FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ X ]Quarterly Report Pursuant to Section 12 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________________
to________________________
For Quarter Ended September 30, 1994
Commission File Number 0-16572
AVONDALE INDUSTRIES, INC.
Louisiana 39-1097012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 50280, New Orleans, Louisiana 70150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 504/436-2121
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 file 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.
Outstanding
Class at September 30, 1994
Common stock, par value $1.00 per share 14,464,175 shares
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Independent Accountants' Report
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993
Consolidated Statements of Operations -
Quarters and Nine Months Ended September 30, 1994 and 1993
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II.Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Avondale Industries, Inc.
We have reviewed the condensed consolidated financial statements of
Avondale Industries, Inc. and subsidiaries, as listed in the
accompanying index, as of September 30, 1994 and for the three-month
and nine-month periods ended September 30, 1994 and 1993. These
financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to such condensed consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Avondale
Industries, Inc. and subsidiaries as of December 31, 1993, and the
related consolidated statements of operations, shareholders' equity,
and cash flows for the year then ended (not presented herein); and in
our report dated March 22, 1994, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1993 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
November 8, 1994
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
September 30, December 31,
1994 1993
ASSETS
Current Assets:
Cash and cash equivalents.... $ 19,583 $ 3,195
Restricted short-term investments 1,498
Receivables (Note 2):
Accounts receivable........ 25,713 103,020
Contracts in progress...... 45,017 27,032
Inventories:
Goods held for sale........ 7,473 4,604
Materials and supplies..... 7,559 9,005
Prepaid expenses............. 5,488 4,741
--------- ---------
Total current assets....... 112,331 151,597
--------- ---------
Property, Plant and Equipment:
Land......................... 9,324 9,324
Buildings and improvements... 45,471 46,162
Machinery and equipment...... 174,712 173,456
--------- ---------
Total...................... 229,507 228,942
Less accumulated depreciation (110,656) (103,400)
--------- ---------
Property, plant and equipment - net 118,851 125,542
--------- ---------
Goodwill - net (Note 4)........ 29,875 17,892
Other assets................... 3,829 7,108
--------- ---------
Total assets............... $ 264,886 $ 302,139
========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
September 30, December 31,
1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable (Note 4)....... $ 5,000 $ 38,303
Current portion of long-term debt 866 6,568
Accounts payable............. 50,367 56,797
Accrued employee compensation 14,294 12,352
Other........................ 12,760 13,012
--------- ---------
Total current liabilities.. 83,287 127,032
Notes payable (Note 4)......... 3,000 107
Long-term debt (Note 3)........ 42,875 43,741
Other liabilities and deferred credits 15,210 16,904
--------- ---------
Total liabilities............ 144,372 187,784
--------- ---------
Commitments and contingencies (Note 4)
Shareholders' Equity:
Common stock, $1,00 par value, authorized
30,000,000 shares; issued - 15,927,191 shares
in 1994 and 1993............. 15,927 15,927
Additional paid-in capital... 373,911 373,911
Accumulated deficit.......... (257,468) (263,627)
--------- ---------
Total...................... 132,370 126,211
Treasury stock (common: 1,463,016 shares in 1994
and 1993) at cost.......... ( 11,856) ( 11,856)
--------- ---------
Total liabilities and shareholders'
equity 120,514 114,355
--------- ---------
Total........................ $ 264,886 $ 302,139
========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
Quarter Ended Nine Months
September 30, Ended September 30,
1994 1993 1994 1993
Continuing Operations:
Net sales............ $ 125,487 $ 98,984 $ 345,253 $ 353,387
Cost of sales........ 110,544 90,488 309,521 324,212
-------- -------- -------- --------
Gross profit......... 14,943 8,496 35,732 29,175
Selling, general and
administrative expenses 7,766 5,906 22,376 20,858
-------- -------- -------- --------
Income from operations 7,177 2,590 13,356 8,317
Interest expense..... ( 1,083) ( 2,027) ( 3,240) ( 6,756)
Other - net.......... 229 35 595 102
-------- -------- -------- --------
Income from continuing
operations before
income taxes 6,323 598 10,711 1,663
Income taxes (Note 5) -- -- -- --
-------- -------- -------- --------
Income from continuing
operations......... 6,323 598 10,711 1,663
Discontinued Operations (Note 6):
(Loss) from discontinued
operations......... (1,629) ( 179) (1,909) ( 497)
(Loss) on disposal of
discontinued operations (2,643) --- (2,643) ----
-------- -------- -------- --------
(Loss) from discontinued
operations......... (4,272) ( 179) (4,552) ( 497)
-------- -------- -------- --------
Net income............. $ 2,051 $ 419 $ 6,159 $ 1,166
======== ======== ======== ========
Income (Loss) per Share of
Common Stock (Note 7):
Continuing operations $ 0.44 $ 0.04 $ 0.74 $ 0.11
Discontinued operations ( 0.30) ( 0.01) ( 0.31) ( 0.03)
-------- -------- -------- --------
Net income per share of
