As filed with the Securities and Exchange Commission on December 21, 1995.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Avondale Industries, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 5100 River Road 39-1097012
(State or other jurisdiction Avondale,Louisiana 70094 (I.R.S. Employer
of incorporation or organization) (504) 436-2121 Identification No.)
(Address,including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
Albert L. Bossier,Jr.
Chairman, President and Chief Executive Officer
Avondale Industries, Inc.
5100 River Road
Avondale, Louisiana 70094
(504) 436-2121
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Curtis R. Hearn Robert H. Whilden, Jr.
Jones, Walker, Waechter, Vinson & Elkins L.L.P.
Poitevent, Carrere & Denegre, L.L.P. 2300 First City Tower
201 St. Charles Avenue 1001 Fannin
New Orleans, LA 70170-5100 Houston, Texas 77002-6760
(504) 582-8000 (713) 758-2222
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, check the following box. *
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or
interest reinvestment plans, check the following box. *
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities
Act, please check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering. *
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement
number of the earlier effective registration statement for
the same offering. *
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.*
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering aggregate registration
securities to be registered registered<F1> price offering fee
per share<F2> price<F2>
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per share<F3> 3,450,000 shares $13.625 $47,006,250 $16,209.05
</TABLE>
[FN]
<F1> Includes 450,000 shares that the Underwriters have
the option to purchase to cover over-allotments, if
any.
<F2> Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c), based on
the average of the high and low sales prices per
share of Common Stock on the National Market System
of the National Association of Securities Dealers
Automated Quotation System on December 18, 1995.
<F3> Each share of Common Stock includes Rights under the
Company's Stockholder Protection Rights Agreement,
which Rights are attached to and trade with the
Common Stock of the Company.
____________________
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
Subject to completion, dated January , 1996
Prospectus
3,000,000 Shares
Avondale Industries, Inc. [LOGO]
Common Stock
($1.00 par value)
All of the 3,000,000 shares of Common Stock, $1.00 par value per share (the
"Common Stock"), of Avondale Industries, Inc. ("Avondale" or the "Company")
being offered hereby (the "Offering") are being sold by the Avondale
Industries, Inc. Employee Stock Ownership Plan (the "Selling Shareholder").
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock offered hereby. See "Selling Shareholder."
The Common Stock is traded on the Nasdaq National Market under the symbol
"AVDL." On December , 1995, the last reported sale price of the Common
Stock was $ per share.
Prospective purchasers of shares should carefully consider the matters set
forth on page 7 under the caption "Risk Factors".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_______________________________________________________________________________
Price to Underwriting Proceeds to
Public Discount Selling
Shareholder<F1>
Per Share .................... $ $ $
Total<F2> .................... $ $ $
_______________________________________________________________________________
[FN]
<F1> Before deducting expenses payable by the Selling Shareholder estimated
at $ . The expenses payable by the Company are estimated to be
$ .
<F2> The Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to 450,000 additional shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if
any. See "Underwriting." If the Underwriters exercise such option in
full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Shareholder will be $ , $ and $ , respectively.
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale, to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Common Stock will be
made at the office of Salomon Brothers Inc, Seven World Trade Center, New
York, New York, or through the facilities of The Depository Trust Company,
on or about , 1996.
Salomon Brothers Inc Johnson Rice & Company L.L.C.
The date of this Prospectus is , 1996
INSIDE FRONT COVER OF PROSPECTUS
Picture #1 [side view of TAO-200 constructed by Avondale and delivered to the
U.S. Navy in September, 1992.]
Picture #2 [picture of LSD 49 constructed by Avondale and delivered to the
U.S. Navy in November, 1994.]
Picture #3 [the EXXON BAYTOWN constructed by Avondale and delivered to Exxon
in August 1984.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus and in
the consolidated financial statements, including the notes thereto, and other
documents that are included elsewhere herein or incorporated herein by
reference. For descriptions of certain vessels and definitions of certain
terms used herein, see "Glossary of Selected Industry Terms" appearing
elsewhere herein. Unless otherwise indicated, the information in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised.
The Company
General
Avondale is one of the largest shipbuilders in the United States,
specializing in the design, construction, conversion, repair and
modernization of various types of ocean-going vessels for the
military and commercial markets. A majority of Avondale's contracts
in recent years has been for U.S. Navy surface ships, although the
Company has secured three large commercial contracts in the past year
for the construction or conversion of double-hulled product carriers.
Management believes the Company's low cost structure, experienced and
skilled work force, sophisticated construction processes and
extensive experience gained over the past 25 years in building a
variety of military and commercial vessels, position the Company to
be one of the most cost-efficient and versatile shipbuilders in the
United States. At September 30, 1995, the Company's shipbuilding
backlog (the "firm backlog") was approximately $1.2 billion
(exclusive of unexercised options aggregating $650 million held by
the U.S. Navy and exclusive of commercial contract awards subject to
financing), of which $1.1 billion was attributable to contracts to
build ships for the U.S. Navy.
To assure that its shipyard remains among the most modern in the
world, Avondale regularly reviews and assesses its construction and
production processes. In the early 1980s, the Company was the first
U.S. shipyard to successfully implement modular construction
techniques that had previously been perfected by Japanese
shipbuilders. Management believes these techniques were a major
factor in Japan's dominance of the commercial shipbuilding market
during the 1970s. Avondale obtained its modular construction
capabilities and "know-how" pursuant to an agreement with one of
Japan's largest shipbuilders, which worked with Avondale to change
its manufacturing processes and to train Avondale's employees.
Modular construction afforded Avondale significant production
efficiencies in the installation of ship systems, largely due to the
greater ease with which such systems could be installed in open
modules rather than closed-in hulls.
The Company has also embarked on a modernization program to
enhance its ability to build and deliver vessels at a lower cost. In
1994 the Company entered into a technology sharing agreement with
Astilleros Espanoles S.A. ("AESA") of Spain, regarded as an
innovative and successful world-class shipyard. After an on-site
review of Avondale's shipyard by AESA, as well as a review by
Avondale of current shipbuilding technology in other countries,
Avondale invested $20 million in capital improvements designed to
increase efficiency by improving production flow. In particular, the
Company integrated certain assembly-line techniques in its modular
construction processes. To that end, the Company has built a covered
facility that houses two production lines dedicated to military
vessels and two lines for commercial vessels. Avondale believes that
sheltering the production process and separating the unit lines will
enhance production efficiencies and lower unit production costs.
U.S. Military Opportunities
During the past 25 years, Avondale has built 72 vessels for the
U.S. Navy and other branches of the military, ranging from vessels
such as AOs and T-AOs that principally require executing large-scale
steel fabrication at a competitive cost, to highly sophisticated
vessels such as the T-AGS 45, the LSD-CVs and the MHC-51 fiberglass
Minehunters that also require extensive outfitting of electrical,
command and control and weapon systems. U.S. Navy vessels currently
under construction include three TAKR 300 Class Sealift Ships, three
MHC-51 Class Minehunters, two LSD-CVs, one T-AO Oiler and one WAGB-20
Polar Icebreaker. See "Glossary of Selected Industry Terms." The
Company anticipates that it will continue to focus primarily on
securing contracts to construct and convert military vessels.
In November 1995, Congress appropriated $974 million for the
construction of the first of an anticipated 12 vessels under the U.S.
Navy's LPD-17 program. The LPD-17, which the U.S. Navy has announced
will be the next significant class of amphibious vessels, will also
be outfitted with sophisticated command and control systems, as well
as advanced ship-based weapon systems. In connection with its
pursuit of the LPD-17 contract, Avondale has announced an alliance
with Bath Iron Works Corporation ("Bath") (recently acquired by
General Dynamics Corporation) and Hughes Aircraft Company, a
subsidiary of Hughes Electronics Corporation ("Hughes Aircraft").
Under the alliance, Avondale would be the prime contractor and the
LPD-17 vessels would be constructed at both the Avondale and Bath
shipyards, with Hughes Aircraft being responsible for integration of
the ships' electronic systems. Avondale believes that the formation
of this alliance, coupled with the Company's low cost structure and
proven experience in building vessels of classes comparable to the
LPD-17 such as the LSD-CVs, will enhance the viability and
competitiveness of its bid for the LPD-17 contracts.
In addition to the LPD-17, there are several other anticipated
U.S. Navy programs that may offer other shipbuilding opportunities to
Avondale including the possible construction of two additional
Sealift vessels, a class of prepositioning vessels for the U.S.
Marine Corps, up to 14 ADC(X) vessels, and the SC-21, which represents
the next generation of surface combatant vessels.
Commercial Opportunities
While Avondale focuses its efforts on pursuing U.S. Navy
shipbuilding contracts, it also pursues available commercial
shipbuilding opportunities. Changes in federal law enacted since
1990 have helped significantly increase U.S. commercial shipbuilding
opportunities. The Oil Pollution Act of 1990 requires the phased-in
transition of single-hulled tankers and product carriers to double-
hulled vessels beginning January 1, 1995. In late 1993, Congress
amended the loan guarantee program under Title XI of the Merchant
Marine Act, 1936 to permit the U.S. government to guarantee loan
obligations of foreign vessel owners for foreign-flagged vessels
built in U.S. shipyards. Avondale, along with other U.S. shipyards,
has also historically benefitted from the Jones Act, which requires
all vessels transporting products between U.S. ports to be built by
U.S. shipyards.
Within the past year, Avondale has secured several commercial
contracts that should benefit from the Company's expertise and newly
adopted construction techniques. In May 1995, Avondale finalized a
$143.9 million contract to construct four double-hulled forebodies
for product carriers owned by American Heavylift. Construction of
these forebodies has already begun and is expected to be completed by
mid-1997. The Company has also signed contracts with a Russian
company for the construction of seven double-hulled product carriers
and an American company for the construction of six double-hulled
product carriers. Both contracts are subject to the owners' receipt
of a Title XI MARAD financing guarantee and call for delivery of all
of the vessels by the end of 1998. See "Risk Factors" and "Business
- Overview -- Reemergence of Commercial Shipbuilding."
____________________
The principal executive offices of the Company are located at 5100
River Road, Avondale, Louisiana 70094 (telephone no. (504) 436-
2121).
___________________
The Offering
Common Stock offered by the
Selling Shareholder................ 3,000,000 shares
Shares outstanding before and
after the Offering................. 14,464,175<F1>
Nasdaq National Market Common
Stock Symbol....................... AVDL
Use of Proceeds......................... The Company will not receive any
of the proceeds from the sale of
the shares of Common Stock offered
hereby.
____________
[FN]
<F1> Based on the number of shares of Common Stock outstanding at December 1,
1995. Does not include 240,971 shares of Common Stock issuable upon
exercise of stock options (currently exercisable or exercisable within
60 days) granted under existing stock option plans.
Selling Shareholder
The Selling Shareholder is the Avondale Industries, Inc. Employee Stock
Ownership Plan (the "ESOP"), which, prior to the Offering, owns approximately
47.3% of the outstanding shares of the Common Stock. After giving effect to
the Offering, the Selling Shareholder will own approximately 26.6% of the
outstanding shares of the Common Stock, or 23.5% if the Underwriters'
over-allotment option is exercised in full. See "Selling Shareholder."
SUMMARY HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION> Nine Months Ended
Years Ended December 31, September 30,
___________________________________ _____________________
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $576,384 $456,724 $475,810 $345,253 $435,148
Gross profit (loss) 37,796 33,180 47,485 35,732 42,017
Income (loss) from
operations 7,281 3,400 16,949 13,356 18,798
Income (loss) from
continuing operations (11,321) (5,233) 13,075 10,711 23,591
Net income (loss)<F1><F2> (11,217) (8,794) 8,523 6,159 23,591
Income (loss) per share of
common stock from continuing
operations (0.78) (0.36) 0.90 0.74 1.63
BALANCE SHEET DATA:
Cash and cash equivalents $7,613 $3,195 $15,414 $19,583 $32,976
Property, plant and
equipment 143,304 125,542 119,161 118,851 129,947
Total assets 346,196 302,139 273,503 264,886 317,679
Total debt 116,607 88,719 51,741 51,741 65,655
Shareholders' equity 123,149 114,355 122,878 120,514 146,469
OTHER FINANCIAL DATA:
EBITDA<F3> $19,599 $15,210 $28,501 $22,090 $26,005
OPERATING DATA:
Firm backlog $450,000 $1,230,000 $1,424,000 $1,541,000 $1,200,000
</TABLE>
____________
[FN]
<F1> Net income (loss) for 1992 includes a Net ESOP contribution of
$8.1 million which was returned to the Company as a repayment of
indebtedness owed by the ESOP to the Company incurred in
connection with the purchase by the ESOP of the Common Stock of
the Company in 1985. Although these contributions were charged
against income, they had no net effect on Shareholders' Equity.
<F2> Net income for the nine months ended September 30, 1995 includes a
deferred income tax benefit of $13.0 million ($.90 per share)
attributable to certain net operating loss carryforwards available
to offset estimated future taxable earnings.
<F3> As used herein, EBITDA is income from operations plus
depreciation and amortization. EBITDA is frequently used by
securities analysts and is presented here to provide additional
information about the Company's operations. EBITDA should not be
considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flows
as a better measure of the Company's liquidity.
RISK FACTORS
Reliance on Major Customer
Avondale's business is primarially dependent upon the ship
construction and conversion programs of the U.S. Navy and the other
branches of the military, with over 90% of its $1.2 billion firm
backlog at September 30, 1995 consisting of contracts to build
vessels for the U.S. Navy. With the continuing effort of the federal
government to reduce the federal budget deficit, there can be no
assurance that the shipbuilding and conversion programs currently in
progress will continue to be funded, or that those planned in the
future by the U.S. Navy and other branches of the U.S. military will
be implemented. Any significant reduction in the level of
congressional appropriations for shipbuilding programs would have a
material adverse effect on Avondale.
The prospects of U.S. shipyards, including the Company, can be
materially affected by their success in securing significant contract
awards. Currently Avondale's U.S. Navy bidding efforts are focused
on the LPD-17, for which approximately $974 million was recently
appropriated for construction of the first of an anticipated 12
vessels. There is no guarantee that Congress will appropriate funds
for any additional LPD-17 vessels. It is also possible that the U.S.
Navy may allocate the vessels between competing bidders, or that it
may delay implementation of the construction program. With a
substantial portion of Avondale's current firm backlog scheduled for
completion by 1998, it is important that Avondale be a successful
bidder for all or a substantial portion of the LPD-17 vessels or
other U.S. Navy or commercial work if it is to maintain its current
level of shipbuilding activity beyond 1998. See "Business -
Shipbuilding."
Profit Recognition; Government Contracting
Similar to other companies principally engaged in long-term
construction projects, Avondale recognizes profits under the
percentage of completion method of accounting, with profit
recognition commencing when progress under the contract is sufficient
to estimate final results with reasonable accuracy. Because contract
profit recognition is dependent upon reliable estimates of the costs
to complete such contract, profits recognized upon completion of the
contract may be significantly less than anticipated, or the Company
may incur a loss with respect to such contract, if it proves
necessary to revise such cost estimates. Moreover, Avondale's
principal U.S. government business is currently being performed under
fixed-price or fixed-price incentive contracts, which wholly or
partially shift the risk to Avondale of construction costs that
exceed the contract price. In certain circumstances, the Company may
submit Requests for Equitable Adjustment ("REAs") to the U.S. Navy
seeking adjustments to the contract prices to compensate the Company
when it incurs costs for which it does not believe it is responsible.
Although the Company pursues REAs and all other contractual disputes
vigorously, there is no assurance that the U.S. Navy will resolve the
REAs or any of these disputes in a manner favorable to the Company.
In addition, the Government has the right to suspend or debar a
contractor from government contracting for significant violations of
government procurement regulations. Avondale has never been subject
to suspension or debarment. See "Business - Shipbuilding."
Competition and Regulation
The reduced level of shipbuilding activity by the U.S. government
during the past decade has significantly increased competition. With
respect to the market for U.S. military contracts, there are
principally five private U.S. shipyards, including the Company, that
compete for contracts to construct or convert surface vessels. Three
of these companies are subsidiaries of corporations that have
substantially greater resources than the Company. With respect to
commercial vessels that must be constructed by a U.S. yard under the
Jones Act, there are approximately 20 private U.S. shipyards that can
accommodate the construction of vessels up to 400 feet in length,
ten of which the Company believes are direct competitors with the
Company for commercial contracts. With respect to the international
commercial shipbuilding market, Avondale competes with numerous yards
in several countries. See "Business - Competition."
The termination of the U.S. construction-differential subsidy
program in 1981 significantly curtailed the ability of U.S. shipyards
to compete successfully for international commercial shipbuilding
contracts with foreign yards, many of which are heavily subsidized by
their governments. Currently, Avondale's commercial shipbuilding
opportunities are materially dependent on certain U.S. laws and
regulations, including (i) the Jones Act, which requires that all
vessels transporting products between U.S. ports be constructed by
U.S. shipyards, (ii) the Oil Pollution Act of 1990, which requires
the phased-in transition of single-hulled tankers and product
carriers to double-hulled vessels beginning January 1, 1995, and
(iii) 1993 amendments to the loan guarantee program under Title XI of
the Merchant Marine Act, which permit the U.S. government to
guarantee loan obligations of foreign vessel owners for foreign-
flagged vessels built in U.S. shipyards. In connection with U.S.
efforts to implement a 1994 multilateral agreement designed in part
to eliminate government subsidies provided to commercial
shipbuilders, Congress is currently considering legislation that
would eliminate the competitive advantages afforded to U.S. yards
under the 1993 amendments to the Title XI guarantee program. In
addition, legislative bills seeking to rescind or substantially
modify the provisions of the Jones Act mandating the use of U.S.-
built ships for coastwise trade are introduced from time to time, and
are expected to be introduced in the future. Although management
believes it is unlikely the Jones Act will be rescinded or materially
modified in the foreseeable future, there can be no assurances to
this effect with respect to the Jones Act or any other law or
regulation benefitting U.S. shipbuilders. See "Business - Overview -
- Reemergence of Commercial Shipbuilding."
