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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 NOVEMBER 24, 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.
Description As Of Shares Outstanding
-------------------- --------------- ------------------
Class A Common Stock January 2, 2001 11,566,337 Shares
Class B Common Stock January 2, 2001 978,939 Shares
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<PAGE> 2
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at August 25, 2000 and November 24, 2000........ 1
Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
November 26, 1999 and November 24, 2000............................................... 2
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
November 26, 1999 and November 24, 2000............................................... 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. 25, NOV. 24,
2000 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 7,867 $ 7,170
Accounts receivable, less allowance for doubtful accounts
of $2,989 in fiscal 2000 and $3,190 in fiscal 2001 54,531 44,582
Inventories 105,965 125,251
Prepaid expenses 2,100 2,522
--------- ---------
Total current assets 170,463 179,525
Property, plant and equipment
Land 8,400 8,400
Buildings 85,907 87,374
Machinery and equipment 494,590 504,597
--------- ---------
588,897 600,371
Less accumulated depreciation (346,006) (355,564)
--------- ---------
242,891 244,807
Other assets 25,354 23,821
--------- ---------
$ 438,708 $ 448,153
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 32,358 $ 30,851
Accrued compensation, benefits and related expenses 23,277 19,117
Other accrued expenses 20,618 17,771
Long-term debt due in one year 2,500 2,500
Income taxes payable 2,375 5,203
--------- ---------
Total current liabilities 81,128 75,442
Long-term debt 185,175 195,800
Deferred income taxes and other long-term liabilities 41,900 42,554
Shareholders' equity
Preferred stock
$.01 par value; 10,000 shares authorized -- --
Common stock
Class A, $.01 par value; 100,000 shares
authorized, 11,566 issued and outstanding 115 115
Class B, $.01 par value; 5,000 shares
authorized, 979 issued and outstanding 10 10
Capital in excess of par value 39,696 39,715
Accumulated other comprehensive income -- 302
Retained earnings 90,684 94,215
--------- ---------
Total shareholders' equity 130,505 134,357
--------- ---------
$ 438,708 $ 448,153
========= =========
</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. 26, NOV. 24,
1999 2000
--------- ---------
<S> <C> <C>
Net sales $ 205,338 $ 200,537
Operating costs and expenses
Cost of goods sold 167,934 165,680
Depreciation 10,437 10,843
Selling and administrative expenses 9,924 9,757
--------- ---------
Operating income 17,043 14,257
Interest expense 5,287 4,989
Discount and expenses on sale of receivables 1,339 1,533
Other expense, net 158 162
--------- ---------
Income before income taxes 10,259 7,573
Provision for income taxes 4,020 2,770
--------- ---------
Net income $ 6,239 $ 4,803
========= =========
Per share data:
Net income-basic $ .49 $ .38
========= =========
Net income-diluted $ .48 $ .38
========= =========
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. 26, NOV. 24,
1999 2000
-------- --------
<S> <C> <C>
Operating activities
Net income $ 6,239 $ 4,803
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 10,579 11,029
Provision for (benefit of) deferred income taxes (868) 376
Gain on sale of equipment (1) --
Changes in operating assets and liabilities (1,701) (11,512)
-------- --------
Net cash provided by operating activities 14,248 4,696
Investing activities
Purchases of property, plant and equipment (7,782) (12,776)
Proceeds from sale of property, plant and equipment 1 10
-------- --------
Net cash used in investing activities (7,781) (12,766)
Financing activities
Net borrowings (payments) on revolving line of credit (1,950) 10,625
Sale of accounts receivable, net (7,000) (2,000)
Issuance of common stock 88 20
Dividends paid (1,268) (1,272)
-------- --------
Net cash used in financing activities (10,130) 7,373
-------- --------
Decrease in cash (3,663) (697)
Cash at beginning of period 8,545 7,867
-------- --------
Cash at end of period $ 4,882 $ 7,170
======== ========
</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 24, 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. Certain prior year financial statement amounts have been
reclassified to conform with the current year's presentation. The August 25,
2000 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 25, 2000 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 24, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 31, 2001.