common stock ...... $ 0.14 $ 0.03 $ 0.43 $ 0.08
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In thousands)
(UNAUDITED)
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................... $ 6,159 $ 1,166
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 8,734 8,688
Changes in operating assets and liabilities,
net of dispositions:
Receivables.............. 59,322 4,344
Inventories.............. ( 1,423) 1,179
Prepaid expenses......... ( 747) 741
Accounts payable......... ( 6,430) (7,230)
Accrued employee compensation 1,942 1,499
Other - net.............. 2,594 (1,592)
-------- --------
Net Cash Provided By Operating Activities 70,151 8,795
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......... ( 2,287) ( 844)
Proceeds from sale of assets. 7,591
Purchase of restricted short-term
investments (14,196)
Proceeds from sale of restricted
short-term investments 12,698
Payment to former corporate parent ( 5,000)
-------- --------
Net Cash Provided By (Used For)
Investing Activities........ ( 8,785) 6,747
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings (81,228) (21,255)
Proceeds from long-term borrowings 36,250
-------- --------
Net Cash (Used For) Financing Activities (44,978) (21,255)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............. 16,388 ( 5,713)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD....... 3,195 7,613
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD............. $ 19,583 $ 1,900
======== ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,810 $ 5,288
======== ========
Note issued to former corporate parent $ 8,000
========
See Notes to Consolidated Financial Statements.
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include the accounts of Avondale Industries, Inc. and its
subsidiaries ("Avondale" or the "Company"). In the opinion of
management of the Company, all adjustments (such adjustments
consisting only of a normal recurring nature) necessary for a
fair presentation of the operating results for the interim
periods presented have been included in the interim financial
statements. These interim financial statements should be read in
conjunction with the December 31, 1993 audited financial
statements and related notes filed on Form 10-K for the year
ended December 31, 1993 (the "1993 Form 10-K").
The financial statements required by Rule 10-01 of Regulation S-X
have been reviewed by independent public accountants as stated in
their report included herein.
2. RECEIVABLES
The following information presents the elements of receivables at
September 30, 1994 and December 31, 1993 (in thousands):
1994 1993
Long-term contracts:
U.S. Government:
Amounts billed.............. $16,302 $ 90,867
Unbilled costs and estimated
profits on contracts in
progress................. 38,943 16,813
------- --------
Total....................... 55,245 107,680
Commercial:
Amounts billed.............. 5,406 8,820
Unbilled costs and estimated
profits on contracts in
progress................. 6,074 10,219
------- --------
Total from long-term contracts 66,725 126,719
Trade and other current receivables 4,005 3,333
------- --------
Total............................. $70,730 $130,052
======= ========
Unbilled costs and estimated profits on contracts in progress
were not billable to customers at the balance sheet dates under
terms of the respective contracts. As discussed in Note 2 of the
Company's 1993 Annual Report on Form 10-K for the year ended
December 31, 1993, as a result of the Company's settlement with
the U.S. Navy of its Requests for Equitable Adjustments ("REAs")
<PAGE>
in December 1993, the Company invoiced approximately $90 million
of the settlement amount at the end of 1993, all of which was
received by the Company by April 18, 1994.
Included in the net value of contracts in progress at September
30, 1994 is an amount, subject to future negotiations, totalling
$16 million related to U.S. Navy contracts to construct four MHC-
51 Class Minehunters which are presently scheduled for delivery
in 1995 and 1996. During the third quarter of 1994, the Company
realized that it would be necessary to increase its estimated
costs to complete these contracts. The Company believes the
additional costs resulted from defective ship specifications that
proved impossible to perform at the original cost estimate
developed by the Company and, accordingly, intends to file in the
near future a Request for Equitable Adjustment ("Minehunter REA")
with the U.S. Navy seeking substantial increases in the contract
prices. The Company, in consultation with outside counsel, has
reviewed the Minehunter REA to determine a minimum estimate of
its probable recoverable amount. The Company has received an
opinion of outside counsel that such contracts provide a legal
basis for the Minehunter REA and the evidence supporting the
Minehunter REA is objective and verifiable. Based on the
Company's review in consultation with outside counsel and
supported by the view of outside counsel that they have no reason
to believe that the use of $16 million in quantifying the minimum
probable amount of recovery is unreasonable, management has
concluded that it is appropriate to offset the loss that it would
have otherwise had to recognize with respect to the MHC program
by such amount. In addition, the effects of the cost increase
have been partially offset by certain contractual cost-sharing
and cost-escalation provisions which obligate the U.S. Navy to
bear a portion of the additional costs. To the extent that any
portion of the $16 million recognized is not recovered, then
additional losses will have to be recorded.
