 50,858
<ALLOWANCES> 2,893
<INVENTORY> 117,607
<CURRENT-ASSETS> 174,250
<PP&E> 570,009
<DEPRECIATION> 316,684
<TOTAL-ASSETS> 447,286
<CURRENT-LIABILITIES> 82,311
<BONDS> 214,325
0
0
<COMMON> 127
<OTHER-SE> 110,027
<TOTAL-LIABILITY-AND-EQUITY> 447,286
<SALES> 202,873
<TOTAL-REVENUES> 202,873
<CGS> 165,469
<TOTAL-COSTS> 185,830
<OTHER-EXPENSES> 1,497
<LOSS-PROVISION> 389
<INTEREST-EXPENSE> 5,287
<INCOME-PRETAX> 10,259
<INCOME-TAX> 4,020
<INCOME-CONTINUING> 6,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,239
<EPS-BASIC> .49
<EPS-DILUTED> .48
</TABLE>