2. Inventories: Components of inventories are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
AUG. 25, NOV. 24,
2000 2000
-------- --------
<S> <C> <C>
Finished goods $ 34,179 $ 49,122
Work in process 39,462 41,371
Raw materials 15,088 18,454
Dyes and chemicals 5,872 5,864
-------- --------
Inventories at FIFO 94,601 114,811
Premium to adjust carrying value to
LIFO basis 4,700 3,900
-------- --------
99,301 118,711
Supplies at average cost 6,664 6,540
-------- --------
$105,965 $125,251
======== ========
</TABLE>
4
<PAGE> 7
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOVEMBER 24, 2000
Valuation of the Company's inventories under the last-in, first-out
(LIFO) method at November 24, 2000 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 2001 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. 26, NOV. 24,
1999 2000
-------- --------
<S> <C> <C>
Weighted average shares outstanding - basic 12,679 12,545
Effect of employee stock options 189 176
------ ------
Weighted average shares outstanding - diluted 12,868 12,721
====== ======
</TABLE>
4. Segment Information: Condensed segment information is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------
NOV. 26, NOV. 24,
1999 2000
--------- ---------
<S> <C> <C>
Revenues:
Apparel fabrics $ 148,140 $ 153,169
Yarns 52,061 44,671
Other 24,442 24,968
--------- ---------
224,643 222,808
Less intersegment sales 19,305 22,271
--------- ---------
Total $ 205,338 $ 200,537
========= =========
Income (loss):
Apparel fabrics $ 21,982 $ 21,870
Yarns 2,014 (278)
Other 2,210 1,819
Unallocated (9,163) (9,154)
--------- ---------
Total operating income 17,043 14,257
Interest expense 5,287 4,989
Discount and expenses on sale of
receivables 1,339 1,533
Other expense, net 158 162
--------- ---------
Income before income taxes $ 10,259 $ 7,573
========= =========
</TABLE>
5
<PAGE> 8
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOVEMBER 24, 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 25, 2000. 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. Comprehensive income: Comprehensive income includes unrealized
gains and losses in the fair value of certain derivative instruments which
qualify for hedge accounting. A reconciliation of net income to comprehensive
income is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------
NOV. 26, NOV. 24,
1999 2000
-------- --------
<S> <C> <C>
Net income $6, 239 $ 4,803
Change in fair value of interest rate
swaps, net of income taxes -- (125)
------- -------
Comprehensive income $ 6,239 $ 4,678
======= =======
</TABLE>
7. Derivatives: The Company has adopted Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, which requires that derivative instruments be
recorded in the balance sheet as either assets or liabilities measured at fair
value, and that changes in the fair value of the derivative instruments be
recorded as unrealized gains or losses in either net income or other
comprehensive income depending on whether specific hedge accounting criteria are
met.
At November 24, 2000, the Company had interest rate swap agreements
with notional amounts aggregating $60 million. The agreements, which have been
classified as cash flow hedges, effectively convert a portion of the Company's
outstanding revolving credit facility and industrial revenue bonds to a fixed
rate basis, thus reducing the impact of interest rate changes on future income.
The differential between floating rate receipts and fixed rate payments is
accrued as market rates fluctuate and recognized as an adjustment to interest
expense.
Upon adoption of Statement No. 133, the Company recorded the fair value
of the interest rate swap agreements, $427,000 net of income taxes, in other
assets and accumulated other comprehensive income at the beginning of fiscal
2001. For the thirteen weeks ended November 24, 2000, a $125,000 decline in fair
value was recorded as an unrealized loss in other comprehensive income, reducing
accumulated other comprehensive income to $302,000 at November 24, 2000.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended November 24, 2000 Compared to Thirteen Weeks Ended November
26, 1999
NET SALES. Net sales decreased 2.3% to $200.5 million for the thirteen
weeks ended November 24, 2000 from $205.3 million for the thirteen weeks ended
November 26, 1999, as lower yarn sales were partially offset by improved denim
sales. Selling prices for all products remained highly competitive as global
supply of textile and apparel products continued to exceed demand. The Company
expects adverse pricing conditions to continue into the second quarter of fiscal
2001.
OPERATING INCOME. Operating income decreased 16.3% to $14.3 million for
the thirteen weeks ended November 24, 2000 from $17.0 million for the thirteen
weeks ended November 26, 1999, reflecting lower selling prices and higher energy
costs. In response to the intensely competitive market conditions, the Company
continued its increased consumption of internally produced yarns and greige
fabrics in the production of finished apparel fabrics, improving capacity
utilization and sales rationalization. In addition, the Company responded to the
strengthening demand for denim by shifting weaving production from greige
fabrics to denim. Cost of goods sold decreased 1.3% to $165.7 million for the
thirteen weeks ended November 24, 2000 from $167.9 million for the thirteen
weeks ended November 26, 1999. Cost of goods sold as a percentage of net sales
increased to 82.6% for the thirteen weeks ended November 24, 2000 from 81.8% for
the thirteen weeks ended November 26, 1999.
Selling and administrative expenses decreased 1.7% to $9.8 million for
the thirteen weeks ended November 24, 2000 from $9.9 million for the thirteen
weeks ended November 26, 1999, primarily reflecting reduced accrual of certain
associate benefits and performance based incentives corresponding to the decline
in operating income for the period. Selling and administrative expenses as a
percentage of net sales increased to 4.9% for the thirteen weeks ended November
24, 2000 from 4.8% for the thirteen weeks ended November 26, 1999.
SEGMENT PERFORMANCE. Apparel fabrics sales increased 3.4% to $153.2
million for the thirteen weeks ended November 24, 2000 from $148.1 million for
the thirteen weeks ended November 26, 1999. The increase in sales reflected a
4.1% increase in yards sold as demand for denim and bottomweight fabrics
strengthened. Average selling prices declined 0.7%. Operating income for apparel
fabrics decreased 0.5% to $21.9 million for the thirteen weeks ended November
24, 2000 from $22.0 million for the thirteen weeks ended November 26, 1999,
primarily due to the lower selling prices and higher energy costs.