3. FINANCING ARRANGEMENTS
On May 10, 1994, the Company established with a bank group a $35
million revolving credit facility secured principally by the
Company's working capital assets and its 900 foot floating
drydock. The new credit facility replaces a similar previous
existing facility and provides the Company with the right to
require the bank group to post letters of credit on the Company's
behalf up to an aggregate limit of $25 million (of the $35
million credit line limit) in support of its operations. At
September 30, 1994 approximately $22 million of letters of credit
were outstanding under the new credit facility. The new credit
facility contains certain terms and covenants similar to the
previous facility which provide for, among other things, (1)
requirements to meet certain financial covenants (relating to net
worth, debt, interest coverage and backlog), (2) limitations
related to annual capital expenditures, the incurrence of new
indebtedness and the payment of dividends and (3) compliance with
all terms and conditions of all other debt agreements.
<PAGE>
In addition, on June 1, 1994, the Company completed the issuance
of $36.25 million of Series 1994 Refunding Bonds resulting in the
refinancing and redemption of the $36.25 million Series 1983
Industrial Revenue Bonds ("IRBs"). The Series 1994 Refunding
Bonds call for principal amortization to begin on June 1, 1997
and continue thereafter until final payment in 2014. The
Refunding Bonds are comprised of $6 million at the tax-exempt
rate of 8.25% maturing in 2004 and $30.25 million at the tax-
exempt rate of 8.50% maturing in 2014. The Refunding Bonds are
secured by the Company's 650 foot floating drydock and a debt
reserve fund. Certain terms and covenants provide that, among
other things, the Company meet certain financial covenants
relating to (1) net worth, (2) debt and debt coverage ratios, (3)
payment of dividends and (4) maintenance of a minimum level of
lines of credit and cash.
As further discussed in Note 4 herein the Company issued to its
former corporate parent an $8 million unsecured note, due in $5
million and $3 million installments in 1995 and 1996,
respectively, with an annual interest rate of 10%.
4. COMMITMENTS AND CONTINGENCIES
Litigation
In January 1986, the Louisiana Department of Environmental
Quality advised the Company that it may be a responsible party
with respect to an oil reclamation site operated by an
unaffiliated company. The Company supplied a substantial portion
of the waste oil that was processed at the reclamation site
during the period 1978 through 1982. Potential liability, if
any, for clean-up of this site typically would be apportioned
among the responsible parties based on the volume of material
sent by each to the waste site. The Company and certain of the
other potentially responsible parties ("PRP") for the site have
entered into a preliminary agreement to fund the site's
remediation. Pursuant to that agreement the Company agreed to
contribute $3.5 million as its estimated share of the total
clean-up costs, which obligation it had fully funded by June 30,
1994. Following completion of the remediation, a final
determination will be made as to the proper allocation of the
remediation responsibility among the various parties. The
Company's share of the clean-up costs could be lower, or higher,
than the $3.5 million that it has contributed, but the Company
does not expect its remediation costs to vary materially from
this amount. Additionally, since July 1986, a number of toxic
tort lawsuits have been filed seeking substantial damages against
the Company and numerous other defendants alleging various claims
in connection with this oil reclamation site.
<PAGE>
The Company initiated litigation against its insurer for a
declaration of coverage of the liability, if any, that may arise
in connection with the remediation of the site referred to in the
preceding paragraph or the related tort litigation. The court
has ruled that the insurer has the duty to defend the Company,
but has not yet ruled on whether the carrier has a duty to
indemnify the Company if any liability is ultimately assessed
against it.
In addition to the above, on October 26, 1994 the Company was
notified by the U.S. Environmental Protection Agency ("EPA") that
it may be a PRP with respect to an oil reclamation site in Pike
County, Mississippi operated by a third party not affiliated with
the Company. The EPA notice indicates that the Company, along
with over fifty other PRPs named in the notice, may have supplied
a portion of the waste oil processed at the site. The notice
further indicated that the EPA had incurred remediation costs of
approximately $300,000 with respect to the site. As noted above,
potential liability, if any, for the clean-up of this site would
typically be apportioned among the PRPs based on the volume of
material sent by each to the waste site. The Company is in the
process of complying with the EPA's information request and at
this time cannot estimate liability, if any, that may ultimately
be assessed against it.
The Company is also named as a defendant in numerous other
lawsuits and proceedings arising in the ordinary course of
business, some of which involve substantial damage claims. While
the outcome of these lawsuits and proceedings against the Company
cannot be predicted with certainty, management does not expect
these matters to have a material adverse effect on the financial
condition or results of operations of the Company.
The Company has established accruals for certain of the
litigation discussed above, and in the opinion of management,
after review with counsel, the eventual disposition of these
matters will not have a material adverse effect on its financial
condition or results of operations.