Labor Matters
Although none of the Company's employees is unionized, the
National Labor Relations Board (the "NLRB") is currently reviewing a
1993 election held among certain of the Company's New Orleans
area employees. Challenged ballots in numbers sufficient to determine
the outcome of the election remain uncounted awaiting the NLRB's
decision, although the union did receive a majority of the
unchallenged ballots. The Company has filed objections with the NLRB
seeking to have the election set aside. If the NLRB upholds the
election and certifies the union, and that decision is not overturned
by subsequent judicial proceedings, the Company would be required
under the federal labor laws to bargain in good faith with the union
on matters such as wages, hours and other working conditions. Union
certification may result in an increased risk that the union will
engage in potentially disruptive activities such as strikes or
picketing, or that the Company may incur higher labor and operating
costs. See "Business - Employees."
Environmental Matters
The Company is subject to various federal, state and local
environmental laws and regulations that impose limitations on the
discharge of pollutants into the environment and establish standards
for the transportation, storage and disposal of toxic and hazardous
wastes. Stringent fines and penalties may be imposed for non-
compliance and certain environmental laws impose joint and several
"strict liability" for remediation of spills and releases of oil and
hazardous substances rendering a person liable for environmental
damage, without regard to negligence or fault on the part of such
person. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for
acts of the Company which are or were in compliance with all
applicable laws at the time such acts were performed. See "Business
- Environmental and Safety Matters."
SELECTED FINANCIAL DATA
The following table contains selected consolidated financial data
for the Company and its subsidiaries for the nine months ended
September 30, 1994 and 1995 and for each of the fiscal years in the
five-year period ended December 31, 1994. The data for each of the
fiscal years in the five-year period ended December 31, 1994 are
derived from the consolidated financial statements of the Company and
its subsidiaries. The consolidated financial statements as of
December 31, 1993 and 1994, and for each of the years in the three-
year period ended December 31, 1994, and the report of Deloitte &
Touche LLP thereon, have been included in this Prospectus. The data
for the nine-month periods ended September 30, 1994 and 1995 are
derived from the unaudited consolidated financial statements for the
related periods included in this Prospectus. The following financial
data should be read in conjunction with such financial statements,
including the notes thereto. Results of operations for the interim
periods are not necessarily indicative of results that may be
expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION> Nine Months Ended
Years Ended December 31, September 30,
_________________________________________________________ ____________________
(In thousands, except per share data) (unaudited)
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<F1> <F1> <F1> <F1><F2> <F2> <F6>
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Continuing operations:
Net sales $752,060 $768,887 $576,384 $456,724 $475,810 $345,253 $435,148
Gross profit (loss) 27,663 (30,000) 37,796 33,180 47,485 35,732 42,017
Income (loss) from operations (3,543) (119,842) 7,281 3,400 16,949 13,356 18,798
Net ESOP contribution 27,000 24,000 8,141
Income (loss) from
continuing operations (25,560) (139,173) (11,321) (5,233) 13,075 10,711 23,591
Income (loss) from
discontinued operations (273) (1,705) 104 (3,561) (4,552) (4,552)
Net income (loss)<F3><F4><F5> (25,833) (140,878) (11,217) (8,794) 8,523 6,159 23,591
Income (loss) per share of
common stock:
Continuing operations (1.69) (9.64) (0.78) (0.36) 0.90 0.74 1.63
Discontinued operations (0.02) (0.12) (0.25) (0.31) 0.31
Total (1.71) (9.76) (0.78) (0.61) 0.59 0.43 1.63
Cash dividends per share of
common stock 0.92
BALANCE SHEET DATA:
Current assets $237,831 $199,815 $177,075 $151,597 $127,936 $112,331 $150,937
Current liabilities 154,776 127,522 113,917 127,032 93,100 83,287 99,629
Total assets 491,015 383,670 346,196 302,139 273,503 264,886 317,679
Long-term debt 61,094 110,009 90,469 43,848 45,875 42,875 60,593
Total liabilities 248,156 257,528 223,047 187,784 150,625 144,372 171,210
Shareholders' equity 242,859 126,142 123,149 114,355 122,878 120,514 146,469
OTHER FINANCIAL DATA:
EBITDA <F7> $ 8,674 $(49,395) $19,599 $15,210 $28,501 $22,090 $26,005
OPERATIONAL DATA:
Firm Backlog $990,000 $624,000 $450,000 $1,230,000 $1,424,000 $1,541,000 $1,200,000
</TABLE>
____________________
[FN]
<F1> Income statement data for years 1990 through 1993 have been
restated to present Avondale's service contracting subsidiary as
a discontinued operation (see Note 7 of the Notes to Consolidated
Financial Statements).
<F2> See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Notes to Consolidated
Financial Statements relating to, among other things, (i)
proceeds received by the Company from the settlement of REAs in
December 1993 and (ii) the impact of revisions of estimated
profits on several previously completed shipbuilding contracts in
1994.
<F3> During 1990 and 1991, the Company revised its estimated costs to
complete certain contracts which had the effect of decreasing net
income by approximately $22.0 million, or $1.45 per share, and
approximately $69.0 million, or $4.78 per share, respectively.
<F4> During 1991, the Company revised its estimate of the continuing
value and future benefits of goodwill. Accordingly, the Company
reduced the carrying value of goodwill which had the effect of
decreasing net income for 1991 by $57.6 million, or $3.99 per
share.
<F5> The amounts reflected as Net ESOP contributions for 1990, 1991,
and 1992 reflect contributions made by the Company to the ESOP,
all of which were returned to the Company as repayments of
indebtedness owed by the ESOP to the Company incurred in
connection with the purchase by the ESOP of the Common Stock of
the Company in 1985. Although these contributions were charged
against income, they had no net effect on Shareholders' Equity.
<F6> Net income for the nine months ended September 30, 1995 includes
a deferred income tax benefit of $13.0 million ($.90 per share)
attributable to certain net operating loss carryforwards
available to offset estimated future taxable earnings.
<F7> As used herein, EBITDA is income(loss) from operations plus
depreciation and amortization. EBITDA is frequently used by
securities analysts and is presented here to provide additional
information about the Company's operations. EBITDA should not be
considered as an alternative to net income as a measure of the
Company's operating performance or as an alternative to cash
flows as a better indicator of the Company's liquidity. For
1991, EBITDA does not include a $57.6 million write-down of good
will.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
Overview
The Company's results of operations continued to improve during
the first nine months of fiscal 1995 compared to the prior year. Net
sales for the first nine months of 1995 were 26.0% above those
recorded for the nine months ended September 30, 1994. The first
nine months of 1995 also showed approximately a 54.9% increase in
income from continuing operations before income taxes, from the
amount reported for the same period in 1994. The Company's firm
backlog at September 30, 1995 was approximately $1.2 billion
(excluding options aggregating $650 million held by the U.S. Navy
for additional ship orders and commercial contracts subject to
financing).
Avondale and the U.S. Navy are negotiating a settlement with
respect to the Company's previously filed REA with the U.S. Navy
seeking substantial increases in the contract prices for four MHCs
currently under contract. Management anticipates reaching a settlement
under which the contract price will be increased such that the work
remaining under the contract should be completed on substantially a
break-even basis.
In July 1995, the Federal District Court for the Middle District
of Louisiana approved the Company's settlement of a class action
lawsuit, filed against the Company and numerous other defendants,
that had asserted various toxic tort claims arising out of the
alleged contamination of an oil reclamation site in Walker,
Louisiana. Under the terms of the settlement, the Company paid $4.0
million cash into a settlement fund in the third quarter of 1995,
using cash from operations, and issued a $2.0 million unsecured note
to the plaintiff class. The note bears interest at 8% per annum and
is due on January 28, 1997. The Company had previously recorded an
accrual sufficient to provide for the $6.0 million settlement and has
sufficient liquidity to fund the note. Avondale could also be
responsible for payment to the plaintiffs of up to an additional $6.0
million if the plaintiffs are unsuccessful in collecting certain
claims under Avondale's insurance policies that have been assigned to
the plaintiff class under the settlement agreement. With respect to
the potential contingent liability of the Company to pay additional
sums under the settlement agreement, management believes that the
eventual resolution of this matter will not have a material adverse
effect on the Company's financial condition, results of operations
or cash flows.
Results of Operations
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994.
For the nine months ended September 30, 1995, the Company recorded
net income of $23.6 million, or $1.63 per share, compared to $6.2
million, or $0.43 per share, for the nine months ended September 30,
1994, or more than triple the level for the first nine months of
1994. Net income in the period included a net income tax benefit of
$7.0 million, or $0.48 per share. Net income for the first nine
months of 1994 included a loss from discontinued operations of $4.6
million, or $0.31 per share.
The significant increases in the Company's operating results for
the nine month period ended September 30, 1995, primarily reflect
operating profits recognized on the LSD-CV 52 and seven T-AO
contracts. The Company also recorded a partial reversal of a
previously recognized loss which was recorded in prior years on the
contract to construct three LSD-CVs. Also contributing to income
from operations were profits recognized on the third gaming vessel
delivered in June 1995 and profits recorded by the Company's marine
repair and wholesale steel operations.
In the third quarter of 1994 the Company decided to discontinue
its service contracting subsidiary. The 1994 nine month results
reflect losses from discontinued operations of approximately $4.6
million, or $0.31 per share.
Net sales for the nine month period ended September 30, 1995
reflect an increase of $89.9 million, or 26.0%, as compared to the
same period in the prior year. The increase in net sales was
primarily due to increased net sales recorded on the contracts to
construct the Strategic Sealift ships, the LSD-CV 52, the Icebreaker
and the contract to construct forebodies for the four product
carriers. These increases were partially offset by reduced net sales
recorded on the contracts to construct seven T-AOs and three LSD-CVs,
with these contracts being in the latter stages of completion. Gross
profit for the nine months ended September 30, 1995 increased $6.3
million, or 17.6%, compared to the same period in 1994. The
increase in gross profit for the nine month period ended September
30, 1995 was primarily due to increases in profits recognized on
contracts to construct the LSD-CV 52, seven T-AOs and a partial
reversal of a previously recognized loss on the three LSD-CVs noted
above.
Selling, general and administrative ("SG&A") expenses increased
$843,000, or 3.8%, for the nine months ended September 30, 1995
compared to the same period in the prior year. This increase was due
primarily to an overall increase in operating activity as illustrated
by the 26.0% increase in net sales noted above and in part to an
increase in indirect labor and associated costs resulting from an
across-the-board wage increase effective January 1, 1995.
Interest expense increased $436,000, or 13.5%, for the nine months
ended September 30, 1995 as compared to the same period in the prior
year. This increase was due principally to interest costs associated
with the $17.8 million Title XI financing related to the
facilities modernization project completed in February 1995. Also
contributing to the increase in interest expense was interest on the
note issued in June 1994 to the Company's former corporate parent
(see Note 12 of the Company's financial statements included herein).
These increases were partially offset by an increase in interest
capitalized on assets under construction relating primarily to the
modernization project.
The first nine months of 1995 included a net income tax benefit of
$7.0 million, or $0.48 per share. The net income tax benefit was
principally the result of recognizing, for financial reporting
purposes, a $13.0 million income tax benefit from certain net
operating loss carry forwards available to offset estimated future
taxable earnings. The $13.0 million tax benefit was offset by a non-
cash income tax provision of $6.0 million related to current period
operating results. (See Note 9 to the Company's financial statements
included herein). There was no provision for income taxes in the
same period in 1994 as an income tax benefit related to available net
operating loss carry forwards was recognized only to the extent of
then current operating results. The recognition of any additional
available tax benefit (approximately $9.5 million) will depend on
future assessments of estimated taxable income.
Year Ended December 31, 1994 Compared to Year Ended December 31,
1993.
The Company recorded income from continuing operations of
approximately $13.1 million, or $0.90 per share, for the year ended
December 31, 1994 compared to a loss of approximately $5.2 million,
or $0.36 per share, for 1993. The improvement in the Company's 1994
income from continuing operations principally reflected net gains of
approximately $3.5 million, or $0.24 per share, related to revisions
of estimated contract profits on several previously-completed
shipbuilding contracts, increased operating income at the Company's
marine repair, wholesale steel and boat building operations and a
reduction in interest expense. The decrease in interest expense was
due primarily to the Company's repayment in early 1994 of balances
owed 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
REAs in December 1993.
In the third quarter of 1994 the Company decided to discontinue
its service contracting business formed in 1990 to pursue large-scale
service contracts with government and commercial operations. The
Company concluded that managerial and financial resources devoted to
this business could be more productively invested in the Company's
core marine construction operations. As a result, the operating
results of the service contracting business for the year ended
December 31, 1994 and prior years are reported as discontinued
operations (see Note 7 to the Company's financial statements included
herein). The Company recorded a loss from discontinued operations of
approximately $4.6 million (including estimated costs related to a
contract termination), or $0.31 per share, for the year ended
December 31, 1994 and restated prior year results to reflect a loss
from discontinued operations of approximately $3.6 million, or $0.25
per share, for the year ended December 31, 1993.
The Company's net sales from continuing operations in 1994
increased approximately $19.1 million, or 4.2%, as compared to the
prior year. The increase in 1994 net sales was due primarily to
increased sales recognized on the contracts to construct the LSD-CV
52, the contracts to construct three paddlewheel gaming vessels (two
of which were delivered in 1994) and the start-up of the first
Sealift ship. These increases in net sales were partially offset by
reductions in sales recognized on the contracts to construct the
three LSD-CV vessels (the first of which was delivered in 1994), the
seven T-AO Oilers contract (the fourth of which was delivered in
1994) and the four MHCs as these contracts approached completion.
Additionally, the Company experienced reduced sales in 1994
associated with the T-AGS 45 Oceanographic Survey Ship contract,
which was delivered in 1993, and at its Avondale Gulfport Marine,
Inc. ("AGM") and Genco Industries, Inc. ("Genco") operations. AGM
delivered its last LCAC vessel in June 1993. Genco completed its
remaining construction contracts in August 1994. The contracts to
construct the four LSD-CVs, the four MHCs and the seven T-AOs
collectively accounted for approximately 69% of the Company's 1994
net sales revenue.
Gross profit for the year ended December 31, 1994 increased
approximately $14.3 million, or 43%, compared to 1993. The increase
in 1994 gross profit was primarily due to profits recognized on the
contract to construct the seven T-AOs and revisions of contract
profits on several previously-completed shipbuilding contracts. Also
contributing to the 1994 gross profit were profits recognized on the
two gaming vessels delivered in 1994 and profits recognized by the
Company's marine repair and wholesale steel operations.
SG&A expenses increased by approximately $756,000, or 2.5%, for
the year ended December 31, 1994 as compared to 1993. The overall
increase in SG&A expenses primarily resulted from increased operating
activity at the Company's main shipyard. This increase in SG&A
expenses was partially offset by a decrease in SG&A expenses
resulting from the closing of the AGM and Genco operations.
Interest expense decreased by approximately $4.4 million, or 50%,
in 1994 as compared to 1993. The decrease was due to the reduction
in the Company's overall level of debt, which decreased by
approximately $37 million, or 41.7%, at December 31, 1994 as compared
to December 31, 1993 (see "Liquidity and Capital Resources" below).
The Company recorded a $300,000 provision for income taxes in 1994
while no provision was recorded in 1993 due to the loss from
operations (see Note 9 to the Company's financial statements included
herein).
Year Ended December 31, 1993 Compared to Year Ended December 31,
1992.
The Company had a loss from continuing operations for the year
ended December 31, 1993 of $5.2 million, or $0.36 per share, compared
with a loss from continuing operations in 1992 of $11.3 million, or
$0.78 per share. The Company recorded a loss from discontinued
operations of $3.6 million, or $0.25 per share, for 1993 compared
with income from discontinued operations of $104,000, or less than
$0.01 per share, in 1992. The Company's profitability in 1993 was
affected by several factors, primarily the allocation of the recovery
to individual contracts and the related timing of the recognition of
the revenues associated with the Company's settlement with the U.S.
Navy on its REAs and other charges and write downs, all of which
occurred in the fourth quarter of 1993.
Net sales from continuing operations for the year ended December
31, 1993 decreased $119.7 million, or 20.8%, from 1992. The decrease
in net sales was 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-AOs, three LSD-CVs and four MHCs.
Gross profit for 1993 decreased by $4.6 million, or 12.2%, to
$33.2 million compared to $37.8 million in 1992. The decrease in
gross profit partially reflected the impact of recording the effects
of the settlement with the U.S. Navy on the Company's REAs, which
settlement occurred in late December 1993. Gross profit was also
affected in the fourth quarter of 1993 by the write downs of assets
offered for sale and retroactive adjustments of insurance costs.
SG&A expenses decreased approximately $735,000, or 2.4%, for the
year ended December 31, 1993, as compared to 1992. The decrease in
SG&A expenses reflected the general decline in shipyard activity.
The decreases were partially offset by increases in professional and
other fees associated with the further amendment of the Company's
revolving credit agreements with the Company's banks and the senior
notes. Additionally, the Company experienced increases in bids and
estimates, travel, and selling and product development expenses which
reflected the Company's efforts to secure additional contracts.
Interest expense decreased by $1.9 million for the year ended
December 31, 1993 as compared to the same period in 1992. The
decrease was due primarily to the reduction in the Company's overall
level of debt, which decreased by $28.0 million at December 31, 1993
as compared to 1992.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") and
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Implementation of these statements had
no material impact on the Company's financial position or results of
operations.