Yarns sales decreased 14.2% to $44.7 million for the thirteen weeks
ended November 24, 2000 from $52.1 million for the thirteen weeks ended November
26, 1999, reflecting a 4.8% decrease in pounds sold and a 9.9% decrease in
average selling prices. Market pricing for sales yarns, especially open end
yarns, remained very competitive, reflecting continued excess production
capacity within the domestic industry and continued imports of yarns and knitted
apparel from Asia. An operating loss of $0.3 million was incurred for the
thirteen weeks ended November 24, 2000 compared to an operating income of $2.0
million for the thirteen weeks ended November 26, 1999. Operating income
declined as a result of the decrease in average selling price.
Other sales, which includes sales of greige and specialty fabrics and
revenues from the Company's trucking operation, increased 2.2% to $25.0 million
for the thirteen weeks ended November 24, 2000 from $24.4 million for the
thirteen weeks ended November 26, 1999. Operating income decreased 17.7% to $1.8
million for the thirteen weeks ended November 24, 2000 from $2.2 million for the
thirteen weeks ended November 26, 1999, reflecting the decline in selling prices
of greige and specialty fabrics and higher energy costs.
Intersegment sales increased 15.4% percent to $22.3 million for the
thirteen weeks ended November 24, 2000 from $19.3 million for the thirteen weeks
ended November 26, 1999, primarily reflecting the significant increase in
consumption of internally produced yarns within the Company's apparel fabrics
operation.
7
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INTEREST EXPENSE, NET. Interest expense, net decreased 5.6% to $5.0
million for the thirteen weeks ended November 24, 2000 from $5.3 million for the
thirteen weeks ended November 26, 1999, 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 $1.5 million for the thirteen weeks ended November 24,
2000 compared to $1.3 million for the thirteen weeks ended November 26, 1999.
The increase was primarily attributable to higher market interest rates and the
corresponding increase in discounts on the sale of accounts receivable under the
securitization facility.
PROVISION FOR INCOME TAXES. Provision for income taxes decreased to
$2.8 million for the thirteen weeks ended November 24, 2000 from $4.0 million
for the thirteen weeks ended November 26, 1999, reflecting the decline in income
before income taxes. The Company's effective income tax rate was 36.6% for the
thirteen weeks ended November 24, 2000 compared to 39.2% for the thirteen weeks
ended November 26, 1999, primarily due to state incentive program credits
relating to the Company's investments in its manufacturing facilities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.7 million for the
thirteen weeks ended November 24, 2000. Principal working capital changes
included an $11.9 million decrease in accounts receivable and a $19.3 million
increase in inventories. Investing activities were predominantly equipment
purchases and plant improvements of $12.8 million made in connection with the
ongoing modernization of the Company's manufacturing facilities. Financing
activities included a $10.6 million net increase in borrowings under the
revolving credit facility, payment of $1.3 million in dividends on outstanding
common stock and payment of $2.0 million due to the decrease in accounts
receivable sold under the securitization facility.
At November 24, 2000, the Company had borrowings of $60.8 million
outstanding under its revolving line of credit and $56.4 million of borrowing
availability thereunder.
The Company's capital expenditures, aggregating $12.8 million for the
thirteen weeks ended November 24, 2000, were primarily used to fund the
modernization of a fabric finishing facility in South Carolina, the purchase and
installation of new air jet weaving equipment and "linked" ring spinning
equipment at various plant locations, and other equipment purchases. Management
estimates that capital expenditures for the balance of fiscal 2001 will be
approximately $70.0 million.
Management believes that cash generated from operations, together with
borrowings available under its revolving 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.
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. 26, NOV. 24,
1999 2000
-------- --------
<S> <C> <C>
Net income $ 6,239 $ 4,803
Interest expense 5,287 4,989
Discount and expenses on sale of receivables 1,339 1,533
Provision for income taxes 4,020 2,770
Depreciation and amortization 10,579 11,029
Net change in allowance to adjust carrying
value of inventory to LIFO basis -- 800
------- -------
EBITDA $27,464 $25,924
======= =======
</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 25, 2000.
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 16, 2000.
(b) Nine directors were elected at the Annual Meeting to serve
until the Annual Meeting of Shareholders in 2001. 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.
James A. Rubright
John P. Stevens
(c) The Company had outstanding shares of Class A Common Stock and
Class B Common Stock having an aggregate of 31,145,117 votes
entitled to be cast at the Annual Meeting. Of such aggregate
outstanding votes, 89,003 votes were not present at the Annual
Meeting in person or by proxy. The remaining outstanding
31,056,114 votes were present at the Annual Meeting in person
or by proxy. Of the votes present, 31,055,614 voted for and
500 voted against the 9 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
None
(b) Reports on Form 8-K
1. On October 11, 2000, the Company filed a current
report on Form 8-K regarding its press release
announcing sales and earnings for the fiscal year
ended August 25, 2000.
10
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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 4, 2001
11