Ogden
The Company and its former corporate parent, Ogden Corporation
("Ogden"), have terminated certain arrangements between the two
companies which related to Ogden's sale of the Avondale Common
Stock to Avondale's Employee Stock Ownership Plan ("the Spin-
off") in 1985. Prior to their termination, these arrangements
could have required the Company to reimburse Ogden for certain
1985 and prior years' tax liabilities or to issue preferred stock
or debentures to Ogden in the amount of its reimbursement
obligation. The 1985 agreements also required Ogden to continue
to guarantee the Series 1983 IRBs as well as guarantee certain
other Avondale obligations. The previous arrangements terminated
(i) upon the payment by the Company to Ogden of $5 million of
cash on June 1, 1994, (ii) the Company's delivery to Ogden of a
two-year unsecured note in the principal amount of $8 million
<PAGE>
bearing interest at 10% per annum and payable in $5 million and
$3 million installments in 1995 and 1996, respectively, (iii) the
refunding on June 1, 1994 of the $36.25 million Refunding Bonds
(without an Ogden guarantee) to replace an IRB issuance that
Ogden had guaranteed, and (iv) the Company's securing of Ogden's
release from its other guarantees of the Company's obligations.
The $13 million settlement with Ogden noted above was accounted
for as an adjustment to the purchase price incurred in connection
with the Spin-off from Ogden and resulted in a concurrent
increase to the Company's goodwill.
Letters of Credit
In the normal course of its business activities, the Company is
required to provide letters of credit to secure the payment of
workers' compensation and insurance obligations. Additionally,
under certain contracts the Company may be required to provide
letters of credit which may be drawn down in the event of the
Company's failure to perform under the contracts. Outstanding
letters of credit relating to these business activities amounted
to approximately $22 million and approximately $13 million at
September 30, 1994 and December 31, 1993, respectively.
Plant Modernization Program
The Company intends to upgrade, modernize and expand its plant
and equipment and estimates that the costs of the plant
modernization and expansion will approximate $17.5 million. The
plant upgrade and modernization effort is expected to be
completed by the third quarter of 1995.
5. INCOME TAXES
No provision for income taxes is reflected in the accompanying
financial statements due to the availability of net operating
loss carryforwards, the benefits of which have not been fully
recognized in the Company's financial statements (see Note 8 of
the Company's Annual Report on the 1993 Form 10-K).
6. DISCONTINUED OPERATIONS
During the third quarter of 1994 the Company decided to
discontinue its operation of a service contracting subsidiary,
Avondale Technical Services, Inc. ("ATS"), formed in 1990 to
pursue large-scale service contracts with government and
commercial operations. The Company concluded that ATS was not a
profitable venture and that the related managerial and financial
resources could be more productively invested in the Company's
<PAGE>
core marine construction operations. The Company expects ATS to
complete its current contracts in the first quarter of 1995. As
a result, the operating results of ATS for the current and prior-
year periods are reported as discontinued operations. Summarized
results of ATS are as follows:
Quarter Ended Nine Months
September 30, Ended September 30,
1994 1993 1994 1993
Net sales..... $ 2,915 $ 3,926 $ 10,497 $ 11,329
Costs and expenses 4,544 4,105 12,406 11,826
------- ------- -------- --------
Loss before income
taxes....... (1,629) ( 179) (1,909) ( 497)
Income taxes.. --- --- --- ---
------- ------- -------- --------
Loss from discontinued
operations.. (1,629) ( 179) (1,909) ( 497)
Loss on disposal of
discontinued
operations.. (2,643) --- (2,643) ---
------- ------- -------- --------
Loss from discontinued
operations.. $(4,272) $( 179) $( 4,552) $( 497)
======= ======= ======== ========
7. INCOME (LOSS) PER SHARE
The weighted average number of shares used in the computation of
income (loss) per share was 14,468,000 and 14,464,000 for the
quarters ended September 30, 1994 and 1993, respectively, and
14,476,000 and 14,464,000 for the nine months ended September 30,
1994 and 1993, respectively. There are no factors that result in
dilution in the periods presented.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the
Company's unaudited consolidated financial statements for the
periods ended September 30, 1994 and 1993 and Management's
Discussion and Analysis of Financial Condition and Results of
Operations included under Item 7 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 (the "1993
Form 10-K").
Overview
For the quarter and nine months ended September 30, 1994 the
Company improved its results of continuing operations and
financial position as compared to the same periods in the prior
year. Income from continuing operations increased over the
same periods in the prior year due primarily to net gains on
several previously-completed shipbuilding contracts and a
reduction in interest expense. As discussed below,
discontinued operations represent the operating results of the
Company's service contract subsidiary, Avondale Technical
Services, Inc.