The results of operations for the year ended December 31, 1993
were restated to present the service contracting business as
discontinued operations.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled approximately
$33.0 million at September 30, 1995 as compared to $15.4 million at
December 31, 1994. The Company's sources of cash in the first nine
months of 1995 consisted of $22.7 million of funds provided by
operations, proceeds from the sale of assets of $3.2 million and
proceeds from long-term borrowings of $17.8 million. The Company's
primary uses of cash in the nine month period ended September 30,
1995 consisted of capital expenditures of $18.4 million and payment
of long term borrowings of $5.9 million. As further discussed below,
a portion of the cash used for capital expenditures represented
interim funding of the plant modernization project pending the
Company's reimbursement from proceeds of the permanent financing. At
September 30, 1995, $14.3 million of these bond proceeds had been
released to the Company. The Company estimates, based on costs
incurred, that at September 30, 1995, it was entitled to $1.6 million
of the remaining escrow and accordingly included this amount as a
current asset in Restricted Short-term Investments. The balance of
the escrow, $1.9 million at September 30, 1995, was recorded as Funds
Held for Construction. The Company has recorded project costs to date
of approximately $18.3 million of which approximately $15.5 million
were incurred in 1995. Outstanding purchase commitments at
September 30, 1995 were approximately $1.0 million.
On February 10, 1995 the Company announced that it completed
financing of $17.8 million to fund a plant modernization effort at
its main shipyard by issuing mortgage bonds utilizing a Title XI
guarantee. The bonds bear interest at the rate of 8.16% and are
repayable in equal semi-annual principal payments of $593,000 over a
15 year period. In addition to the $17.8 million of mortgage bonds,
the Company also completed the refinancing of approximately $4.3
million of existing Title XI bonds and the reduction of the interest
rate from 9.30% to 7.86%. These bonds are repayable in equal semi-
annual principal payments of $388,000 and mature in the year 2000.
In the second quarter of 1995, the Company obtained additional
liquidity as its improved financial condition enabled it to amend its
revolving credit agreement. The amendment, among other things,
increased the amount available under the credit agreement to $42.5
million and extended its term to May 1997. Further, the amendment
permitted the issuance of the mortgage bonds and revised the level of
permitted capital expenditures and certain coverage ratios to take
into consideration the plant modernization project. While there have
been no borrowings in 1995 under the revolving credit agreement,
there are $25.1 million of letters of credit outstanding under the
facility at September 30, 1995. The Company believes that its
capital resources will be sufficient to finance current and projected
operations.
BUSINESS
Overview
Avondale is one of the largest shipbuilders in the United States,
specializing in the design, construction, conversion, repair and
modernization of various types of ocean-going vessels for the
military and commercial markets. A majority of Avondale's contracts
in recent years has been for U.S. Navy surface ships, although the
Company has secured three large commercial contracts in the past year
for the construction or conversion of double-hulled product carriers.
Management believes the Company's low cost structure, experienced and
skilled work force, sophisticated construction processes and
extensive experience gained over the past 25 years in building a
variety of military and commercial vessels, position the Company to
be one of the most cost-efficient and versatile shipbuilders in the
United States. At September 30, 1995, the Company's shipbuilding
backlog (the "firm backlog") was approximately $1.2 billion
(exclusive of unexercised options aggregating $650 million held by
the U.S. Navy and exclusive of commercial contract awards subject to
financing), of which $1.1 billion was attributable to contracts to
build ships for the U.S. Navy.
During the past 25 years, Avondale has built over 72 vessels for
the U.S. Navy and other military services, ranging from vessels such
as AOs and T-AOs that principally require executing large-scale
steel fabrication at a competitive cost, to highly sophisticated
vessels such as the T-AGS 45, the LSD-CVs and the MHC-51 fiberglass
Minehunters that also require extensive outfitting of electrical,
command and control and weapon systems. U.S. Navy vessels currently
under construction include three TAKR 300 Class Sealift Ships, three
MHC-51 Class Minehunters, two LSD-CVs, one T-AO Oiler and one WAGB-20
Polar Icebreaker. The Company anticipates that it will continue to
focus primarily on securing contracts to construct and convert
military vessels. See "Glossary of Selected Industry Terms."
Within the past year, Avondale has secured several commercial
contracts that should benefit from the Company's expertise and newly
adopted construction techniques. In May 1995, Avondale finalized a
$143.9 million contract to construct four double-hulled forebodies
for product carriers owned by American Heavylift. Construction of
these forebodies has begun and is expected to be completed by mid-
1997. The Company has also signed contracts with a member of the
Primorsk Shipping Group of Nakhodka, Russia for the construction of
seven double-hulled product carriers and with Maritrans, Inc. for the
construction of six double-hulled product carriers. Both the
Primorsk and Maritrans contracts are subject to the owners' receipt
of a Title XI MARAD financing guarantee and call for delivery of all
of the vessels by the end of 1998.
Background. Avondale has historically maintained a flexible,
versatile shipyard and has been the successful bidder for a variety
of marine construction projects. Organized in 1938, Avondale first
began building ocean-going ships in the 1950s. From 1959 to 1985,
the Company was operated as a subsidiary of Ogden Corporation, a
diversified New York Stock Exchange listed company headquartered in
New York, New York. Prior to the 1980s, Avondale built both military
and commercial vessels. In addition to the construction of 27
destroyer escorts for the U.S. Navy, Avondale successfully completed
a variety of construction projects during that period, including
general cargo and multi-product carriers, such as LASH vessels, crude
oil tankers and product carriers. In the early 1980s, however,
several measures were implemented that changed the marine
construction industry significantly. The termination of the U.S.
construction-differential subsidy program in 1981 significantly
curtailed the ability of U.S. shipyards to compete successfully for
international commercial shipbuilding contracts with foreign yards,
many of which are heavily subsidized by their governments. The
effects of the elimination of these subsidies was largely offset,
however, by the initiative to expand the U.S. Navy fleet to 600
vessels, thereby significantly increasing the U.S. Navy shipbuilding
opportunities available to Avondale.
Initially, Avondale capitalized on the U.S. Navy shipbuilding
opportunities through its construction of five AOs during the early
1980s. Since AOs are essentially oil tankers modified to meet
certain military requirements, they were a natural extension of the
product carrier vessels previously built by Avondale.
During the remainder of the 1980s and the first part of this
decade, Avondale steadily expanded the range of vessels that it built
for the U.S. Navy. The Company principally focused on those vessels
that were related to, or natural extensions of, predecessor vessels
previously constructed by Avondale, where Avondale could best
capitalize on its prior experience and proven capabilities. Among
the U.S. Navy vessels built or under construction during this period
were 16 T-AOs, five LSDs, four LSD-CVs, five jumbo AOs (which
constituted conversions of AOs previously built by Avondale), one T-
AGS 45, 15 LCACs and four MHCs.
With the end of the Cold War, and the pressure of domestic budget
constraints, spending for new vessel construction by the U.S. Navy
has been substantially reduced, with the rate of new vessel
construction reduced to approximately 50% of that in the 1980s.
Despite the contraction in U.S. Navy shipbuilding activity,
management believes that Avondale's versatility has been a
significant factor in its successful efforts to restore its backlog,
which efforts have also been bolstered by Avondale's experience in
building vessels comparable to those currently in demand.
U.S. Military. Included in the current firm backlog for the
military are contracts to construct three TAKR 300 Class Sealift
ships for an original value of $673 million. The Sealift ships,
which are designed to assist in the rapid transportation and
deployment of military personnel, equipment and supplies, are
comparable to other vessels, such as auxiliary and amphibious support
ships, that have been constructed previously by the Company for the
military. In addition, the Company has been awarded options to
construct an additional three Sealift vessels for an additional $650
million in the aggregate, which options have not yet been exercised
by the U.S. Navy. The first Sealift ship is scheduled for delivery
in 1998 with the final ship (assuming exercise by the U.S. Navy of
the remaining Sealift options) scheduled for delivery in 2001.
The award of the Sealift contracts was one of a series of
significant military contract awards received by the Company since
the beginning of 1993. In 1993, the Company was awarded a $232.5
million contract for the construction of a WAGB-20 icebreaker vessel
for the U.S. Coast Guard (scheduled for delivery in 1998) and a
contract to build one LSD-CV for the U.S. Navy at a contract price of
$257.5 million. The 1994 LSD-CV award brought the total number of
LSD-CV contracts awarded to the Company to four, with two of the
vessels having been delivered to date, and the final two vessels
scheduled for delivery in 1996 and 1998, respectively. See "Glossary
of Selected Industry Terms" and "- Shipbuilding -- Vessel Deliveries
and Backlog."
In early 1994 Avondale was one of five U.S. shipyards awarded a
contract to undertake a preliminary design study on the U.S. Navy's
LPD-17 (formerly LX) ship. The U.S. Navy has stated its expectation
that the LPD-17 vessels will be a mainstay of the U.S. Navy over the
next two decades, replacing a number of vessels nearing the end of
their useful life. In November 1995, Congress appropriated $974.0
million for the construction of the first of an expected 12 vessels
under the LPD-17 program. The LPD-17, which the U.S. Navy has
announced will be the next significant class of amphibious vessels,
will be outfitted with sophisticated command and control systems, as
well as ship-based weapon systems. The U.S. Navy intends to award
the first LPD-17 contract in mid-1996. See "Risk Factors - Reliance
on Major Customer."
In connection with its pursuit of the LPD-17 contract, Avondale
has announced an alliance with Bath and Hughes Aircraft. Under the
alliance, Avondale would be the prime contractor and the LPD-17 vessels
would be constructed in both the Avondale and Bath shipyards,
with Hughes Aircraft being responsible for integration of the ship's
electronic systems. More recently, Ingalls Shipbuilding, a subsidiary
of Litton Industries, announced that it had formed an alliance with
Tenneco's Newport News Shipbuilding, National Steel and Shipbuilding
Company and Lockheed Martin Government Electronic Systems to pursue the
same contract. Avondale believes that the formation of its alliance
with Bath and Hughes Aircraft, coupled with the Company's low cost
structure and proven experience in building vessels of classes comparable
to the LPD-17 such as the LSD-CVs, will enhance the viability and
competitiveness of the Company's bid for the LPD-17 contracts.
In addition to the LPD-17, there are several other anticipated
U.S. Navy programs that may offer other shipbuilding opportunities to
Avondale including the possible construction of two additional
Sealift vessels, a class of prepositioning vessels for the U.S.
Marine Corps, up to 14 ADC(X) vessels, and the SC-21, which represents
the next generation of surface combatant vessel.
Reemergence of Commercial Shipbuilding. The termination of the
U.S. construction-differential subsidy program in 1981 significantly
curtailed the ability of U.S. shipyards to compete successfully for
worldwide commercial shipbuilding contracts with foreign shipyards,
many of which are heavily subsidized by their governments. Most of
the commercial ships built in the United States since 1981 have been
constructed primarily due to the Jones Act requirement that all
vessels transporting products between U.S. ports be constructed by
U.S. shipyards. However, two recent legislative initiatives have
helped significantly increase U.S. commercial shipbuilding
opportunities.
The Oil Pollution Act of 1990 requires the phased-in transition of
single-hulled tankers and product carriers to double-hulled vessels
beginning January 1, 1995, which has created a demand (that is
expected to continue through the remainder of the decade) for the
retro-fitting of existing tankers and the construction of new double-
hulled tankers, as oil and energy companies and other ship operators
upgrade their fleets to comply with the law. Industry analysts
believe that other countries may pass laws comparable to the Oil
Pollution Act of 1990, which would further increase worldwide demand
for double-hulled product carriers.
In late 1993, Congress amended the loan guarantee program under
Title XI of the Merchant Marine Act, 1936, to permit the U.S.
government to guarantee loan obligations of foreign vessel owners for
foreign-flagged vessels that are built in U.S. shipyards. Title XI
authorizes MARAD to guarantee debt with a term of up to 25 years in
an amount up to 87.5% of the vessel cost, thereby enabling shipowners
to obtain construction financing on more favorable terms than those
currently offered by other countries having guarantee or subsidy
programs for foreign nationals similar to Title XI. These 1993
amendments expanded Title XI in a manner that has attracted foreign
owners and created foreign commercial shipbuilding opportunities for
U.S. yards.
Management believes these initiatives have assisted Avondale in
attracting commercial shipbuilding opportunities during the past
year. In May of 1995, the Company finalized a $143.9 million
contract to construct four double-hulled forebodies for product
carriers owned by a U.S. shipping company. These double-hulled
product carriers are the first U.S.-flag product carriers built in
the United States in eight years. The contract is supported by a
Title XI guarantee by MARAD. Construction has already begun and is
expected to be completed by mid-1997. Avondale believes its receipt
of this contract was further assisted by its prior experience in
constructing three double-hulled T-AOs on behalf of the U.S. Navy.
In August 1995, the Company signed a contract with member of the
Primorsk Shipping Group of Nakhodka, Russia for the construction of
seven double-hulled product carriers. These non-U.S.-flag vessels
will comply with all requirements of the Oil Pollution Act of 1990.
This contract is subject to the receipt of a Title XI financing
guarantee from MARAD, and delivery of all seven vessels is scheduled
prior to the end of 1998. A similar contract for six double-hulled
product carriers was entered into with Maritrans, Inc. in November
1995. These U.S.-flag vessels will comply with all requirements of
the Oil Pollution Act of 1990 and will engage in transportation of
petroleum products between U.S. ports under the Jones Act. The
contract, which is subject to the receipt by the vessel owner of a
MARAD Title XI guarantee, calls for the delivery of all six vessels
by the end of 1998.
Recently, bills have been introduced in the U.S. Congress that
would eliminate the competitive advantages afforded to U.S. yards
under the 1993 amendments to the Title XI guarantee program. This
legislation would implement a December 1994 trade agreement among the
United States, the European Union, Finland, Japan, Korea, Norway and
Sweden (which collectively control over 75% of the market share for
worldwide vessel construction) negotiated under the auspices of the
Organization for Economic Cooperation and Development (the "OECD
Agreement"). The OECD Agreement and related accords seek, among
other things, to eliminate government subsidies provided to
commercial shipbuilders and to adopt a uniform standard of government
credit assistance for foreign nationals. Under these multilateral
accords, each participating nation agreed not to provide credit
assistance to foreign nationals in excess of 80% of the vessel
construction price, and to limit the term of any credit assistance to
not more than 12 years. In mid-December 1995, a subcommittee of the
Ways and Means Committee of the U.S. House of Representatives passed
a bill seeking to implement the OECD Agreement. If this bill is
enacted by Congress in its current form, the Title XI guarantee
program would be modified to be in accord with the uniform credit
assistance standards mandated under the OECD Agreement, thereby
eliminating the advantages to U.S. shipyards under the 1993 Title XI
amendments.
Avondale is not able at this time to assess whether legislation
implementing the OECD Agreement will be enacted by Congress or the
ultimate impact that any such legislation may have. Although the
OECD Agreement promotes the goal of eliminating commercial
shipbuilding subsidies by signatory nations, there can be no
assurance that certain safeguards in the agreement will not be
circumvented or will be adequately enforced, or that worldwide
commercial shipbuilding opportunities may continue to flow to foreign
yards located in signatory nations (which may have developed
structural competitive advantages as a result of their long histories
of subsidization) or may be diverted to non-signatory nations. If
the competitive advantages of the current Title XI guarantee program
are eliminated and the OECD Agreement fails to achieve its
objectives, Avondale's ability to compete for international
commercial shipbuilding contracts will remain limited,
notwithstanding the increased opportunities that are expected to
arise as the average age of the worldwide tanker and product carrier
fleet approaches the end of their useful lives.
The OECD Agreement is not expected to immediately diminish
commercial opportunities arising under the Oil Pollution Act of 1990
and the Jones Act. Legislative bills seeking to rescind or
substantially modify the provisions of the Jones Act mandating the
use of U.S.-built ships for coastwise trade are introduced in
Congress from time to time, and are expected to be introduced in the
future. Although management believes it is unlikely the Jones Act
will be rescinded or materially modified in the foreseeable future,
there can be no assurances to this effect with respect to the Jones
Act or any other law or regulation benefitting U.S. shipbuilders.
Technological Innovations. To assure that its shipyard remains
among the most modern in the world, Avondale regularly reviews and
assesses its construction and production process. In this regard
Avondale often consults with other highly successful shipbuilding
companies concerning advances in shipbuilding technology. In the
early 1980s, the Company was the first U.S. shipyard to successfully
implement modular construction techniques that had previously been
perfected by Japanese shipbuilders. Management believes these
techniques were a major factor in Japan's dominance of the commercial
shipbuilding market during the 1970s. Avondale obtained its modular
construction capabilities and "know-how" pursuant to an agreement
with Ishikawajima-Harima Heavy Industries Co., Ltd. ("IHI"), one of
Japan's largest shipbuilders, which worked with Avondale to change
its manufacturing process and to train Avondale's employees. Modular
construction afforded Avondale significant production efficiencies in
the installation of ship systems, largely due to the greater ease
with which such systems could be installed in open modules rather
than closed-in hulls. As a result of these efforts, Avondale
realized substantial increases in labor productivity.
The Company has also embarked on a modernization program to
enhance its ability to produce and deliver commercial vessels at a
lower cost. In 1994 the Company entered into a technology sharing
agreement with Astilleros Espanoles S.A. ("AESA") of Spain, regarded
as an innovative and successful world-class shipyard. After an on-
site review of Avondale's shipyard by AESA, as well as a review by
Avondale of current shipbuilding technology in other countries,
Avondale invested $20 million in capital improvements designed to
increase efficiency by improving production flow. In particular, the
Company integrated certain assembly line techniques in its modular
construction process. To that end, the Company has built a covered
facility that houses two production lines dedicated to military
vessels and two lines for commercial vessels. Since commercial
vessels generally do not have the same complex internal ship systems
as military vessels, Avondale believes that sheltering the production
process and separating the unit lines will enhance production
efficiencies and lower unit production costs.
Because the construction of commercial vessels, particularly the
product carriers that Avondale has traditionally built, places an
emphasis on steel fabrication rather than the complex technological
outfitting involved in U.S. naval construction, the assembly-line
process implemented by the Company's new production facility should
particularly benefit Avondale's efforts to remain an efficient, low-
cost commercial shipbuilder. In addition, the Company's recent
experience in constructing U.S. naval vessels that are primarily
transport vessels, such as the Sealift and the LSD-CV, can be
beneficially applied to the construction of large-scale commercial
product carriers.
