FORM 10-Q/A
AMENDMENT NO. 1
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 March 31, 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 March 31, 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 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.
Class Outstanding at March 31, 1994
Common stock, par value $1.00 per share 14,464,175 shares
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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 March 31, 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").
Results of Operations
The Company recorded net income of approximately $2.0 million, or
$0.14 per share, for the first quarter ended March 31, 1994
compared to $348,000, or $0.02 per share, for the first quarter
of 1993. The improvement in the Company's first-quarter 1994 net
income resulted from several factors, primarily the Company's
success in reducing operating expenses and a reduction in
interest expense.
Net sales for the first quarter ended March 31, 1994 decreased
approximately $34.3 million, or 24.6%, from the same period in
1993. The decrease in net sales is consistent with a declining
level of activity in the Company's shipbuilding operations, with
most of the Company's net sales attributable to shipbuilding
contracts with the U.S. Navy to build seven T-AO Oilers (three of
which remain to be completed), three Landing Ship Docks - Cargo
Variant (LSD-CV) and four MHC-51 Class Coastal Minehunters
(MHCs)(all of which remain to be completed).
Gross profit of $9.9 million for the current quarter is
consistent with the $10.2 million gross profit reported for the
same period in the prior year. Contributing to the 1994 gross
profit were profits currently being recognized as work progresses
on the two gaming vessels scheduled for delivery in the third
quarter of 1994 and on the contract to construct the seven T-AOs.
The Company's work on the contracts to construct the three LSD-
CVs and the four MHCs, which accounted for approximately 38% of
first quarter 1994 revenues, are being performed on a break-even
basis since reserves for contract losses were recorded as part of
the overall resolution of the Company's Requests for Equitable
Adjustments ("REAs"). The Company's other major shipbuilding
contracts are long-term contracts and profits will only be taken
as work progresses satisfactorily.
Selling, general and administrative ("SG&A") expenses decreased
approximately $661,000, or 8.9%, for the first quarter ended
March 31, 1994, as compared to 1993. The decrease in SG&A
expenses reflects the general decline in activity, primarily at
Avondale Gulfport Marine, Inc. which completed the Landing Craft
Air Cushion ("LCAC") contract when it delivered the final LCAC
vessel in June 1993.
Interest expense decreased by $1.2 million, or 50%, at March 31,
1994 as compared to the same period in 1993. The decrease is
principally due to the reduction in the Company's overall level
of debt, which decreased by $65.4 million at March 31, 1994 as
compared to March 31, 1993 (see "Liquidity and Capital Resources"
below).
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There is no provision for income taxes for 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 three months of 1994 the Company delivered the
fourth ship of the seven T-AO Oiler contract. The Company
plans to deliver the first ship of the three LSD-CV contract in
the fourth quarter of 1994 and the two gaming vessels in third
quarter of 1994, as noted above. Currently, the Company is under
consideration for a contract for the construction of up to four
vessels that are in response to the Oil Pollution Act of 1990
("OPA'90") and has submitted a bid for the construction of four
double-hulled forebodies for a contract which is expected to be
awarded in late-1994, also in response to 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.
Liquidity and Capital Resources
As discussed in the 1993 Form 10-K, the December 1993 settlement
of the Company's REAs substantially improved the Company's
liquidity. At the end of 1993, the Company invoiced
approximately $90.0 million of the $145.0 million REA settlement
amount, all of which was received by April 18, 1994. The
remaining $55.0 million will be 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 has permitted the
Company to retire its approximately $6.0 million of senior notes
and the approximately $38.0 million balance of outstanding loans
under its two credit facilities.
Avondale is finalizing a $35.0 million revolving credit facility
which will be secured principally by working capital assets and
the Company's 900 foot-long drydock. Among other things, the
credit facility includes the right of Avondale to call upon the
bank group to post letters of credit on Avondale's behalf up to
an aggregate limit of $25.0 million (of the $35.0 million total)
in support of its operations. The credit facility will replace
an existing credit facility under which $13.9 million of letters
of credit were outstanding at March 31, 1994. The current
letters of credit are cash collaterized with $13.9 million of
restricted short-term investments which, with the execution of
the new revolving credit facility, will be released to the
Company.
At the beginning of May, Avondale also called for redemption on
June 1, 1994, of $36.25 million of its Series 1983 Industrial
Revenue Bonds which were due June 2001. Avondale intends to
refinance the Bonds through the issuance of refunding bonds to
mature no earlier than 2004. Avondale is currently negotiating
the terms under which the refunding bonds will be issued.
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Avondale also has agreed with Ogden Corporation, its former
corporate parent, to terminate certain arrangements between
Avondale and Ogden which have existed since the Spin-off in 1985.
Under these arrangements, Avondale could have been required to
issue to Ogden approximately $25.0 million of preferred stock or
subordinated debt upon the final resolution of certain
significant litigation and 1985 and prior years' potential tax
liabilities. The 1985 agreements also required Ogden to continue
to guarantee the Series 1983 Bonds as well as guarantee certain
other Avondale obligations.
Under the terms of the new agreement, the previous agreements
will terminate upon the payment by Avondale to Ogden of $13.0
million to settle any potential tax matters (including interest).
The payment will consist of $5.0 million cash on June 1, 1994 and
a two-year unsecured note in the principal amount of $8.0
million, bearing interest at 10% per annum and payable in $5.0
million and $3.0 million installments in 1995 and 1996,
respectively. In addition, Avondale is required to successfully
complete the refunding of the Series 1983 Bonds by June 1, 1994
and to secure by September 30, 1994 Ogden's release from its
other guarantees of Avondale obligations.