The Company successfully completed two financing initiatives in
1994 that strengthened the Company's liquidity position. On
May 10, 1994 the Company established a $35 million revolving
credit facility with a bank group. In addition, on June 1,
1994 the Company refunded its $36.25 million of Series 1983
Industrial Revenue Bonds ("IRBs") through the issuance of
$36.25 million of Series 1994 Refunding Bonds which are due in
2004 and in 2014.
In addition to the foregoing measures, the Company eliminated
certain significant contingencies when it terminated certain
arrangements between the Company and Ogden Corporation
("Ogden", its former corporate parent) which, among other
things, would have required the Company to reimburse Ogden for
certain 1985 and prior years' tax liabilities. This settlement
is further discussed below and in Note 4 of the notes to the
consolidated financial statements herein.
Included in the Company's $1.5 billion backlog (excluding
options) at September 30, 1994 is work to be performed on four
1994 contract awards, the most significant of which occurred in
September 1994 when the U.S. Navy awarded the Company a $420
million contract to construct two additional Strategic Sealift
ships. These represent the second and third ships which the
Company has now been awarded in the Sealift program. The
contract the Company was awarded in 1993 for the initial
Sealift ship contained options for five additional vessels.
The remaining options for the other three ships are exercisable
over the next three years. Other 1994 contract awards include
<PAGE>
a $27 million contract award for a third gaming vessel to be
delivered in mid-1995 and two contracts totaling $25.7 million
for the drydock and repair of four Fast Sealift Ships. These
two drydock and repair contracts are scheduled for completion
in the fourth quarter of 1994 and the first quarter of 1995.
Additionally, Avondale and four other shipyards received
contracts for the preliminary design study on the U.S. Navy's
LPD 17 ship. The $480,000 fixed-price contract is expected to
last approximately one year. The LPD 17 construction program
is anticipated to be a multi-ship project with the first
construction contract award forecasted for a 1996 - 1998
timeframe. The U.S. Navy may order up to twelve LPD 17 ships
to partially replace over 30 amphibious vessels that are
scheduled for decommissioning.
The Company intends to file in the near future a Request for
Equitable Adjustment ("Minehunter REA") with the U.S. Navy
seeking substantial increases in the contract prices for four
MHC-51 Class Minehunters ("MHC") currently being built by the
Company. The MHC-51 Class Minehunter is a sophisticated vessel
which is designed primarily to clear harbor and coastal waters
of acoustic, magnetic and pressure/contact mines. It is
constructed using a specially designed glass reinforced plastic
("GRP"). The GRP technology was originally developed by a
foreign shipyard who is engaged in the construction of other
MHC ships for the U.S. Navy and which was required to license
the necessary technology and know-how for the design and
construction of the vessels to the Company. The additional
costs addressed by the Minehunter REA resulted from defective
ship specifications provided to the Company that proved
impossible to perform at the original cost estimate developed
by the Company. In connection with developing the Minehunter
REA, the Company realized during the third quarter of 1994 that
it would be necessary to increase its cost to complete
estimates for the MHC vessels. Prior to the third quarter of
1994, the Company's work on the MHC program was performed on a
break-even basis following the Company's recording of a reserve
for contract losses that was recorded as part of the overall
resolution of the Company's Request for Equitable Adjustments
("REAs") submitted during 1992 that were settled in December
1993. The Company, in consultation with outside counsel, has
reviewed the Minehunter REA to determine a minimum estimate of
its probable recoverable amount. The Company has received an
opinion of outside counsel that such contracts provide a legal
basis for the Minehunter REA and the evidence supporting the
Minehunter REA is objective and verifiable. Based on the
Company's review in consultation with outside counsel and
supported by the view of outside counsel that they have no
reason to believe that the use of $16 million in quantifying
the minimum probable amount of recovery is unreasonable,
management has concluded that it is appropriate to offset the
loss that it would have otherwise had to recognize with respect
to the MHC program by such amount. In addition, the effects of
the cost increase have been partially offset also by certain
contractual cost sharing and cost escalation provisions which
<PAGE>
obligate the U.S. Navy to bear a portion of the additional
costs. To the extent that any portion of the $16 million
recognized is not recovered, then additional losses will have
to be recorded.
As discussed in Note 4 of the notes to the consolidated
financial statements herein, the Company has been informed that
it may be a potentially responsible party ("PRP") in connection
with two oil reclamation sites operated by unaffiliated
companies. With respect to one site, the Company, along with
other PRPs, has fully funded its share of the estimated total
clean-up costs under a preliminary agreement to fund the site's
remediation. Following complete remediation, a final
determination will be made as to the proper allocation of the
remediation responsibility among the various parties at which
time the Company's share of the clean-up costs could be lower
or higher than the funds it has already contributed. However,
the Company does not expect its remediation costs to vary
materially from the amount it has already contributed. Refer
to Note 4 of the notes to the consolidated financial statements
for additional discussion regarding this site.