Shipbuilding
The Company is predominantly engaged in the design, construction,
conversion, repair and modernization of various types of military and
commercial vessels.
The main shipyard facility, which is located on a 257-acre site on
the Mississippi River near New Orleans, includes multiple building
ways, side launching facilities, a 900-foot floating dry dock/launch
platform that permits construction of vessels up to 1,000 feet in
length, and a 650-foot floating dry dock principally used for ship
repair. The main shipyard is equipped to build virtually any type of
vessel other than nuclear submarines and surface vessels of the
largest classes, such as ultra-large crude carriers. Avondale also
operates several other facilities in the vicinity of the main
shipyard, including its Westwego yard, which is used primarily for
boat construction and repair, and its Algiers yard, which is used
primarily for the repair and overhaul of ocean-going vessels.
The Company has been and continues to be materially dependent on
the U.S. Navy's ship construction and conversion programs. The
following table sets forth the distribution of marine construction
and repair activities during the last five years based on contract
billings. As the table indicates, a majority of Avondale's work in
the nine months ended September 30, 1995 was comprised of new
military construction. Commercial new construction remained
relatively firm in the first nine months of 1995, with construction
on the four double-hulled forebodies for American Heavylift replacing
the work done on the two gaming boats that were delivered in 1994.
Distribution of Marine Construction and Repair Work
Nine
Months
Year Ended December 31, Ended
__________________________________ September
1990 1991 1992 1993 1994 30, 1995
---- ---- ---- ---- ---- ---------
U.S. MILITARY:
- - New Construction 66% 72% 87% 88% 81% 85%
- - Repair, overhaul and
conversion 12% 13% 6% 2% -- --
COMMERCIAL:
- - New construction 18% 10% 2% 6% 11% 9%
- - Repair, overhaul and
conversion 4% 5% 5% 4% 8% 6%
____ ____ ____ ____ ____ ____
TOTAL 100% 100% 100% 100% 100% 100%
The decrease in new construction for the U.S. Navy in 1994 as
compared to 1993 primarily reflected the advancing stages of
completion on several of the Company's major shipbuilding programs.
Commercial repair, overhaul and conversion increased in 1994 over
1993 as the Company continued work on several contracts with a
private contractor for the repair of Sealift ships, yet declined in
the first nine months of 1995 as work on the Sealift repair contracts
approached completion. See "- Other Operations -- Repair
Operations".
Government Contracting. Avondale's principal U.S. government
business is currently being performed under fixed-price and
fixed-price incentive contracts. Under fixed-price contracts, the
contractor retains all cost savings on completed contracts but is
also liable for the full amount of all cost overruns for which it is
responsible. Fixed-price incentive contracts, on the other hand,
provide for sharing between the government and the contractor of cost
savings and cost overruns based primarily on a specified formula that
compares the contract target cost with actual cost. In addition, such
fixed-price incentive contracts generally provide for escalation of
costs based on published indices relating to the shipbuilding
industry. Although all cost savings are shared under fixed-price
incentive contracts, cost overruns in excess of a specified
amount must be borne entirely by the contractor. Recent contract
awards for the Sealift vessels, the fourth LSD-CV and the Icebreaker
are each fixed-price incentive contracts.
All contracts for the construction and conversion of U.S. Navy
vessels are subject to competitive bidding. As a safeguard to anti-
competitive bidding practices, the U.S. Navy has recently employed
the concept of "cost realism," which requires that each bidder submit
information on pricing, estimated costs of completion and anticipated
profit margins. The U.S. Navy uses this and other data to determine
an estimated cost for each bidder. The U.S. Navy then re-evaluates
the bids by using the higher of the bidder's and the U.S. Navy's cost
estimates.
Under government regulations, certain costs, including certain
financing costs, portions of research and development costs and
certain marketing expenses, are not allowable costs under fixed-price
incentive contracts. The government also regulates the methods by
which overhead costs are allocated to government contracts.
U.S. government contracts are subject to termination by the
government either for its convenience or upon default by the
contractor. If the termination is for the government's convenience,
contracts provide for payment upon termination for items delivered to
and accepted by the government, payment of the contractor's costs
incurred plus the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit.
However, if a contract termination results from the contractor's
default, the contractor is paid such amount as may be agreed upon for
completed and partially completed products and services accepted by
the government. The government is not liable for the contractor's
costs with respect to unaccepted items and is entitled to repayment
of advance payments and progress payments, if any, related to the
terminated portions of the contract and the contractor may be liable
for excess costs incurred by the government in procuring undelivered
items from another source.
The continuation of any U.S. Navy shipbuilding program is
dependent upon the continuing availability of Congressional
appropriations for that program. It is customary for the U.S. Navy
to award contracts to build one or more vessels of a program to a
contractor together with options (exercisable by the U.S. Navy) to
purchase additional vessels in the program. Generally, contracts to
build vessels are not awarded until funds to pay the full contract
have been appropriated. However, because Congress usually
appropriates funds on a fiscal year basis, funds may never be
appropriated to permit the U.S. Navy to exercise options that have
been awarded. In addition, even if funds are appropriated, the U.S.
Navy is not required to exercise the options.
Because its U.S. Navy contracts require the Company to have access
to classified information, Avondale must maintain a security
clearance for its facility. Among other things, facilities with such
clearances must restrict the access of non-U.S. citizens to
classified information. If in the future the percentage of foreign
ownership is increased to a level that could result in foreign
dominance or control of its activities, Avondale would be required to
implement additional measures to insure that classified material
would not be compromised or risk the loss of its security clearance.
Due to the complexity of government contracts and applicable
regulations, contract disputes with the government may occur in the
ordinary course of the Company's business. Based upon management's
analysis of each such dispute and advice of counsel, the Company
records, if appropriate, an estimate of the amount recoverable upon
resolution of such disputes. Currently, the only such amount is the
$23.0 million recorded in anticipation of the settlement of the MHC
REA. Although management believes its estimate is based upon a
reasonable analysis of such disputes, no assurance can be given that
its estimates will be accurate and variances between such estimates
and actual results can be material. The Company believes that
adequate provision has been made in its financial statements for
these and other normal uncertainties incident to its government
business.
There is significant oversight of defense contractors to prevent
waste in the defense procurement process. Areas of contract dispute
are reviewed by the government for evidence of criminal misconduct
such as mischarging, product substitution and false certification of
pricing and other data. In the event the government alleges a
violation of its procurement regulations, it may seek compensatory,
treble or punitive damages in substantial amounts and indictments,
fines, penalties and forfeitures. Although Avondale has never been
subject to such a penalty, indictment can result in suspension or
debarment of the contractor from government contracting for a period
of time.
Vessel Deliveries and Backlog. At September 30, 1995, the Company
had a firm backlog of shipbuilding contracts of approximately $1.2
billion (excluding options aggregating $650 million held by the U.S.
Navy for orders and contracts subject to financing), of which
approximately $130.0 million is expected to be billed in the fourth
quarter in 1995, compared with backlogs of $1.4 billion at December 31,
1994, $1.23 billion at December 31, 1993 and $450.0 million at December
31, 1992. The backlog at September 30, 1995 included $50.0 million to
complete the one remaining T-AO out of the seven awarded in the initial
contract; $150.0 million to complete two of the four LSD-CV vessels that
were awarded (two of which have been delivered by September 30, 1995);
$220.0 million related to the one Icebreaker under a contract awarded
in 1993; and $675.0 million related to three Sealift Ships, under
contracts awarded in 1993 and 1994. Also included in the firm
backlog at September 30, 1995 was $40.0 million to complete three MHCs
out of the four contracted for by the U.S. Navy. The first MHC has
already been delivered. Currently two of the MHCs are scheduled for
delivery in 1996 and one in 1997. Under the terms of Avondale's
contract to construct three Sealift Ships, the U.S. Navy can exercise
options for three additional vessels with an aggregate value in
excess of $650 million. In addition, Avondale has recently signed
three commercial shipbuilding contracts, two of which are subject to
the receipt of a Title XI MARAD financing guarantee.
All major U.S. Navy contracts in the backlog, except for the
contract to construct three LSD-CVs and the last three T-AOs, contain
cost escalation clauses that are intended to compensate the Company
for increases in wage rates and material costs based on industry
indices. The contract to construct the three LSD-CVs and the last
three T-AOs, as originally awarded, contained a cost escalation
clause, but as part of the contract modifications (as discussed under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations") the contracts were converted to fixed-price
contracts.
Vessel deliveries in 1994 and through the first nine months of
1995 included two T-AOs, two LSD-CVs, one MHC and three gaming
vessels. The Company plans to continue to actively pursue other
government construction and conversion opportunities, as well as
commercial opportunities, when they become available.
The Company also has been actively pursuing commercial
shipbuilding opportunities, although international commercial
shipbuilding opportunities remain limited because shipbuilders in
foreign countries are often subsidized by their governments, which
allows them to sell their ships for prices below their construction
costs. Domestic shipbuilding opportunities that are not affected by
foreign subsidies offer better possibilities for the Company. See "-
Overview -- Reemergence of Commercial Shipbuilding."
In connection with the bids and proposals that the Company has
submitted or plans to submit to various commercial and government
customers, no assurance can be given that the vessels will actually
be built or that the Company will be the successful bidder.
Other Operations
Overview. Although the Company has from time to time, on a
limited basis, pursued opportunities to diversify its business,
management strongly believes that the Company's resources are most
profitably employed in marine construction. As noted in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," in order to focus on its core shipbuilding
business and improve liquidity, the Company sold or discontinued
certain of its non-core operations. The Company will continue to
evaluate suitable diversification opportunities, principally those
that would not detract from Avondale's core business and that would
utilize the Company's existing facilities. Among possible
diversification opportunities are: (i) the construction of large
industrial facilities utilizing modular shipbuilding expertise and
project management experience; (ii) the repair and overhaul of U.S.
Navy and commercial vessels; (iii) the construction of semi-
submersible rigs, tension-leg platforms or similar structures used in
the offshore oil and gas industry (which the Company has constructed
from time to time in the past); and (iv) steel fabrication and other
operations.
Modular Construction. The Company has been able to apply its
modular construction methods to a variety of non-marine industrial
fabrication projects, including a sulphur recovery plant that was
shipped to Saudi Arabia for on-site assembly and installation, two
cryogenic gas separation systems, two waste disposal units, six
turbine compressors and turbine generators, six condenser modules for
inclusion in a nuclear power plant, and two sled and receiver modules
for sub-sea pipeline connections. The Company has also fabricated
steel bridges and a hydroelectric plant that was floated up the
Mississippi River and installed in Vidalia, Louisiana in 1990. In
January 1992, the Company delivered to the City of New York an 800-
bed floating detention facility that is 625 feet long, 125 feet wide,
and five stories high. In January 1993, the Company announced its
agreement to participate with Westinghouse Electric Corporation in a
long-term development project involving first-of-its-kind engineering
of Westinghouse's AP600 advanced nuclear reactor.
Avondale's modular construction division has not engaged in any
significant projects since the floating detention center was awarded
in the early 1990s. Although at present there is a minimal level of
production activity in this division, Avondale will continue to
pursue non-shipbuilding marine and industrial-commercial projects
suitable for modular construction as attractive opportunities arise.
Small Vessel Construction. The Company pursues available
opportunities for the construction of special purpose vessels, and
relatively small, special purpose military vessels, commercial
fishing boats, dredges, barges, and ferries.
Boat Division. The Company has a facility equipped for boat
construction at its Westwego, Louisiana yard that is capable of
building vessels up to 450 feet in length. In 1994, the Boat
Division delivered two gaming vessels which are 266 and 210 feet in
length, and in mid-1995 the division delivered a third gaming vessel
which is 350 feet in length. The Boat Division has also recently
signed a $26 million contract to construct river hopper barges for
Ingram Ohio Barge Company. The Boat Division is actively pursuing
other projects, involving the construction of additional gaming boats
as well as passenger vessels and ferries, towboats and other vessels.
The Boat Division's backlog at December 31, 1994, 1993 and 1992 was
approximately $18.3, $13.0 and $2.0 million, respectively.
Steel Operations. Through its Steel Sales operation, Avondale
sells steel plate and structural steel to the marine and industrial
markets in the Gulf Coast region of the United States. Net sales to
other Avondale divisions are not significant. Sales to unrelated
parties for the years ended December 31, 1994, 1993 and 1992 were
approximately $22.4, $19.0 and $18.0 million, respectively.
Repair Operations. At its main yard and the Algiers yard,
Avondale engages in the repair, overhaul and conversion of ocean-
going vessels. With the 900 and 650 foot drydocks located at the
Company's main yard, the Company is capable of offering a complete
range of vessel repairs and overhaul services. The Algiers yard is
operated under a long-term lease and is designed primarily for the
topside repair and overhaul of large ocean-going vessels. Although
historically Avondale has engaged in the repair and overhaul of U.S.
Navy vessels, these opportunities have been curtailed by the U.S.
Navy's current policy of requiring such work to be conducted at or
near their vessels' home ports. See "- Shipbuilding."
Competition
The industry is divided into two distinct markets, U.S. government
contracts, which is dominated by contracts for the U.S. Navy, and
domestic and international shipbuilding contracts for commercial
customers. The reduced level of shipbuilding activity by the U.S.
government during the past decade has significantly intensified
competition. With respect to the market for U.S. military contracts,
there are principally five private U.S. shipyards, including the
Company, that compete for contracts to construct or convert ships.
Three of these companies are subsidiaries of much larger corporations
that have substantially greater financial resources than the Company.
With respect to commercial vessels that must be constructed by a
U.S. shipyard under the Jones Act, there are approximately 20 private
U.S. shipyards that can accommodate the construction of vessels
up to 400 feet in length, ten of which the Company believes are direct
competitors for commercial contracts. Because of the current
overcapacity at U.S. shipyards, the current small volume of
commercial work available, and the fact that most contracts are
awarded on the basis of competitive bidding, price competition is
particularly intense. With respect to the international commercial
shipbuilding market, Avondale competes with numerous yards in several
countries, many of which are heavily subsidized by their governments.
See "- Overview -- Reemergence of Commercial Shipbuilding."
Substantially all military and commercial contracts awarded to
U.S. shipyards are competitively bid. The Company has been successful
recently in securing competitively-bid contracts in large part
because the Company submitted the most cost-effective bids for the
available contracts. The Company believes that it will continue to
be competitive in bidding for selected U.S. Navy and commercial
shipbuilding contracts in the future. However, no assurance can be
given that the Company will be the successful bidder on any future
contracts or that, if successful, it will realize profits on such
contracts.
Marketing
The Company's marketing effort is decentralized and conducted
separately by each division. Generally, the Company and its
competitors are all aware of the shipbuilding, repair and conversion
plans of the U.S. Navy and most prospective commercial customers, and
are invited to bid on all major projects.
The Company's boatbuilding and repair operations are marketed by
the sales and business development personnel of the appropriate
divisions primarily through direct, personal sales calls. The
services of the Steel Sales operation are marketed through industry
advertising, personal sales calls and prior business relationships.
Materials and Supplies
The principal materials used by Avondale in its shipbuilding,
conversion and repair business are standard steel shapes, steel plate
and paint. Other materials used in large quantities include
aluminum, copper-nickel and steel pipe, electrical cable and
fittings. The Company also purchases component parts such as
propulsion systems, boilers, generators and other equipment. All of
these materials and parts are currently available in adequate supply
from domestic and foreign sources.
In connection with its government contracts, the Company is
required to procure certain materials and component parts from supply
sources approved by the U.S. Government. Although certain components
and sub-assemblies are manufactured by subcontractors, the Company's
reliance on subcontractors has been and is expected by management to
continue to be limited. The Company is not dependent upon any one
supply source and believes that its supply sources are adequate to
meet its future needs.
Insurance
The Company maintains insurance against property damage caused by
fire, explosion and similar catastrophic events that may result in
physical damage or destruction to the Company's premises and
properties. The Company also maintains general liability insurance
in amounts it deems appropriate for its business. The Company is
self-insured for workers' compensation liability and employees'
health insurance except for losses in excess of $1.0 million per
occurrence, for which the Company maintains insurance in amounts it
deems appropriate.
Environmental and Safety Matters
General. Avondale is subject to federal, state and local
environmental laws and regulations that impose limitations on the
discharge of pollutants into the environment and establish standards
for the treatment, storage and disposal of toxic and hazardous
wastes. Stringent fines and penalties may be imposed for non-
compliance with these laws and regulations, and certain environmental
laws impose joint and several "strict liability" for remediation of
spills and releases of oil and hazardous substances rendering a
person liable for environmental damage, without regard to negligence
or fault on the part of such person. Such laws and regulations may
expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company which are or were in
compliance with all applicable laws at the time such acts were
performed. The Company is covered under its various insurance
policies for some, but not all, potential environmental liabilities.
The Company is also subject to the federal Occupational Safety and
Health Act ("OSHA") and similar state statutes. The Company has an
extensive health and safety program and employs a staff of safety
inspectors and industrial hygiene technicians, whose primary
functions are to develop Company policies that meet or exceed the
safety standards set by OSHA, train supervisors and make daily
inspections of safety procedures to insure their compliance with
Company policies on safety and industrial hygiene. All supervisors
are required to attend safety training meetings at which the
importance of full compliance with safety procedures is emphasized.
Waste Disposal. Avondale's operations produce a limited amount of
industrial waste products and certain hazardous materials. The
Company's industrial waste products, which consist principally of
residual petroleum, other combustibles and blasting abrasives, are
shipped to third party disposal sites that are licensed to handle
such materials.
Employees
Since September 1985, when all of its outstanding Common Stock was
purchased by the ESOP from Ogden Corporation, Avondale has been owned
principally by its current and former employees. At December 31, 1994,
Avondale had approximately 6,200 employees, many of whom have been
employed by the Company for many years.