Further, in order to improve liquidity and to permit management
to focus on marine construction, repair and conversion
opportunities, the Company is exploring the possible sale of its
non-core assets. As previously disclosed, in March 1993, the
Company sold the assets of its Harvey Quick Repair business with
the majority of the net proceeds applied to the restructured
debt. The Company is in the process of marketing several other
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.
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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
10.5(i) Avondale/Ogden Letter Agreement
15 Letter re: unaudited interim financial information
(b) Reports on Form 8-K:
Not applicable.
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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: May 10, 1994 By:/s/ THOMAS M. KITCHEN
Thomas M. Kitchen
Vice President &
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description Page Number
10.5(i) Avondale/Ogden Letter Agreement
15 Letter re: unaudited interim financial information
<PAGE>
[LETTERHEAD OF AVONDALE INDUSTRIES, INC.]
April 29, 1994
Mr. Philip G. Husby
Senior Vice President &
Chief Financial Officer
Ogden Corporation
Two Pennsylvania Plaza
New York, New York 10121
Dear Phil:
Regarding your letter of March 18, 1994, I prefer to restate our
understandings as follows:
A. Avondale will refund the existing IRB debt on June 1, 1994
without Ogden as guarantor or provider of credit support of
any kind. Ogden's credit support obligations with respect
to this Avondale indebtedness will end no later than June 1,
1994. Ogden and Avondale expect to cooperate with each
other in connection with this refunding process. Avondale
will advise Ogden of its plan of refunding immediately and
keep Ogden informed throughout the refunding process.
B. Avondale and Ogden will resolve all outstanding tax issues
between them. As part of this resolution, the Tax Sharing
Agreement (as amended) (TSA) will be terminated and Avondale
will pay no later than June 1, 1994, $5.0 million cash to
Ogden plus a $8.0 million senior unsecured note (subject to
reasonable terms and conditions acceptable to the Company's
lenders under its principal credit facilities), payable to
Ogden in two annual installments of $5.0 million and
$3.0 million due June 1, 1995 and 1996, respectively, and
bearing interest on the unpaid balances at the rate of 10%
per annum. The total payment of $13.0 million represents
principally the reimbursement of taxes due pursuant to the
tax sharing agreement; remaining monies will be considered
reimbursement, partial or otherwise, of interest due under
the tax sharing agreement.
C. Avondale and Ogden will terminate any litigation support
currently provided by Ogden pursuant to the Amended and
Restated Preferred Stock Purchase Agreement (PSPA) on
June 1, 1994.
D. Avondale will use its best efforts to post satisfactory
collateral with the U. S. Department of Labor as a
substitute for all of the performance bonds and other
similar collateral currently provided by Ogden on Avondale's
behalf. It is our understanding that such collateral totals
$16.6 million. While we may be unable to obtain the release
of all Ogden-backed collateral we expect to be able to
reduce the amount for which Ogden is responsible to no more
than $5 million by September 30, 1994. We will keep Ogden
informed regarding the resolution of these matters.
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E. All payments of $982,219.00 made by Ogden to date in
connection with Avondale insurance matters will be repaid
fully. If Ogden receives a credit or reimbursement for any
such payment, then a refund of such credit or reimbursement
shall be made by Ogden to Avondale promptly.
All of the foregoing matters must be implemented, resolved or
otherwise settled in the manner as described above, in which case
the Amended and Restated Preferred Stock Purchase Agreement and
the Tax Sharing Agreement as amended will terminate. In the
event Avondale is able to fully resolve the matters referred to
in A, B, C and E above, but despite its best efforts is unable to
fully resolve the matters referred to in D above by September 30,
1994, then Avondale will issue to Ogden Series B Preferred Stock
for an amount equal to the amount of the unresolved matters noted
in D subject to an overall limit of $7.0 million of Series B
Preferred Stock in which case the PSPA and TSA will terminate,
but Avondale will continue to be responsible for fully resolving
matters in D above and for reimbursing Ogden for any losses,
costs or claims in connection therewith. Ogden shall return
promptly all of such Preferred Stock to Avondale (subject to the
right of Ogden to retain any dividends paid or accrued thereon by
Avondale prior to such return) if the matters referred to in D
are fully resolved prior to January 1, 1995. If such matters are
not resolved prior to December 31, 1994 but are resolved by
May 31, 1995 Ogden shall return 66 2/3% of such Preferred Stock
and Avondale will purchase the remaining 33 1/3% of Preferred
Stock for its face amount plus all accrued but unpaid dividends.
If such matters are not fully resolved by June 1, 1995 Avondale
shall purchase this Preferred Stock on June 1, 1995 for its face
amount plus all accrued but unpaid dividends and will continue to
be responsible for fully resolving matters in D and reimbursing
Ogden for any losses, costs or claims in connection therewith.
Ogden agrees to not transfer ownership of any Series B Preferred
Stock for a one-year period from date of issuance.
In the event Avondale is unable to refund the existing IRB debt
by June 1, 1994, then the relative rights and obligations of the
parties shall continue to be governed by the arrangements and
agreements as they existed prior to the execution of this letter.
Avondale agrees to provide Ogden with periodic information
concerning certain retrospective insurance polices.
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Definitive agreements will be prepared and executed by both
parties promptly following execution of this letter of intent.
If the above is consistent with your understanding of these
matters please sign below in the space provided for you.
Very truly yours,
AVONDALE INDUSTRIES, INC.
\s\ Thomas M. Kitchen
Thomas M. Kitchen
Vice President &
Chief Financial Officer
TMK/jhw
Agreed to by:
OGDEN CORPORATION
\s\ Philip G. Husby
Philip G. Husby
Senior Vice President &
Chief Financial Officer
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE]
May 2, 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 March 31, 1994 and
1993 as indicated in our report dated May 2, 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 March
31, 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
New Orleans, Louisiana