With respect to the second oil reclamation site, as discussed
in Note 4 herein the Company was advised on October 26, 1994
that it may be a PRP as it may have supplied a portion of the
waste oil processed at this site. The Company is currently
complying with the information request contained in the notice
and at this time cannot estimate liability, if any, that may be
assessed ultimately against it in connection with this site.
While the outcome of these environmental matters cannot be
predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial
condition or results of operations of the Company.
Results of Operations
The Company recorded income from continuing operations of
approximately $6.3 million, or $0.44 per share, for the third
quarter ended September 30, 1994 compared to $598,000, or $0.04
per share, for the third quarter of 1993. For the first nine
months of 1994 the Company recorded income from continuing
operations of approximately $10.7 million, or $0.74 per share,
compared to $1.7 million, or $0.11 per share, in the prior
year. The improvement in the Company's 1994 third quarter and
year-to-date income from continuing operations principally
reflects a net gain of approximately $3.5 million related to
revisions of estimated contract profits on several previously-
completed shipbuilding contracts and a reduction in interest
expense. The decrease in interest expense is due primarily to
the Company's repayment in early 1994 of outstanding balances
on its previously outstanding revolving credit facilities and
senior notes. The repayment of these debt obligations was made
possible by the successful resolution and settlement of the
Company's Requests for Equitable Adjustments ("REAs") in
December 1993.
<PAGE>
In the third quarter of 1994 the Company decided to discontinue
its service contracting subsidiary, Avondale Technical
Services, Inc. ("ATS"), formed in 1990 to pursue large-scale
service contracts with government and commercial operations.
The Company concluded that ATS was not a profitable venture and
that the related managerial and financial resources could be
more productively invested in the Company's core marine
construction operations. The Company expects ATS to complete
its current contracts in the first quarter of 1995. As a
result, the operating results of ATS for the current and prior-
year periods are reported as discontinued operations. The
Company recorded a loss from discontinued operations of
approximately $4.3 million (including estimated costs related
to a contract termination), or $0.30 per share, and
approximately $4.6 million, or $0.31 per share, for the third
quarter and nine months ended September 30, 1994, respectively.
The Company has restated prior year results to record a loss
from discontinued operations of approximately $179,000, or
$0.01 per share, and approximately $497,000, or $0.03 per
share, for the quarter and nine months ended September 30,
1993, respectively.
Net sales from continuing operations for the third quarter of
1994 increased approximately $26.5 million, or 26.8%, as
compared to the prior year's quarter while net sales from
continuing operations for the nine months ended September 30,
1994 decreased approximately $8.1 million, or 2.3%, from the
same period in 1993 .
The decrease in year-to-date net sales is due primarily to a
reduction in sales revenues recognized on the contracts to
construct three Landing Ship Dock-Cargo Variant (LSD-CV)
vessels and four MHC-51 Class Coastal Minehunters ("MHCs") as
these contracts approach completion. Additionally, the Company
recorded reduced sales revenues in 1994 on the contract to
construct the T-AGS 45 Oceanographic Survey Ship, which was
delivered in May 1993, and at its Avondale Gulfport Marine,
Inc. ("AGM") and Genco Industries, Inc. operations. AGM
delivered its last Landing Craft Air Cushion (LCAC) vessel in
June 1993. Genco Industries completed its remaining
construction contracts and the facility was closed in August
1994. The decreases in year-to-date sales revenues noted
above were partially offset by increased revenues on contracts
to construct the fourth LSD-CV, seven T-AO Oilers ("T-AOs")
(four of which have been completed) and three contracts to
construct paddlewheel gaming vessels (two of which have been
completed). The contracts to construct the four LSD-CVs, the
four MHCs and the seven T-AOs collectively account for
approximately 70% of the Company's year-to-date net sales
revenue.
<PAGE>
The increase in third quarter 1994 net sales noted above is
attributable to increased revenues recorded on the contract to
construct the fourth LSD-CV, the contract to construct the
seven T-AOs and the contracts for the three paddlewheel gaming
vessels. These increases were partially offset by a decrease
in third quarter net sales on the contract to construct the
three LSD-CVs.
Gross profit for the third quarter and nine months ended
September 30, 1994 increased approximately $6.4 million, or
76%, and $6.6 million, or 22%, respectively, compared to the
same periods in 1993. The increases in third quarter and year-
to-date 1994 gross profit are primarily due to profits
recognized on the contract to construct the seven T-AOs and
revisions of contract profit on several previously-completed
shipbuilding contracts, principally on the contract to
construct two T-AOs and the T-AGS. Also contributing to the
1994 gross profit were profits recognized on two of the gaming
vessels (which have been delivered) and profits recognized by
the Company's marine repair and wholesale steel operations.