None of Avondale's employees is currently covered by any
collective bargaining agreement. Although none of the Company's
employees are unionized, on June 23, 1993 an election was conducted
to determine whether certain of the New Orleans area employees
desired to have union representation. A total of 3,914 workers cast
votes, of which approximately 850 votes were challenged by the [NLRB
and] union organizers on a variety of grounds. Although the union
did receive a majority of the unchallenged ballots, challenged
ballots (which remain under seal) in numbers sufficient to determine
the outcome of the election remain uncounted awaiting the NLRB's
decision. The Company has filed objections with the NLRB seeking
to have the election set aside. The NLRB is currently reviewing
the challenged votes and evaluating the Company's objections to the
election. The hearing officer assigned to the case has recommended to
the NLRB that certain of the disputed votes be counted and that the
Company's objections be rejected. If the NLRB upholds the election
and certifies the union, and that decision is not overturned by subsequent
judicial proceedings, the Company would be required under the federal
labor laws to bargain in good faith with the union on matters such as
wages, hours and other working conditions. Even though Avondale
will only agree to bargaining demands that can be economically
justified, union certification may result in an increased risk that the
union will engage inpotentially disruptive activities such as strikes or
picketing, or that the Company may incur higher labor costs and operating
costs.
The union has also filed numerous unfair labor practice charges
with the NLRB alleging that Avondale has committed a variety of
violations of the National Labor Relations Act principally involving
claims that employees were wrongfully disciplined or discharged.
Although the Company disputes these claims and is waging a vigorous
defense, if there is a finding against the Company, depending on the
facts of each case, the employee would be entitled to back pay from
the time of their claim until the resolution of the case. However,
even if there is a finding in favor of some of the claimants with
respect to one or more of the unfair labor practice claims,
management believes that any judgment would not have a material
impact on Avondale's financial condition, results of operations or
cash flows.
MANAGEMENT
Set forth below is certain information regarding the executive officers
and directors of Avondale.
Name Age Position
_______________________ ____ ______________________________________
Albert L. Bossier, Jr. 63 Chairman of the Board, Chief Executive
Officer and President
Thomas M. Kitchen 48 Vice President, Chief Financial Officer
and Secretary and a director
Kenneth B. Dupont 57 Vice President and a director
Vice Admiral Francis R. 61 Director
Donovan (Retired USN)
William A. Harmeyer 75 Director
Anthony J. Correro, III 54 Director
Hugh A. Thompson 60 Director
Albert L. Bossier has been a director of the Company since 1985
and Chairman of the Board, President and Chief Executive Officer of
the Company since March 1987. From September 1985 until his
appointment as President and CEO, Mr. Bossier was Executive Vice
President of the Company and President of its Shipyards Division, and
from 1978 until September 1985, he was President of Avondale
Shipyards, Inc. when it was a wholly-owned subsidiary of Ogden
Corporation.
Thomas M. Kitchen has been the Vice President, Chief Financial
Officer, Secretary and a director of the Company since March 1987.
From September 1985 until March 1987, he was Vice President and Chief
Financial Officer of the Shipyards Division of the Company, and from
1979 until September 1985, he was Controller of Avondale Shipyards,
Inc. when it was a wholly-owned subsidiary of Ogden Corporation.
Kenneth B. Dupont has been a director and Vice President of the
Company since March 1987.
Vice Admiral Francis R. Donovan, Retired USN, who has been a
director of the Company since August 1994, was in active duty with
the U.S. Navy, most recently as Commander Military Sealift Command
until August 31, 1992. Since September 1992, he has served as a
consultant to various companies on maritime issues, and since November
1994 he has also served as Strategic Mobility Coordinator, PRC Inc.
William A. Harmeyer has been a director of the Company since 1993.
Mr. Harmeyer retired from the Company in 1986. From 1978 until his
retirement, Mr. Harmeyer served as Shipyard Division, Group Vice
President - Production.
Anthony J. Correro, III has been a director of the Company since
1988. For more than five years prior to June 1994, Mr. Correro was a
partner in the law firm of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. Since June 1994 he has been a partner in
the law firm of Correro, Fishman & Casteix, L.L.P.
Hugh A. Thompson, who has been a director of Avondale since 1988,
is a Professor at Tulane University's School of Engineering. From
1976 to 1991 Mr. Thompson was the Dean of the School of Engineering,
Tulane University.
SELLING SHAREHOLDER
All of the 3,000,000 shares of Common Stock offered hereby are
being sold by the ESOP. At December 1, 1995, the ESOP owned
6,847,494 shares of Common Stock, or 47.3% of the outstanding Common
Stock, and after completion of the Offering the ESOP will own
3,847,494 shares of Common Stock, or 26.6% of the outstanding Common
Stock (3,397,494 shares, or 23.5%, if the Underwriters' over-
allotment option is exercised in full). The ESOP Trustees are
Blanche S. Barlotta, R. Dean Church and Rodney J. Duhon, Jr., all three
of whom are officers of the Company with one on medical leave.
The ESOP will bear the expenses of the registration of the shares
of Common Stock offered hereby, other than Avondale's legal and
accounting fees and related costs. The expenses to be paid by the
Company for the registration of the shares of Common Stock offered
hereby are estimated at $_________. The expenses to be paid by the
ESOP are estimated at $_________.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 30,000,000 shares of Common
Stock, $1.00 par value, and 5,000,000 shares of Preferred Stock,
$1.00 par value. As of December 1, 1995, the Company had 14,464,175
shares of Common Stock issued and outstanding, not including 240,971
shares covered by options that are currently exercisable or will be
exercisable within 60 days. No shares of Preferred Stock are
outstanding, but 200,000 shares of Preferred Stock have been
designated Participating Preferred Stock under the Stockholder
Protection Rights Agreement (the "Rights Agreement"), which is
described further below. Generally, all holders of Common Stock are
entitled to one vote for each share of Common Stock held of record on
all matters on which shareholders are entitled to vote. Subject to
any dividend or liquidation preferences that may be accorded to the
holders of any shares of Preferred Stock that may be issued in the
future, holders of Common Stock are entitled to dividends at such
times and in such amounts as the Board of Directors shall determine.
Holders of shares of Common Stock have no preemptive, subscription,
cumulative voting, conversion or redemption rights, and the Common
Stock is not subject to mandatory redemption by the Company.
Certain Provisions of the Articles of Incorporation and By-laws
Certain provisions of the Articles and By-laws and certain
Louisiana statutes, which are described below, may have the effect,
either alone, in combination with each other and the Rights
Agreements, or with the existence of authorized but unissued capital
stock, of making more difficult or discouraging an acquisition of the
Company deemed undesirable by the Board of Directors.
Classified Board of Directors. The Articles and By-laws divide
the members of the Board of Directors who are elected by the holders
of the Common Stock into three classes serving three-year staggered
terms.
Advance Notice of Intention to Nominate a Director. The Articles
and By-laws permit a shareholder to nominate a person for election as
a director only if written notice of such shareholder's intent to
make the nomination, including such information regarding the nominee
as would be required to be included in the Company's proxy statement,
has been given to the Secretary of the Company, generally no less
than 45 days or more than 90 days prior to the meeting. Any
shareholder nomination that fails to comply with these requirements
may be disqualified.
Supermajority and Fair Price Provisions. The Company's Articles
contain certain provisions designed to provide safeguards for
shareholders when a Related Person (as defined below) attempts to
effect a Business Combination (as defined below) with the Company.
In general, a Business Combination between the Company and a Related
Person must be approved by the Board of Directors prior to the time
the Related Person became a Related Person unless certain minimum
price and procedural requirements are satisfied. Furthermore, a
Business Combination must be approved by the affirmative vote of 80%
of the total voting power excluding the voting power of all voting
securities beneficially owned by the acquiring entity, at a
shareholders' meeting called for that purpose. The Business
Combination also must be approved by the vote of the holders of any
class or series of the Company's stock otherwise required by law or
the Articles. These provisions may be amended only by the
affirmative vote of 80% of the total voting power excluding the
voting power of all voting securities beneficially owned by any
Related Person.
For purposes of these provisions, a "Related Person" is defined as
any person or entity, or any group of persons or entities acting in
concert, that is the beneficial owner, directly or indirectly, of 10%
or more of the total voting power of the Company, other than the
Company, any wholly-owned subsidiary of the Company, any employee
stock ownership or other employee benefit plan of the foregoing, or
any trustee of, or fiduciary with respect to, any such plan when
acting in such capacity. The term "Business Combination" is
generally defined to include, among other transactions, any merger,
consolidation, sale of all or substantially all of the assets of the
Company, reclassification, recapitalization, liquidation plan or
similar transaction, all as defined further in the Company's
Articles.
Shareholders' Right to Call Special Meeting. The Articles and By-
laws provide that a special shareholders' meeting may be called by a
shareholder or group of shareholders holding in the aggregate at
least 80% of the Company's total voting power.
Removal of Directors; Filling Vacancies on Board of Directors.
The Articles and By-laws provide that any director elected by holders
of the Common Stock may be removed, only for cause (as defined by the
Articles and Bylaws) by a vote of not less than 80% of the total
voting power at any meeting of shareholders called for such purpose.
Subject to certain limitations, the Articles and By-laws also provide
that any vacancies on the Board of Directors (including any resulting
from an increase in the authorized number of directors) may be filled
by the affirmative vote of at least two-thirds of the entire Board,
provided that the shareholders have the right, at any special meeting
called for that purpose prior to such action by the Board, to fill
the vacancy.
Adoption and Amendment of By-laws. The Articles and By-laws
provide, subject to certain limitations, that By-laws may be adopted
only by a majority of the entire Board of Directors. Generally, By-
laws may be amended or repealed only by (i) a majority of the entire
Board of Directors (except any amendment to or repeal of a by-law
concerning the removal of a director, which requires an affirmative
vote of at least three quarters of the entire Board of Directors) or
(ii) the affirmative vote of the holders of at least 80% of the total
voting power at any shareholders' meeting the notice of which states
that the amendment or repeal is to be considered at the meeting.
Special Shareholder Voting Requirements. Under certain conditions
relating to the presence of a Related Person, an amendment to the
Articles must be approved by the affirmative vote of at least 80% of
the total voting power. When there is no Related Person, an
amendment generally must be approved by the affirmative vote of a
majority of the voting power present at a shareholders' meeting,
unless otherwise specifically provided in the Articles.
Consideration of Tender Offers and Other Extraordinary
Transactions. As permitted by Louisiana law, the Articles expressly
authorize the Board of Directors, when considering a tender offer,
exchange offer, merger or consolidation, to consider, among other
factors, the social and economic effects of the proposal on the
Company and its employees, customers, creditors and the communities
in which it does business.
Limitation of Liability and Indemnification. The Articles provide
that to the fullest extent permitted by Louisiana law, no director or
officer of the Company will be liable to the Company or to its
shareholders for monetary damages for breach of his or her fiduciary
duty as a director or officer. These provisions of the Articles may
only be amended by the affirmative vote of at least 80% of the total
voting power and any amendment or repeal may not adversely affect any
limitation of liability of a director or officer with respect to
action or inaction occurring prior to the amendment or repeal. The
Company's By-laws provide that the Company will indemnify to the full
extent permitted by law any person made or threatened to be made a
party to any action, suit or proceeding by reason of the fact that
such person is or was a director, officer or employee of the Company
or served at the request of the Company as a director, officer or
employee of any other enterprise.
Louisiana Control Share Acquisition Statute. The Louisiana
Control Share Acquisition Statute provides that any shares acquired
by a person or group (an "Acquiror") in an acquisition that causes
such person or group to have the power to direct the exercise of
voting power in the election of directors in excess of 20%, 33 1/3%
or 50% thresholds will have only such voting power as shall be
accorded by (i) the holders of a majority of all shares other than
"interested shares," as defined below, and (ii) a majority of the
total voting power. "Interested shares" include all shares as to
which the Acquiror, any officer of the Company and any director of
the Company who is also an employee of the Company may exercise or
direct the exercise of voting power. The statute permits the
articles of incorporation or by-laws of a company to exclude from the
statute's application acquisitions occurring after the adoption of
the exclusion. As of December 1, 1995, the Company's Articles and
By-laws did not contain such an exclusion.
Louisiana Fair Price Protection Statute. The Articles provide
that the Company claims the benefits of the Louisiana Fair Price
Protection Statute, provided that the statute will not apply to any
business combination, as defined in such statute, involving the
Company's ESOP.
The Louisiana Fair Price Protection Statute requires that any
"business combination" (defined to include a merger, consolidation,
share exchange, certain asset distributions and certain issuances of
securities) with a shareholder who is the beneficial owner of 10% or
more of the voting power of the outstanding voting stock of the
Company (an "interested shareholder"), or an affiliate of an
interested shareholder, be recommended by the Board of Directors.
Additionally, the business combination must be approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast
by outstanding shares of voting stock of the Company voting together
as a single voting group, and (ii) two-thirds of the votes entitled
to be cast by holders of voting stock other than voting stock held by
the interested shareholder who is, or whose affiliate is, a party to
the business combination or an affiliate or associate of the
interested shareholder, voting together as a single group. These
votes are not required if certain minimum price, form of
consideration and procedural requirements are satisfied by the
interested shareholder, or if the Board approves the business
combination before the interested shareholder becomes such.
Louisiana Employee Benefit Plan Protection Statute. Sections 130
through 130.2 of the LBCL may have the effect of deterring a takeover
of a Louisiana corporation with a large pension plan such as the
Company's ESOP. While the statute has not been interpreted by a
court, it may impose liability on any person responsible for losses
suffered by an employee benefit fund as a result of transactions
occurring during a two-year period following a change in the majority
voting ownership of a Louisiana corporation.
Shareholder Rights Plan
In September, 1994, the Board of Directors of Avondale declared a
distribution of one preferred stock purchase right (a "Right") for
each outstanding share of Common Stock held of record at the close of
business on October 10, 1994 (the "Record Time"), or issued
thereafter, subject to the terms of the Rights Agreement. Each Right
currently entitles the registered holder to purchase from the
Avondale one one-hundredth of a share of Participating Preferred
Stock, $1.00 par value ("Participating Preferred Stock"), for $32.00
(the "Exercise Price"), subject to adjustment. The Rights are
represented by the Common Stock certificates and are exercisable only
after an entity acquires 15% or more of the outstanding Common Stock
or commences a tender offer that will result in the entity owning 15%
or more of the Common Stock. After an entity acquires 15% or more of
the outstanding Common Stock, each right would then entitle the
holder (other than the acquiring entity) to purchase, at the exercise
price, the number of shares of Common Stock or other securities of
Avondale (or, in certain situations, the acquiring entity) having a
market value of twice the right's exercise price. The Rights will
expire on October 10, 2004 (the "Expiration Time") unless earlier
redeemed by Avondale, as described below. Until a Right is
exercised, the holder, as such, will have no rights as a shareholder
of Avondale, including without limitation, the right to vote or to
receive dividends.
The Board of Directors of the Company may, at its option, at any
time prior to the close of business on the Flip-in Date, redeem all
(but not less than all) the then outstanding Rights at a price of
$.01 per Right (the "Redemption Price"), as provided in the Rights
Agreement. Immediately upon the action of the Board of Directors of
the Company electing to redeem the Rights, without any further action
and without any notice, the right to exercise the Rights will
terminate and each Right will thereafter represent only the right to
receive the Redemption Price in cash for each Right so held.
The Rights will not prevent a takeover of the Company. However,
the Rights may cause substantial dilution to a person or group that
acquires 15% or more of the Common Stock unless the Rights are first
redeemed by the Board of Directors of the Company. The Rights are
intended to encourage any person desiring to acquire a controlling
interest in the Company to do so through a transaction negotiated
with the Company's Board of Directors rather than through a hostile
takeover attempt. The Rights are intended to assure that any
acquisition of control of the Company will be subject to review by
the Board to take into account, among other things, the interests of
all the Company's shareholders.
Limitation on Foreign Ownership of Common Stock
Certain federal statutes dictate that contractors undertaking work
for the U.S. military maintain a certain percentage of U.S. citizen
ownership. The Company believes that it is currently in compliance
with such statutes but has not to date adopted charter provisions or
other corporate governance measures that have been adopted by other
public companies having similar foreign ownership restrictions that
are intended to assure that such thresholds are not exceeded.
Following completion of the offering, a lower percentage of the
Company's common stock will be held by the ESOP, increasing the
possibility that the percentage of foreign ownership could exceed
federal statutory limitations. The Company may in the future
consider proposing to its shareholders amendments to the Company's
Articles to impose restrictions on foreign ownership as well as
granting the Company certain rights to institute remedial action in
the event the foreign ownership limit is exceeded.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Selling Shareholder has agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of the
Underwriters for whom Salomon Brothers Inc and Johnson Rice & Company
L.L.C. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Selling Shareholder, the number
of shares of Common Stock set forth opposite its name below:
Number of
Underwriters Shares
------------ ----------
Salomon Brothers Inc .................................
Johnson Rice & Company L.L.C. .........................
___________
Total ................................................. 3,000,000
In the Underwriting Agreement, the Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase
all 3,000,000 shares of Common Stock offered hereby if any such
shares of Common Stock are purchased. In the event of a default of
any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriter
may be increased or the Underwriting Agreement may be terminated.
The Selling Shareholder has been advised by the Representatives that
the several Underwriters propose initially to offer such shares of
Common Stock at the public offering price set forth on the cover page
of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of
$ per share to other dealers. After the initial offering, the
public offering price and such concessions may be changed.
The Selling Shareholder has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 450,000 additional shares of Common
Stock at the public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may
exercise such option to cover over-allotments in the sale of the
shares of Common Stock that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each
Underwriter will have a firm commitment, subject to certain
conditions, to purchase a number of option shares proportionate to
such Underwriter's initial commitment.
Upon completion of the Offering, the ESOP will be the recordholder
of 3,847,494 shares or 26.6% of the Company's outstanding Common
Stock (3,397,494 shares, or 23.5%, if the Underwriters' over-
allotment is exercised in full). Although the ESOP is required by
federal law to remain "primarily invested" in Avondale securities, or
face dissolution, the shares of Common Stock that will continue to be
held by the ESOP may be eligible for resale under Rule 144 or
otherwise. The Company and the Selling Shareholder have agreed not
to offer, sell or contract to sell, or otherwise dispose of, or
announce the offering of, any shares of Common Stock, or any
securities convertible into, or exchangeable for, shares of Common
Stock, except the shares of Common Stock offered hereby, for a period
of 120 days, in the case of the Selling Shareholder, and 120
days, in the case of the Company, from the date of this Prospectus,
without the written consent of Salomon Brothers Inc; provided,
however, that the Company may issue and sell Common Stock pursuant to
its existing benefit plans or existing stock option (including
restricted stock) plans, the conversion of existing securities, or
pursuant to the Company's Rights Agreement and that the ESOP may sell
shares if the ESOP committee in good faith determines that its fiduciary
duties require it to sell such shares.
The Underwriting Agreement provides that the Company and the
Selling Shareholder will indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act,
or contribute to payments the Underwriters may be required to make in
respect thereof.
In connection with the Offering certain Underwriters and selling
group members who are qualifying registered market makers on the
Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Act of
1934, during the two business day period before commencement of
offers or sales of the Common Stock offered hereby. Passive market
making transactions must comply with certain volume and price
limitations and be identified as such. In general, a passive market
maker may display its bid at a price not in excess of the highest
independent bid for the security, and if all independent bids are
lowered below the passive market maker's bid, then such bid must be
lowered when certain purchase limits are exceeded.
LEGAL MATTERS
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New
Orleans, Louisiana, will render an opinion that under the Louisiana
Business Corporation Law the shares of Common Stock offered hereby
have been duly authorized and validly issued and are fully paid and
nonassessable.
Vinson & Elkins L.L.P., Houston, Texas, will pass upon certain
legal matters for the Underwriters and Sonnenschein Nath & Rosenthal,
New York, New York, will pass upon certain legal matters for
the Selling Shareholder.
EXPERTS
The consolidated financial statements of Avondale Industries, Inc.
and subsidiaries as of December 31, 1993 and 1994 and for each of the
three years in the period ended December 31, 1994 included and
incorporated by reference in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
report, which is included and incorporated by reference herein, and
have been so included and incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and
auditing.
With respect to the unaudited interim financial information for
the periods ended March 31, 1994 and 1995, June 30, 1994 and 1995 and
September 30, 1994 and 1995, which is incorporated herein by
reference, Deloitte & Touche LLP, have applied limited procedures in
accordance with professional standards for a review of such
information. However, as stated in their reports included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995, and incorporated by
reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be
restricted in light of the limited nature of the review procedures
applied. Deloitte & Touche LLP, are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited interim financial information because those
reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections
7 and 11 of the Act.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), pertaining to the Common Stock covered by this
Prospectus. This Prospectus omits certain information and exhibits
included in the Registration Statement, copies of which may be
obtained upon payment of a fee prescribed by the Commission or may be
examined free of charge at the principal office of the Commission in
Washington, D.C.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and
other information filed with the Commission by the Company can be
inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common
Stock is listed on the Nasdaq National Market (Symbol: AVDL).
Reports, proxy statements and other information concerning the
Company can be inspected at the offices of the Nasdaq National Market
at 1735 K Street, N.W., Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with
the Commission pursuant to the Exchange Act, are by this reference
incorporated in and made a part of this Prospectus: (i) the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-16572); (ii) the Company's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995; and (iii) the description of
the Company's capital stock and associated Rights set forth in its
amendments to its Registration Statement under the Exchange Act on
Form 8-A/A filed with the Commission on December 21, 1995 and
September 30, 1994, respectively.
All reports and other documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of the
offering of the Common Stock offered hereby shall be deemed to be
incorporated by reference herein and to be part of this Prospectus
from their respective dates of filing. Any statement contained in a
document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded to the extent
that a statement contained herein or in any other document
subsequently filed which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person to whom this Prospectus is delivered, upon a written or oral
request, a copy of any or all of the documents that are incorporated
herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to Avondale Industries,
Inc., Attention: Secretary, 5100 River Road, Avondale, Louisiana
70094 (Telephone: (504) 436-2121).
GLOSSARY OF SELECTED INDUSTRY TERMS
ADC(X) A class of auxiliary vessels designed to deliver a steady
stream of fuel, ammunition and stores to the U.S. Navy
fleet. It is currently envisioned that these vessels will
have "Refuel at Sea" capabilities similar to the TAOs
currently under construction at Avondale.
AO An auxiliary oil tanker constructed for the U.S. Navy and
crewed by U.S. Navy personnel.
AOJ An AO which has been "jumboized" i.e., lengthened by
the Company by inserting a 108 foot midbody.
Icebreaker WAGB-20 Polar Icebreaker, which has been ordered by the
U.S. Coast Guard for its polar operations.
Jones Act Merchant Marine Act of 1920, as amended.
LASH Standing for "lighter aboard ship", a LASH vessel is a
vessel which carries its cargo in pre-loaded barges
(lighters). The Company constructed 21 such vessels
in the late 1960s and early 1970s for five commercial
customers.
LCAC Standing for a "landing craft air cushion," a LCAC is
a surface effect vessel that was constructed at the
Company's Gulfport facility. Avondale has built 15 LCACs.
LPD-17 LPD-17 is the next class of amphibious assault ship
proposed by the U.S. Navy.
LSD A landing ship dock designed to carry troops,
materials and up to four LCACs.
LSD-CV Same as LSD, except the "cargo variant" design carries more
cargo and only 2 LCACs.
MARAD United States Maritime Administration, Department of
Commerce.
MHC MHC-51 class fiberglass coastal minehunter.
REAs Requests for Equitable Adjustments submitted by a
government contractor to the U.S. government, as
explained further under the heading "Risk Factors."
SC-21 Standing for "Surface Combatant 21st Century," the SC-
21 class vessel that is the next generation of surface
combatant to be built for the U.S. Navy. As currently
conceived, this vessel would most closely resemble the
Aegis class destroyer.
Sealift As used herein, TAKR 300 Class Sealift vessels are
transport vessels built for the U.S. Navy.
TAGS-45 An oceanographic research vessel constructed by Avondale and
delivered to the U.S. Navy in May 1993.
T-AO Same as an "AO" but operated by the military sealift
command and crewed by a civilian crew.
<PAGE> F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1993
and 1994 and September 30, 1995 (unaudited) F-3
Consolidated Statements of Operations for the years
ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1994 (unaudited) and
1995 (unaudited) F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1992, 1993 and 1994 and the
nine months ended September 30, 1995 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1992, 1993 and 1994 and the nine months ended
September 30, 1994 (unaudited) and 1995 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
<PAGE> F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Avondale Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Avondale
Industries, Inc. and subsidiaries as of December 31, 1993 and 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Avondale Industries, Inc. and
subsidiaries at December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
\s\ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 24, 1995
<PAGE> F-3
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31, September
1993 1994 30, 1995
------ ------ -----------
(unaudited)
ASSETS (Notes 5 and 6)
- ------
Current Assets:
Cash and cash equivalents $ 3,195 $ 15,414 $ 32,976
Restricted short-term investments
(Note 6) 1,811 1,743
Receivables (Note 3) 130,052 84,510 94,878
Inventories (Note 4) 13,609 16,109 16,285
Prepaid expenses and other current
assets (Note 9) 4,741 10,092 5,055
-------- -------- --------
Total current assets 151,597 127,936 150,937
-------- -------- --------
Property, Plant and Equipment:
Land 9,324 9,324 9,162
Buildings and improvements 46,162 47,979 65,623
Machinery and equipment 173,456 174,694 174,739
-------- -------- --------
Total 228,942 231,997 249,524
Less accumulated depreciation (103,400) (112,836) (119,577)
-------- -------- --------
Property, plant and equipment - net 125,542 119,161 129,947
-------- -------- --------
Goodwill - net 17,892 15,431 8,778
Deferred tax assets (Note 9) 7,000 21,844
Funds held for construction (Note 6) 1,942
Other assets 7,108 3,975 4,231
-------- ------- --------
TOTAL ASSETS $302,139 $273,503 $317,679
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable to banks (Note 5) $ 38,303
Current maturities of long-term
debt (Note 6) 6,568 5,866 5,062
Accounts payable 56,797 60,917 66,120
Accrued employee compensation 12,352 12,948 12,709
Other 13,012 13,369 15,738
-------- -------- --------
Total current liabilities 127,032 93,100 99,629
Notes payable to banks (Note 5) 107
Long-term debt (Note 6) 43,741 45,875 60,593
Other liabilities and deferred credits 16,904 11,650 10,988
-------- -------- --------
Total liabilities 187,784 150,625 171,210
-------- -------- --------
Commitments and Contingencies (Notes 6, 8 and 12)
SHAREHOLDERS' EQUITY (Note 11):
- --------------------
Common stock, $1.00 par value; authorized
- 30,000,000 shares; issued - 15,927,191
shares in 1993, 1994 and 1995 15,927 15,927 15,927
Additional paid-in capital 373,911 373,911 373,911
Accumulated deficit (263,627) (255,104) (231,513)
-------- -------- --------
Total 126,211 134,734 158,325
Treasury stock (1,463,016 shares in 1993,
1994 and 1995) at cost (11,856) (11,856) (11,856)
-------- -------- --------
Total shareholders' equity 114,355 122,878 146,469
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $302,139 $273,503 $317,679
======== ======== ========
See Notes to Consolidated Financial Statements.
<PAGE> F-4
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share data)
<TABLE>
<CAPTION> Nine Months Ended
Years ended December 31, September 30,
---------------------------- ---------------------
(unaudited)
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Continuing operations:
Net sales (Note 3) $576,384 $456,724 $475,810 $345,253 $435,148
Cost of sales 538,588 423,544 428,325 309,521 393,131
-------- -------- -------- -------- --------
Gross profit 37,796 33,180 47,485 35,732 42,017
Selling, general and administrative expenses 30,515 29,780 30,536 22,376 23,219
-------- -------- -------- -------- --------
Income from operations 7,281 3,400 16,949 13,356 18,798
Interest expense (10,695) (8,769) (4,385) (3,240) (3,676)
Other - net 234 136 811 595 1,469
-------- -------- -------- -------- --------
Income (Loss) from continuing operations
before ESOP contribution and income taxes (3,180) (5,233) 13,375 10,711 16,591
Net ESOP contribution (Note 10) 8,141 --- --- --- ---
-------- -------- -------- -------- --------
Income (Loss) from continuing operations
before income taxes (11,321) (5,233) 13,375 10,711 16,591
Income taxes (Note 9) 300 --- 7,000
-------- -------- -------- -------- --------
Income (Loss) from continuing operations (11,321) (5,233) 13,075 10,711 23,591
-------- -------- -------- -------- --------
Discontinued operations (Note 7):
Income (Loss) from discontinued operations 104 (3,561) (1,909) (4,552) ---
Disposal costs (2,643) --- ---
-------- -------- -------- -------- --------
Income (Loss) from discontinued operations 104 (3,561) (4,552) (4,552) ---
-------- -------- -------- -------- --------
NET INCOME (LOSS) $(11,217) $ (8,794) $ 8,523 $ 6,159 $ 23,591
======== ======== ======== ======== ========
Income (Loss) per share of common stock
(Note 11):
Continuing operations $ (0.78) $ (0.36) $ 0.90 $ 0.74 $ 1.63
Discontinued operations --- (0.25) (0.31) (0.31) ---
-------- -------- -------- -------- --------
INCOME (LOSS) PER SHARE OF
COMMON STOCK $ (0.78) $ (0.61) $ 0.59 $ 0.43 $ 1.63
======== ======== ======== ======== ========
Weighted average number of shares
outstanding 14,462 14,464 14,481 14,476 14,464
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> F-5
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Additional Note Total
Common Paid-In Accumulated Receivable Treasury Shareholders'
Stock Capital Deficit From ESOP Stock Equity
____________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $15,906 $373,849 $(243,616) $ (8,141) $(11,856) $126,142
Net (loss) (11,217) (11,217)
Repayment from ESOP 8,141 8,141
Other 21 62 83
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 15,927 373,911 (254,833) (11,856) 123,149
Net (loss) (8,794) (8,794)
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 15,927 373,911 (263,627) (11,856) 114,355
Net income 8,523 8,523
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 15,927 373,911 (255,104) --- (11,856) 122,878
Unaudited Period:
Net income 23,591 23,591
-------------------------------------------------------------------
Balance September 30, 1995 $15,927 $373,911 $(231,513) $ --- $(11,856) $ 146,469
===================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> F-6
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Years ended December 31, September 30,
___________________________ ___________________
(unaudited)
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(11,217) $ (8,794) $ 8,523 $ 6,159 $ 23,591
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 12,318 11,810 11,552 8,734 7,207
Deferred income tax benefit --- --- --- --- (700)
Gain on sale of assets --- --- --- --- (813)
Change in operating assets and liabilities,
net of dispositions:
Receivables 22,256 16,634 45,542 59,322 (11,368)
Inventories 2,701 189 (2,500) (1,423) (7,001)
Prepaid expenses and other current assets (2,213) 653 (1,251) (747) 3,237
Accounts payable (27,756) (4,476) 4,120 (6,430) 5,203
Accrued employee compensation (2,568) (248) 596 1,942 (239)
Other - net 3,586 1,098 2,546 2,594 3,548
-------- -------- -------- --------- --------
Net cash provided by (used for) operating
activities (2,893) 16,866 69,128 70,151 22,666
-------- -------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,221) (2,863) (5,120) (2,287) (18,392)
Purchase of investments - net --- --- --- (1,498) (1,874)
Proceeds from sale of assets 9,467 --- 3,248
Repayment of note receivable 2,250 --- ---
Purchase of restricted short-term
investments - net (1,811) --- ---
Payment to former corporate parent (Note 12) (5,000) (5,000) ---
-------- -------- -------- --------- --------
Net cash provided by (used for) investing
activities 29 6,604 (11,931) (8,785) (17,018)
-------- -------- -------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings (12,001) (27,888) (81,228) (81,228) (5,866)
Proceeds from issuance of long-term borrowings 6,728 36,250 36,250 17,780
Repayment of ESOP note receivable 8,141 --- ---
-------- -------- -------- --------- --------
Net cash provided by (used for) financing
activities 2,868 (27,888) (44,978) (44,978) 11,914
-------- -------- -------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4 (4,418) 12,219 16,388 17,562
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,609 7,613 3,195 3,195 15,414
-------- -------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,613 $ 3,195 $ 15,414 $ 19,583 $ 32,976
======== ======== ======== ========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 10,481 $ 8,659 $ 4,537 $ 2,810 $ 3,532
======== ======== ======== ========= ========
Note issued in litigation settlement --- --- --- --- $ 2,000
========
Note issued to corporate parent --- --- --- $ 8,000 ---
=========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> F-7
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
______________________________________________
Principles of Consolidation
The consolidated financial statements include the accounts
of Avondale Industries, Inc. and its wholly-owned
subsidiaries ("Avondale" or the "Company") which are
primarily engaged in marine construction and repair. All
significant intercompany transactions have been
eliminated.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial
statements at September 30, 1995 and for the nine months
ended September 30, 1994 and 1995 have been prepared in
accordance with generally accepted accounting principles
for interim financial information and Rule 10-01 of
Regulation S-X. In the opinion of the 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. Results of operations for the
interim periods are not necessarily indicative of the
results that may be expected for any other interim period
or for the year as a whole.
Revenue Recognition
Profits on long-term contracts are recorded on the basis
of the Company's estimates of the percentage of completion
of individual contracts, commencing when progress reaches
a point where contract performance is sufficient to
estimate final results with reasonable accuracy.
Estimates of the percentage of completion are based on
direct labor charges. Revisions in cost and profit
estimates during the course of the work are reflected in
the accounting period in which the facts requiring the
revisions become known. Amounts in excess of agreed upon
contract price for customer caused delays, disruptions,
unapproved change orders or other causes of additional
contract costs are recognized in contract value if it is
probable that the claim for such amounts will result in
additional revenue and the amount can be reasonably
estimated (see Note 3). Provisions for estimated losses,
if any, on uncompleted contracts are made in the period in
which such losses are determined.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash
equivalents.
Fair Value Disclosures
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments"
("SFAS 107"), requires the disclosure of the fair value of
all significant financial instruments. The estimated fair
value amounts have been developed by the Company based on
available market information and appropriate valuation
methodologies. However, considerable judgment is required
in developing the estimates of fair value. Therefore,
such estimates are not necessarily indicative of the
amounts that could be realized in a current market
exchange. After such analysis, management believes that
the carrying value of the Company's significant financial
instruments approximates fair value.
Inventories
Inventories are recorded principally at the lower of cost
(average or first-in, first-out) or market.
Property, Plant and Equipment
<PAGE> F-8
Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is computed
in the financial statements on the straight-line method
based on estimates of useful lives as follows:
Type Period
Machinery and equipment 3-20 years
Buildings and improvements 15-40 years
Accelerated depreciation methods are generally used for
income tax purposes. Maintenance and repairs are charged
directly to expense as incurred. Additions, improvements
and major renewals are capitalized.
Goodwill
Goodwill represents the excess of the purchase price over
the underlying fair value of the net assets of acquired
businesses and is being amortized on a straight-line basis
over its estimated useful life of twenty years.
Management evaluates the continuing value and future
benefits of goodwill, including the appropriateness of
related amortization periods, on a current basis.
The recoverability of goodwill is assessed by determining
whether the unamortized balance can be recovered through
projected cash flows and operating results over its
remaining life. Any impairment of the asset is recognized
when it is probable that such future undiscounted cash
flows will be less than the carrying value of the asset.
Accumulated amortization at December 31, 1993 and 1994
amounted to $72.2 million and $73.7 million, respectively.