Selling, general and administrative ("SG&A") expenses for the
third quarter and nine months ended September 30, 1994
increased by approximately $1.9 million, or 31%, and
approximately $1.5 million, or 7.3%, respectively, compared to
the same periods in 1993. Most of the increases in SG&A
expenses were incurred in the third quarter of 1994 and reflect
an increase in the Company's overall level of operations during
that period. These increases were partially offset by
decreases in SG&A expenses which are primarily due to the
decrease in operating activity as a result of the closure of
the AGM and Genco Industries, Inc. facilities.
Interest expense decreased by approximately $944,000, or 46.6%,
for the third quarter of 1994 and decreased approximately $3.5
million, or 52.0%, for the nine months ended September 30, 1994
as compared to the same periods in the prior year. The
decreases are due principally to the reduction in the Company's
overall level of debt, which decreased by $43.6 million, or
45.7%, at September 30, 1994 as compared to September 30, 1993
(see "Liquidity and Capital Resources" below).
There are no provisions for income taxes in 1994 and 1993 due
to the availability of net operating loss carryforwards, the
benefits of which have not been fully recognized in the
Company's financial statements.
During the first nine months of 1994 the Company delivered the
fourth ship of the seven T-AO Oiler contract and two of the
three gaming vessels. Additionally, the Company delivered the
first ship of the three LSD-CVs contract on November 1, 1994.
Currently, the Company has submitted a bid for the construction
of four double-hulled forebodies for a contract which could be
awarded in late 1994. This project is in response to the Oil
Pollution Act of 1990 ("OPA'90"). The Company has also
received expressions of interest from several other ship owners
who wish to retro-fit their vessels to comply with the OPA'90
requirements.
<PAGE>
As noted above, the Company has closed its AGM and Genco
Industries, Inc. operations as these subsidiaries completed
their existing contracts. The AGM and Genco Industries, Inc.
facilities are currently offered for sale. The Company also
determined in the third quarter of 1994 that it will close its
Avondale Technical Services ("ATS") operation when it completes
its current contracts in the first quarter of 1995. The
operating results of ATS are disclosed herein as discontinued
operations in the Company's Consolidated Statements of
Operations. Additionally, in the third quarter of 1994, the
Company informed the employees of its GRP Division (which
fabricated the glass-reinforced plastic hulls for the four
MHCs) that the current contract work at this location will be
completed by year-end 1994 when the final MHC hull is
transferred to the Company's main shipyard for outfitting. The
Company is currently not aware of any material liabilities,
with respect to environmental matters, to be incurred for site
restoration, post closure, monitoring commitments, or other
exit costs that may occur or result from the sale, disposal or
abandonment of any of its properties.
Liquidity and Capital Resources
As discussed in the 1993 Form 10-K, the December 1993
settlement of the Company's Requests for Equitable Adjustments
("REAs") submitted during 1992 substantially improved the
Company's liquidity. At the end of 1993, the Company invoiced
approximately $90 million of the $145 million REA settlement
amount, all of which was received by the Company by April 18,
1994. The remaining $55 million is being billed by the Company
as work progresses on the contracts that were the subject of
the REAs. The cash received by the Company to date enabled the
Company to retire its approximately $6 million of senior notes
and approximately $38 million balance of outstanding loans
under two previous credit facilities.
On May 10, 1994, the Company established with a bank group a
$35 million revolving credit facility secured principally by
the Company's working capital assets and its 900 foot floating
drydock. Among other things, under the credit facility the
Company has the right to require the bank group to post letters
of credit on the Company's behalf up to an aggregate limit of
$25 million (of the $35 million credit line limit) in support
of its operations. At September 30, 1994 approximately $22
million of letters of credit were outstanding under the new
credit facility.
<PAGE>
On June 1, 1994, the Company announced that it had completed
the issuance of $36.25 million of Series 1994 Refunding Bonds
resulting in the refinancing and redemption of the Series 1983
IRBs. The Series 1994 Refunding Bonds call for principal
amortization to begin on June 1, 1997 and continue thereafter
until final payment in 2014. The Refunding Bonds are comprised
of $6 million at the tax-exempt rate of 8.25% maturing in 2004
and $30.25 million at the tax-exempt rate of 8.50% maturing in
2014.
The Company and Ogden, its former corporate parent, have
terminated certain arrangements between them which have existed
since the Spin-off in 1985. Prior to their termination, these
arrangements could have required the Company to reimburse Ogden
for certain 1985 and prior years' tax liabilities or to issue
preferred stock or debentures to Ogden in the amount of its
reimbursement obligation. The 1985 agreements also required
Ogden to continue to guarantee the Series 1983 IRBs as well as
guarantee certain other Avondale obligations.
The previous arrangements terminated (i) upon the payment by
the Company to Ogden of $5 million of cash on June 1, 1994,
(ii) the Company's delivery to Ogden of a two-year unsecured
note in the principal amount of $8 million bearing interest at
10% per annum and payable in $5 million and $3 million
installments in 1995 and 1996, respectively, (iii) the
refunding on June 1, 1994 of the $36.25 million Refunding Bonds
(without an Ogden guarantee) to replace an IRB issuance that
Ogden had guaranteed, and (iv) the Company's securing of
Ogden's release from its other guarantees of the Company's
obligations. The $13 million settlement with Ogden noted above
was accounted for as an adjustment to the purchase price
incurred in connection with the Spin-off from Ogden and
resulted in a concurrent increase to the Company's goodwill.
The Company expects that funds from operations, existing cash
balances or funds available from the Company's existing credit
facilities will be sufficient to fund the payments to Ogden as
noted above, the first of which was made on June 1, 1994.
As discussed in the Company's Form 10-Q for the period ended
June 30, 1994, the Company had from time to time considered the
advisability of certain capital expenditure programs to, among
other things, upgrade and modernize its plant and equipment.
In this regard, on November 4, 1994 the Company announced that
the U.S. Department of Transportation's Maritime Administration
had approved the Company's application for a Title XI financing
guarantee for a plant modernization program.
<PAGE>
The Company intends to use the guarantee to support its
borrowing of approximately $16 million to fund the major
portion of the plant modernization and expansion at the
Company's main shipyard. It is anticipated that this financing
initiative will be completed by the end of January 1995. In
addition to increasing production efficiency, the modernization
program is expected to enhance the Company's ability to compete
for domestic and international shipbuilding opportunities. The
entire modernization and expansion effort is expected to be
completed by the third quarter of 1995.
The modernization program has been based on productivity
improvement concepts learned through a cooperative agreement
with Astilleros Espanoles S.A. a Madrid-based, state-owned
builder of commercial ships. The agreement, signed in the
second quarter of 1994, calls for the exchange of commercial
ship designs, market analyses and ship production technology.
The Company views this agreement as a significant step toward
its goal of acquiring commercial shipbuilding contracts.
As part of the Company's efforts to focus on its core activity,
marine construction, the Company continues to explore the
possible sale of its non-core assets. While the Company is in
the process of marketing several of its facilities, any such
sales would only be made for amounts that are not less than
management's estimate of the fair value of the assets.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15 Letter re: unaudited interim financial
information.
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed on September 26, 1994 a Form
8-K which disclosed that the Company's Board of
Directors had adopted a Stockholder Rights Plan.
The Company filed as exhibits to the Form 8-K
the Rights Agreement and a press release, dated
September 28, 1994, issued by the Company.
<PAGE>
SIGNATURES
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 INDUSTRIES, INC.
Date: November 14, 1994 By:\s\ ALBERT L. BOSSIER, JR.
Albert L. Bossier, Jr.
Chairman, President &
Chief Executive Officer
Date: November 14, 1994 By:\s\ THOMAS M. KITCHEN
Thomas M. Kitchen
Vice President &
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description Page Number
15 Letter re: unaudited financial information
27 Financial Data Schedule
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
November 8, 1994
Avondale Industries, Inc.
Post Office Box 50280
New Orleans, Louisiana 70150
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Avondale
Industries, Inc. and subsidiaries for the periods ended
September 30, 1994 and 1993, as indicated in our report dated
November 8, 1994; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, is incorporated by reference in
Registration Statement No. 33-31984 on Forms S-8 and S-3.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered
a part of the Registration Statement prepared or certified by
an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] SEP-30-1994
[CASH] 19,583
[SECURITIES] 0
[RECEIVABLES] 70,730
[ALLOWANCES] 0
[INVENTORY] 15,032
[CURRENT-ASSETS] 112,331
[PP&E] 229,507
[DEPRECIATION] (110,656)
[TOTAL-ASSETS] 264,886
[CURRENT-LIABILITIES] 83,287
[BONDS] 42,875
[COMMON] 15,927
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 104,587
[TOTAL-LIABILITY-AND-EQUITY] 264,886
[SALES] 345,253
[TOTAL-REVENUES] 345,253
[CGS] 309,521
[TOTAL-COSTS] 309,521
[OTHER-EXPENSES] 22,376
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 3,240
[INCOME-PRETAX] 10,711
[INCOME-TAX] 0
[INCOME-CONTINUING] 10,711
[DISCONTINUED] (4,552)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 6,159
[EPS-PRIMARY] .43
[EPS-DILUTED] .43
</TABLE>
<PAGE>
[LETTERHEAD OF AVONDALE INDUSTRIES, INC.]
November 14, 1994
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Please accept for filing, via a direct transmission to the
EDGAR System, the Form 10-Q of Avondale Industries, Inc. for
the quarter ended September 30, 1994.
We are also mailing the required number of copies of this
report to the National Association of Securities Dealers, Inc.
Should you have any questions, please contact me at 504/436-
5237.
Very truly yours,
\s\ THOMAS M. KITCHEN