Income Taxes
The Company and its subsidiaries file a consolidated
Federal income tax return. Deferred income taxes are
provided in the financial statements, where necessary, to
account for the tax effect of temporary differences
resulting from reporting revenues and expenses for income
tax purposes in periods different from those used for
financial reporting purposes. The temporary differences
result principally from the use of different methods of
accounting for depreciation, long-term contracts and
certain employee benefits.
2. REA Settlement
During 1992, the Company submitted Requests for Equitable
Adjustments ("REAs") to the U.S. Navy with respect to
certain of its significant shipbuilding contracts. In
December 1993, the Company and the U.S. Navy agreed to
settle these REAs for approximately $145 million. The
settlement partially compensated the Company for design
changes and other factors that had led to significant cost
overruns on those contracts that were the subject of the
REAs.
In December 1993, the Company invoiced approximately $90
million of the settlement amount, all of which it had
received by the end of April 1994. The balance is being
billed over the remaining period of performance under the
affected contracts. The Company's receipt of this cash
enabled it to retire the outstanding balances of its
revolving credit facilities and the senior notes totalling
approximately $44 million at December 31, 1993 (see Notes
5 and 6).
3. Receivables
_____________
Receivables consisted of the following at December 31,
1993 and 1994 (in thousands):
1993 1994
-------- --------
Long-term contracts:
U.S. Government:
Amounts billed $ 91,126 $ 13,754
Unbilled costs, including retentions, and
estimated profits on contracts in progress 16,554 48,254
-------- --------
Total 107,680 62,008
Commercial:
Amounts billed 8,820 7,568
Unbilled costs, including retentions, and
estimated profits on contracts in progress 10,219 10,914
-------- --------
Total from long-term contracts 126,719 80,490
Trade and other current receivables 3,333 4,020
-------- --------
Total $130,052 $ 84,510
======== ========
<PAGE> F-9
Unbilled costs, including retentions, and estimated
profits on contracts in progress were not billable to
customers at the balance sheet dates under terms of the
respective contracts. Of the unbilled costs and estimated
profits, approximately $7.7 million is expected to be
collected in 1995 with the balance to be collected in
subsequent years as contract deliveries are made and
warranty periods expire. Net sales to the United States
Government in 1992, 1993 and 1994 account for
approximately 84%, 79% and 77% of the net sales,
respectively.
Costs and estimated profits (losses) on contracts in
progress at December 31, 1993 and 1994 were as follows (in
thousands):
1993 1994
------------ ------------
Costs incurred on contracts in progress $ 1,743,347 $ 2,177,750
Estimated profits recognized 7,530 25,634
Reserve for anticipated contract losses (39,000) (39,000)
----------- -----------
Total 1,711,877 2,164,384
Less billings to date (1,698,763) (2,108,384)
----------- -----------
Net value of contracts in progress $ 13,114 $ 56,000
=========== ===========
Net value of contracts in progress was comprised of the following amounts:
1993 1994
________ ________
Unbilled costs and estimated
profits on contracts in progress
(included in receivables) $ 27,773 $ 59,168
Billings in excess of costs and estimated
profits on contracts in progress (included
in accounts payable) (13,659) (3,168)
-------- --------
Total $ 13,114 $ 56,000
======== ========
The reserve for anticipated contract losses of $39.0
million included in the net value of contracts in progress
at December 31, 1993 and 1994 is related to certain U.S.
Navy contracts which are presently scheduled for delivery
at varying dates into 1996. The reserve was established
when, as a result of revised estimates based on
representative experience, it was evident that losses
would be incurred on these contracts.
The Company has filed 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 highly sophisticated
vessel 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") technology that was originally
developed by a foreign shipyard engaged in the
construction of other MHC ships. The foreign shipyard
also was required to license the necessary technology and
know-how for the design and construction of the vessels to
the Company. The Company believes that 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 had been performed on a break-even basis following
the Company's recording of a reserve for contract losses
as part of the overall resolution of the Company's Request
for Equitable Adjustments ("REAs") which 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 and $23 million as of
December 31, 1994 and June 30, 1995, respectively, in
quantifying the minimum probable amount of recovery is
unreasonable, management concluded in the third quarter of
1994 and the second quarter of 1995 that it was
appropriate to offset the loss that it would have
otherwise had to recognize with respect to the MHC program
by such amounts. In addition, the effects of the cost
increase have been partially offset also 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
$23 million recognized is not recovered, then losses in
addition to those taken in 1993 will have to be recorded.
The Minehunter REA is currently being evaluated by the
U.S. Navy.
<PAGE> F-10
4. Inventories
Inventories consisted of the following at December 31,
1993 and 1994 (in thousands):
4. Inventories
_______________
Inventories consisted of the following at December 31, 1993 and 1994 (in
thousands):
1993 1994
--------- ---------
Goods held for sale $ 4,604 $ 7,908
Materials and supplies 9,005 8,201
--------- ---------
Total $ 13,609 $ 16,109
========= =========
5. Notes Payable to Banks
__________________________
Notes payable to banks consisted of the following at December 31, 1993 (in
thousands):
1993
________
Revolving credit agreement with various financial
institutions $ 29,909
Revolving bank credit agreement 8,378
Other 123
--------
Total 38,410
Less current maturities (38,303)
--------
Notes payable to banks, noncurrent $ 107
========
The terms of both revolving credit agreements required the
unpaid balances at December 31, 1993 to be due April 1,
1994 and provided for interest at fluctuating annual rates
based on base rates as defined. The interest rate at
December 31, 1993 was 7.5%. Both revolving credit
agreements as well as the senior notes (see Note 6) were
secured by substantially all of the Company's otherwise
unencumbered assets and, among other things, required the
Company to meet certain financial and operating covenants.
As discussed in Note 2 and as required by both revolving
credit agreements, cash receipts from the settlement of
the REAs were used to retire the outstanding balances of
these credit agreements during January 1994.
During May 1994, the Company entered into a two-year
revolving credit agreement with various financial
institutions which establishes an available line of credit
equal to the lesser of $35 million or a specified
borrowing base. The credit facility provides the Company
with the right to require the bank group to post letters
of credit on the Company's behalf in support of its
operations. At December 31, 1994, $23.3 million of
letters of credit were outstanding under the facility.
Borrowings under the facility bear interest at fluctuating
rates. There were no borrowings under the credit facility
during 1994. The credit facility is collateralized by
substantially all of the Company's working capital assets
and its 900-foot floating drydock and, among other things,
(1) requires the Company to meet certain financial
covenants (relating to net worth, debt coverage, interest
coverage and backlog), (2) imposes limitations and
restrictions related to annual capital expenditures, the
incurrence of new indebtedness and the payment of
dividends and (3) requires compliance with the terms and
conditions of all other debt agreements.
<PAGE> F-11
In the second quarter of 1995 the Company amended its
revolving credit agreement. The amendment, among other
things, increased the amount available under the credit
agreement to $42.5 million and extended its term to May
1997. Further, the amendment permitted the issuance of
the mortgage bonds and revised the level of permitted
capital expenditures and certain coverage ratios to take
into consideration the plant modernization project (see
Note 6). While there have been no borrowings in 1995
under the revolving credit agreement, there are $25.1
million of letters of credit outstanding under the
facility at September 30, 1995.
6. Long-term Debt
________________
Long-term debt consisted of the following at December 31,
1993 and 1994 (in thousands):
1993 1994
_________ _________
Industrial revenue bonds $ 36,250 $ 36,250
Mortgage bonds, interest at 9.3%, payable
in semi-annual principal installments to 2000 5,432 4,656
Senior notes 5,707
General obligation industrial bonds, interest at 7%,
payable in annual installments to 2011 2,920 2,835
Other long-term debt 8,000
--------- ---------
Total 50,309 51,741
Less current maturities of long-term debt (6,568) (5,866)
--------- ---------
Long-term debt $ 43,741 $ 45,875
========= =========
The industrial revenue bonds at December 31, 1993
represented Series 1983 bonds bearing interest at 8.25%
which were due June 2001. These bonds were subject to
optional redemption by bondholders effective June 1993 and
were secured by a continuing guarantee of Ogden
Corporation ("Ogden"), the Company's former corporate
parent, and an irrevocable letter of credit. During June
1994, the Company completed the issuance of $36.25 million
of Series 1994 refunding bonds ("Series 1994 bonds")
resulting in the refinancing and redemption of the Series
1983 bonds. The Series 1994 bonds consist of (1) $6
million bearing interest at 8.25% and payable in annual
principal installments ranging from $550,000 in 1997 to
final payment of $985,000 in 2004 and (2) $30.25 million
bearing interest at 8.50% and payable in annual principal
installments ranging from $340,000 in 1997 to final
payment of $3.8 million in 2014.
The Series 1994 bonds are secured by certain property and
equipment and a debt service reserve fund comprised of
short-term investments aggregating $1.8 million at
December 31, 1994. The collateral in the debt service
reserve fund at September 30, 1995 consists of a $2.7
million letter of credit issued under the Company's
revolving credit facility (see Note 5). Among other
things, the terms and conditions of the Series 1994 bonds
(1) require the Company to meet certain financial
covenants (relating to net worth, debt and debt service
coverage and liquidity), (2) impose limitations and
restrictions related to the incurrence of new indebtedness
and the payment of dividends, and (3) require compliance
with the terms and conditions of other specified debt
agreements.
The mortgage bonds are guaranteed by the United States
Government under Title XI of the Merchant Marine Act,
1936, as amended, and include various restrictive
covenants including provisions relating to the maintenance
of working capital, incurrence of additional indebtedness
and the maintenance of a minimum net worth. Property,
plant and equipment having a net book value of
approximately $13.8 million at December 31, 1994 has been
pledged as collateral for the mortgage bonds. In
February 1995, the Company completed the refinancing of
the remaining balance of these mortgage bonds
(approximately $4.3 million in February 1995) which
reduced the interest rate from 9.30% to 7.86%. The
refinancing agreement contains various restrictive
covenants similar to those discussed above. These bonds
are repayable in equal semi-annual principal installments
of $388,000 and mature in the year 2000.
The senior notes, bearing interest at the annual rate of
11.29% at December 31, 1993, required principal payments
of $2 million on May 1, 1994 and 1995, with the remaining
unpaid balance due on May 1, 1996. The senior note
agreements also required the Company to comply with
certain financial and operating covenants similar to the
revolving credit agreements discussed in Note 5. As
discussed in Note 2 and as required by the terms of the
related agreements, cash receipts from the settlement of
the REAs were used to retire the outstanding balances of
the senior notes during January 1994.
<PAGE> F-12
Other long-term debt of $8 million at December 31, 1994
represents a two-year unsecured note issued to Ogden as
part of the settlement in 1994 which terminated certain
arrangements with Ogden which had existed since the Spin
Off in 1985 (see Notes 10 and 12). The note bears
interest at 10% per annum and is payable in $5 million and
$3 million installments in 1995 and 1996, respectively.
At December 31, 1994, annual maturities of long-term debt
for each of the next five years and in total thereafter
follow (in thousands):
1995 $ 5,866
1996 3,876
1997 1,771
1998 1,861
1999 1,951
Thereafter 36,416
Total $51,741
In February 1995 the Company completed financing of $17.8
million of its approximately $20 million plant
modernization effort by issuing mortgage bonds utilizing a
U.S. Government guarantee under Title XI of the Merchant
Marine Act, 1936, as amended. The bonds bear interest at
the rate of 8.16% and are payable in equal semi-annual
principal payments of $593,000 over a 15 year period
beginning March 30, 1996.
The terms of the Title XI guarantee provide for the bond
proceeds to be held in escrow and released to the Company
as allowable project costs are incurred by the Company and
approved by the U.S. Department of Transportation,
Maritime Administration. At September 30, 1995, $14.3
million of these bond proceeds have been released to the
Company. The Company estimates, based on costs incurred,
that it is currently entitled to $1.6 million of the
remaining escrow and, accordingly, has included this
amount as a current asset in Restricted Short-term
Investments. The balance of the escrow, $1.9 million at
September 30, 1995, is recorded as Funds Held for
Construction.
7. Discontinued Operations
During the third quarter of 1994 the Company decided to
discontinue operation of its service contracting
subsidiary formed in 1990 to pursue large-scale service
contracts with government and commercial operations. The
Company concluded that managerial and financial resources
could be more productively invested in the Company's core
marine construction operations. The Company expects the
subsidiary to complete its current contracts in the first
quarter of 1995.
The operating results of the service contracting
subsidiary for the current and prior-year periods are
reported as discontinued operations. Summarized results
of the subsidiary are as follows (in thousands):
1992 1993 1994
Net sales $15,627 $14,442 $13,520
Costs and expenses 15,523 18,003 15,429
------- ------- -------
Income (Loss) from discontinued operations 104 (3,561) (1,909)
Loss on disposal of discontinued operations --- --- (2,643)
------- ------- -------
Income (Loss) from discontinued operations $ 104 $(3,561) $(4,552)
======= ======= =======
8. Leases
_______
The Company leases equipment and real property in the
normal course of business under various operating leases,
including non-cancelable and month-to-month agreements.
Certain of the leases provide for renewal privileges with
escalation of the lease payments based on changes in
selected economic indices.
<PAGE> F-13
Rental expense for operating leases was $7.3 million, $5.3
million and $5.8 million in 1992, 1993 and 1994,
respectively.
Minimum rental commitments under leases having an initial
or remaining noncancelable term in excess of twelve months
follow (in thousands):
1995 $3,212
1996 3,025
1997 1,480
1998 380
1999 104
________
Total $8,201
========
9. Income Taxes
________________
Effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." The statement requires the use of the
asset and liability approach for financial accounting and
reporting for income taxes. Financial statements for
prior years have not been restated and the cumulative
effect of the accounting change was not material.
The 1994 income tax provision of $300,000 consists of a
current income tax provision of $600,000 and a deferred
income tax benefit of $300,000. During 1993 and 1992 a
provision for income taxes was not recorded due to the
loss from operations.
The provision for income taxes varied from the Federal
statutory income tax rate due to the following (dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994
------------- ------------- ------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Taxes at Federal statutory rate $(3,814) (34) $(3,078) (35) $3,088 35
Amortization of goodwill
not deductible 347 3 357 4 511 6
Net operating loss and tax credit
carryforwards not utilized 3,579 32 2,595 30 --- ---
Settlement of prior year
tax examinations (3,200) (36)
Other (112) (1) 126 1 (99) (1)
------- --- ------- ---- ------ ---
Total $ --- --- $ --- --- $ 300 4
</TABLE>
At December 31, 1994 the Company has available for Federal
income tax purposes net operating loss carryforwards and
tax credit carryforwards of $136 million and $5.2 million,
respectively, expiring in years 2000 through 2009.
Additionally, the Company has $600,000 of minimum tax
credits which may be carried forward indefinitely.
<PAGE> F-14
Deferred income taxes represent the net tax effects of (a)
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and their tax bases, and (b) operating loss and tax credit
carryforwards. The tax effects of significant items
comprising the Company's net deferred tax balances at
December 31, 1993 and 1994 are as follows (in thousands):
1993 1994
Deferred Tax Liabilities:
Differences between book
and tax basis of property, plant and equipment $ 30,890 $ 27,018
Other 2,544 1,511
--------- ----------
Total 33,434 28,529
Deferred Tax Assets:
Reserves not currently deductible 9,515 6,020
Long-term contracts 2,053 5,252
Other temporary differences 2,578 3,598
Operating loss carryforwards 40,250 47,600
Tax credit carryforwards 4,806 5,800
--------- ----------
59,202 68,270
Valuation Allowance (25,768) (28,641)
--------- ----------
Total 33,434 39,629
Net deferred tax assets $ --- $ 11,100
========= ==========
At December 31, 1994, prepaid expenses and other current
assets includes net deferred tax assets of $4.1 million.
Also, at December 31, 1994 other current liabilities
include $600,000 of current income taxes payable.
During 1994, the deferred tax valuation allowance
increased approximately $16.6 million due to additional
acquired tax assets, primarily relating to operating loss
carryforwards, which will become available to the Company
as a result of the disallowance of certain income tax
deductions in periods prior to the Spin Off from its
former corporate parent. The deferred tax valuation
allowance decreased approximately $14 million as a result
of the Company's current year operating results and a re-
evaluation of its expectations of the likelihood of future
operating income related to its existing backlog. This
decrease in the valuation allowance was recorded as a
reduction in goodwill in accordance with SFAS 109, which
requires that the realization of tax benefits first be
attributed to any acquired tax assets. In the event that
additional tax benefits are realized in future periods,
the first $5 million of such benefits will also be
recorded as a reduction in goodwill, rather than as a
reduction of income tax expense.
During the nine month period ended September 30, 1995, the
deferred tax valuation allowance decreased by $18 million
in accordance with ongoing evaluations of the Company's
ability to utilize net operating loss carryforwards. The
first $5 million of this decrease was recorded as a
reduction in goodwill in accordance with SFAS 109. The
remaining $13 million was recorded as a reduction of
income tax expense in the second and third quarters of
1995 ($5 million and $8 million, respectively). The net
income tax benefit of $7 million recorded for the nine
month period ended September 30, 1995 includes the $13
million deferred tax benefit net of a tax provision of $6
million related to current period operating results. The
recognition of any additional available tax benefit
(approximately $9.5 million at September 30, 1995) will
depend on future assessments of estimated taxable income.
10. Retirement Plans
__________________
During 1985, the Avondale Industries, Inc., Employee Stock
Ownership Plan (the "ESOP") purchased the common stock of
the Company from its former corporate parent (the "Spin-
Off") for $282 million in cash, $190 million of which was
borrowed from the Company (the "ESOP Loan"). The ESOP
Loan, which was collateralized by common stock of the
Company held by the ESOP, was paid in full during January
1992.
ESOP
The ESOP is a qualified, defined contribution plan
designed primarily to invest in equity securities of the
Company and is specifically authorized to leverage its
acquisition of these securities. The ESOP is intended to
cover all employees of the Company upon completion of one
year of service, except certain employees who are covered
by collective bargaining agreements, unless, by the terms
of such agreements, the employees are to participate in
the ESOP.
<PAGE> F-15
The ESOP owned approximately 7,096,000 and 7,348,000
shares of the Company's common stock at December 31, 1994
and 1993, respectively. The ESOP Loan was repaid with the
funds derived from contributions made by the Company,
determined at the discretion of management, to the ESOP
for the benefit of its eligible employees and for which
the Company received a Federal income tax deduction. The
shares of common stock acquired by the ESOP with the ESOP
Loan were held in a suspense account, and each year, as
the ESOP made payments on the ESOP Loan, a proportional
number of shares were released from the suspense account
and prorated among the individual accounts maintained for
ESOP participants based on their compensation.
Pension Plan
The Company also sponsors a defined benefit pension plan,
which is coordinated with the benefits payable to
participating employees in the ESOP. At retirement, a
person's benefit is based upon the greater of (i) the
market value of the shares of common stock, allocated to
his ESOP account or (ii) the benefit calculated under the
pension plan formula. The pension plan formula benefits
are based on a defined dollar amount times a fraction
related to a participant's credited service.
The net periodic pension cost for the years ended December
31, 1992, 1993 and 1994 included the following components
(in thousands):
1992 1993 1994
_______ ________ _______
Service costs of the current period $2,600 $3,700 $3,400
Interest cost on the projected benefit obligation 3,600 4,400 3,800
Actual return on plan assets (5,000) (7,000) (2,700)
Net amortization of transition liability and
deferred investment gain (loss) 2,900 5,000 (200)
------ ------ ------
Net periodic pension cost $4,100 $6,100 $4,300
====== ====== ======
The following table sets forth the pension plan's estimated funded status as
of December 31, 1993 and 1994 (in thousands):
1993 1994
_______ __________
Projected benefit obligation:
Vested benefits $43,000 $40,800
Nonvested benefits 700 600
________ __________
Accumulated benefit obligation 43,700 41,400
Effect of projected future compensation levels 5,100 4,200
________ __________
Projected benefit obligation 48,800 45,600
Plan assets at market value 45,700 44,200
________ __________
Plan assets less than projected benefit obligation (3,100) (1,400)
Unrecognized net transition obligation 200 200
Unrecognized prior service costs (3,000) (3,000)
Unrecognized net loss 10,200 6,800
________ __________
Prepaid pension costs $ 4,300 $2,600
======== ==========
The Company's funding policy is to contribute each year an
amount equal to the minimum required contribution under
the Employee Retirement Income Security Act of 1974.
However, the contribution for any year will not be greater
than the maximum tax deductible contribution. Plan assets
consist primarily of United States Government and Agency
securities, corporate bonds and notes, corporate stocks,
and an unallocated insurance contract. The weighted-
average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5%
for 1993 and 8.5% for 1994. The rate of increase in
future compensation levels used was 1% for 1993 and 3.5%
for 1994 and thereafter. The expected long-term rate of
return on the assets was 9% for 1993 and 1994.
<PAGE> F-16
11. Shareholders' Equity
____________________
Preferred Stock
The Company is authorized to issue 5,000,000 shares of
preferred stock, $1.00 par value, none of which was
outstanding at December 31, 1993 and 1994.
Income (Loss) Per Share
The weighted average number of shares used in the
computation of income (loss) per share was 14,462,000,
14,464,000 and 14,481,000 for the years ended December 31,
1992, 1993 and 1994, respectively. The assumed exercise
of stock options would not result in dilution in any of
such periods.
Performance Share Plan
The Company's Performance Share Plan provided for the
award of shares of common stock to senior executives of
the Company, as designated by a committee of the Board of
Directors, which were earned upon the attainment of
specified performance objectives. These performance
objectives have been attained and therefore no further
awards will be made. Transactions relating to the plan
during 1992, 1993 and 1994 were not material.
The plan provided for a cash distribution in an amount
equal to the Participant's income tax liability resulting
from the settlement of an award. To the extent that a
Participant received cash in lieu of common stock as
payment of an award, options were granted to the
participant to purchase an equivalent number of such
shares. There were 303,159 stock options outstanding at
December 31, 1992 and 1993 and 279,155 stock options
outstanding at December 31, 1994. The stock options are
exercisable at prices of $3.875 to $19.00 per share, the
majority of which contain a stock appreciation right
feature and expire on various dates to February 2002.
Stock Appreciation Plan
The Company maintains a Stock Appreciation Plan for key
management employees which contains a stock appreciation
right feature. There are 500,000 shares of common stock
of the Company reserved for award under the plan.
Transactions of the Stock Appreciation Plan during 1992,
1993 and 1994 were as follows:
Number of Shares
1992 1993 1994
--------- --------- ---------
Outstanding, January 1 152,000 60,000 50,000
Canceled (92,000) (10,000) (10,000)
------- ------- -------
Outstanding, December 31 60,000 50,000 40,000
======= ======= =======
Exercisable at end of year 6,000 2,000 ---
======= ======= =======
Available for grant at end of year 377,000 387,000 397,000
======= ======= =======
Options were outstanding at prices ranging from $11.25 to
$18.375 per share at December 31, 1992 and 1993 and of
$11.25 per share at December 31, 1994. Under the terms of
the plan, options expire on March 31, 1995.
12. Commitments and Contingencies
______________________________
Litigation
In January 1986, the Louisiana Department of Environmental
Quality ("DEQ") advised the Company that it may be a
potentially responsible party ("PRP") with respect to an
oil reclamation site operated by an unaffiliated company
in Walker, Louisiana. The Company sold to the operator a
substantial portion of the waste oil that was processed at
the reclamation site during the period 1978 through 1982.
The Company's potential liability, if any, for cleanup of
this site will be based on the Comprehensive Environmental
Response, Compensation and Liability Act of 1980
("CERCLA") or the Louisiana Environmental Affairs Act.
Under these statutes, such liability is presumptively
joint and several, but is typically apportioned among the
responsible parties based on the volume of material sent
by each to the waste site. The Company has cooperated
with other PRPs to study the potential aggregate liability
under these statutes. Moreover, the Company believes it
has substantial defenses against liability and defenses
that could mitigate the portion of liability, if any, that
would otherwise be attributable to it.
<PAGE> F-17
To date, the Company and certain of the other PRPs for the
site have funded the site's remediation under a
preliminary cost-sharing agreement. As of December 31,
1994, clean-up costs totalled $15 million, of which the
Company has contributed $3.5 million. Additional remedial
work scheduled for the site includes the completion of a
Remedial Investigation/Feasibility Study in 1995 to 1996,
and, if required by the results of these studies,
subsequent post-closure activities (e.g., groundwater
monitoring or remediation). Future costs will also
include DEQ oversight costs. Future aggregate expenses
are expected to be approximately $1 million, exclusive of
groundwater monitoring and remediation, to which no
estimate is currently available. The Company believes
that its proportionate share of expenditures for any
additional remedial work will not have a material effect
on the Company's financial statements. In addition, the
Company believes that its proportionate responsibility for
the clean-up costs will not be materially increased.
Since July 1986, a number of "toxic tort" suits have been
filed against the Company and numerous other defendants
alleging claims for personal injury, property damage, and
"fear of cancer" in connection with the reclamation site
discussed above. The plaintiffs also seek substantial
punitive damages. These cases have been consolidated and
certified as a class action. The deadline set by the
court for claimants to identify themselves has expired,
and approximately 12,000 claimants have been identified.
The deadline for joinder of new parties to the litigation
has also expired. By court order dated December 29, 1994,
all defendants and third-party defendants were deemed to
have filed cross-claims against the other defendants and
third-party defendants for tort contribution. Certain
defendants, including the Company, also were deemed to
have filed cross-claims for CERCLA cost recovery against
the other defendants and third-party defendants. The
court has set a trial date for September 3, 1996 and
significant discovery activities are scheduled to occur
throughout 1995 and into 1996.
Furthermore, the Company has 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 or the related tort litigation
referred to in the preceding paragraphs. 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.
After consultation with counsel, the Company at this
preliminary stage is unable to predict the eventual
outcome of this litigation and cannot determine its actual
liability, if any, for these toxic tort claims at December
31, 1994, nor the degree to which such potential liability
would be indemnified by its insurance carrier. The
Company believes, based on advice of counsel, that it has
substantial defenses to liability with respect to these
claims; however, if the claimants are successful, the
Company could become liable for substantial amounts.
On July 28, 1995, the Federal District Court for the
Middle District of Louisiana approved the Company's
settlement of the aforementioned class action lawsuit,
asserting various toxic tort claims arising out of the
alleged contamination at the Walker oil reclamation site.
Under the terms of the settlement, in the third quarter of
1995 the Company paid $4.0 million into a settlement fund
and issued a $2.0 million unsecured note to the plaintiff
class. The note bears interest at 8% per annum and is due
on January 28, 1997. The Company had previously recorded
an accrual sufficient to provide for the $6 million
settlement and the effect of the settlement was not
material to the consolidated financial statements.
Avondale could also be responsible for payment to the
plaintiffs of an additional sum of up to $6 million in the
event that the plaintiffs are unsuccessful in collecting
certain amounts with respect to rights that have been
assigned to them under the settlement agreement. With
respect to the potential contingent liability of the
Company to pay additional sums under the settlement
agreement, management believes that the eventual
resolution of this matter will not have a material effect
on the Company's financial statements.
The Company was advised in the fourth quarter of 1994 that
it may be a PRP with respect to a second oil reclamation
site, operated by another unaffiliated company, because it
may have supplied a portion of the waste oil processed at
the site. The EPA has completed action at this site at a
cost of approximately $300,000. The list of PRPs includes
almost 70 companies, and the Company believes that its
liability, if any, will be a small percentage of the
overall costs at this site.
<PAGE> F-18
In addition to the above, 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 claims.
The Company has established accruals as appropriate for
certain of the matters discussed above. While the
ultimate outcome of lawsuits and proceedings against the
Company cannot be predicted with certainty, management
believes, based on current facts and circumstances and
after review with counsel, that the eventual resolution of
these matters is not expected to have a material adverse
effect on the Company's financial statements.
Ogden
In 1994 the Company terminated certain arrangements with
Ogden, which have existed since the Spin Off in 1985 (see
Note 10). Under these arrangements, the Company could
have been required to issue preferred stock or
subordinated debt to Ogden upon the occurrence of
specified events, such as judgments or settlements in
certain significant litigation or tax matters against the
Company or Ogden. These agreements also required Ogden to
continue to guarantee the Company's Series 1983 Industrial
Revenue Bonds ("Series 1983 bonds" - see Note 6) as well
as certain workers' compensation obligations.
The previous arrangements terminated upon (1) the payment
by the Company to Ogden of $5 million cash on June 1,
1994, (2) the Company's delivery to Ogden of a two-year
unsecured note in the principal amount of $8 million (see
Note 6) bearing interest at 10% per annum and payable in
$5 million and $3 million installments in 1995 and 1996,
respectively, and (3) the refunding on June 1, 1994 of the
$36.25 million refunding bonds (without an Ogden
guarantee) to replace the $36.25 million Series 1983 bond
issuance that Ogden had guaranteed (see Note 6), and (4)
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 (see Note 9).
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 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. At December 31, 1994 and September
30, 1995, outstanding letters of credit relating to these
business activities amounted to approximately $23.3
million and $25.1 million, respectively.
13. Quarterly Results (Unaudited)
__________________
Consolidated operating results for the four quarters of
1993 and 1994 were as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1993 <F1> 1994
______________________________________ ______________________________________
<F1> <F1> <F2> <F3>
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $135,576 $118,827 $ 98,984 $103,337 $101,329 $118,437 $125,487 $130,557
Gross Profit 10,009 10,670 8,496 4,005 9,506 11,283 14,943 11,753
Income (Loss) from
Continuing
Operations 469 596 598 (6,896) 1,918 2,470 6,323 2,364
Income (Loss) from
Discontinued
Operations (121) (197) (179) (3,064) 116 (396) (4,272) ---
Net Income (Loss) 348 399 419 (9,960) 2,034 2,074 2,051 2,364
Net Income (Loss)
per Share:
Continuing
Operations $ 0.03 $ 0.04 $ 0.04 $ (0.48) $ 0.13 $ 0.17 $ 0.44 $ 0.16
Discontinued
Operations (0.01) (0.01) (0.01) (0.21) 0.01 (0.03) (0.30) ---
-------- -------- -------- -------- -------- -------- ------- --------
Net Income (Loss)
per Share $ 0.02 $ 0.03 $ 0.03 $ (0.69) $ 0.14 $ 0.14 $ 0.14 $ 0.16
======== ======== ======== ======== ======== ======== ======== ========
<PAGE> F-19
__________________
<FN>
<F1> Income statement data for these periods have been restated to present
the Company's service contracting subsidiary as discontinued operations
(See Note 7).
<F2> During the third quarter of 1994, the Company revised its estimated
profits on several previously-completed shipbuilding contracts which had
the effect of increasing net income for the third quarter of 1994 by
approximately $3.5 million, or $0.24 per share.
<F3> During the fourth quarter of 1993, the Company recorded the effects
related to the settlement of the REAs which decreased net income by $4.2
million, or $0.29 per share. Additionally, the Company recorded $6.3
million, or $0.44 per share, of charges in the fourth quarter of 1993.
Such charges consisted primarily of writedowns of assets currently
offered for sale and retroactive adjustments of insurance costs.
</FN>
</TABLE>
INSIDE PROSPECTUS BACK COVER
Picture: [Aerial view of Avondale's facilities at 5100 River Road,
Avondale, Louisiana 70094.]
No dealer, salesperson or any 3,000,000 Shares
other person has been authorized
to give any information or to
make any representations other
than those contained or Avondale
incorporated by reference in Industries
this Prospectus in connection Inc.
with the offer made by this
Prospectus and, if given or
made, such information or
representations must not be Common Stock
relied upon as having been ($1.00 par value)
authorized by the Company, the
Selling Shareholder or any of
the Underwriters. Neither the
delivery of this Prospectus nor
any sale made hereunder shall,
under any circumstances, create [LOGO]
any implication that there has
been no change in the affairs of
the Company since the dates as
of which information is given in
this Prospectus. This Prospectus
does not constitute an offer or Salomon Brothers Inc
solicitation by anyone in any
jurisdiction in which such offer
or solicitation is not Johnson Rice & Company L.L.C.
authorized or in which the
person making such offer or
solicitation is not qualified to Prospectus
do so or to any person to whom
it is unlawful to make such Dated January _____, 1996
solicitation.
_______________
Table of Contents
Page
Available Information
Incorporation of Certain
Documents by Reference
Prospectus Summary
Risk Factors
Selected Financial Data
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
Business
Management
Selling Shareholder
Description of Capital Stock
Underwriting
Legal Matters
Experts
Glossary of Selected Industry
Terms
Index to Consolidated Financial
Statements
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated fees and expenses payable by the
Registrant and Selling Shareholder in connection with the
offering of the shares of Common Stock registered hereunder
are as follows:
Selling
Shareholder Registrant
Securities and Exchange Commission registration fee $ 16,209.05 $
Printing fees and expenses*.........................
Legal fees and expenses*............................
Accounting fees and expenses*.......................
Blue Sky fees and expenses*.........................
NASD filing fee*....................................
Miscellaneous*...................................... ________ ________
Total* .......................................... $ $
======== ========
Total to be Paid by Both* $
________
* To be supplied by amendment
Item 15. Indemnification of Directors and Officers.
Section 83 of the Louisiana Business Corporation Law
provides in part that a corporation may indemnity any
director, officer, employee or agent of the corporation
against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any action, suit or
proceeding to which he is or was a party or is threatened to
be made a party (including any action by or in the right of
the corporation) if such action arises out of the fact that
he is or was a director, officer, employee or agent of the
corporation and he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
The indemnification provisions of the Louisiana
Business Corporation Law are not exclusive; however, no
corporation may indemnify any person for willful or
intentional misconduct. A corporation has the power to
obtain and maintain insurance, or to create a form of self-
insurance on behalf of any person who is or was acting for
the corporation, regardless of whether the corporation has
the legal authority to indemnify the insured person against
the liability.
Section 12 of the Registrant's by-laws provides for
mandatory indemnification for directors, officers and
employees or former directors, officers and employees of the
Registrant to the fullest extent permitted by Louisiana law.
The Registrant maintains an insurance policy covering the
liability of its directors, officers and employees for
actions taken in their official capacity.
Item 16. Exhibits.
1 - Form of Underwriting Agreement*
4.1(a) - Articles of Incorporation of the Company<F1>
4.1(b) - By-laws of the Company<F2>
4.2 - Specimen of Common Stock certificate<F3>
4.3 - Instruments Relating to Title XI Vessel
Financing
(a) Trust Indenture dated October 21,
1975, by and between the Company and
Manufacturers Hanover Trust Company,
as Indenture Trustee, relating to
$19,012,000 of United States
Government Guaranteed Ship Financing
Bonds, as amended by an Assumption
Agreement and Supplemental Indenture
dated September 16, 1985<F6>, as
further amended by a Master
Assumption Agreement, Supplemental
Indenture No. 2 and Amendment to
Title XI Finance Agreements dated
March 13, 1991 (the "Master
Assumption Agreement").<F5>
(b) Title XI Reserve Fund and Financial
Agreement dated October 21, 1975, by
and between the Company and the
United States of America, as amended
by Amendments Nos. 1 and 2<F6>, as
further amended by the Master
Assumption Agreement (filed as
Exhibit 4.3(a) hereto).
(c) Form of 8.80% Sinking Fund Bond,
Series A (included in Exhibit
4.3(a)).
(d) Form of 9.30% Sinking Fund Bond,
Series B (included in Exhibit
4.3(a)).
4.4 - Instruments relating to AEI's and the
Company's obligations arising in
connection with the issuance of General
Obligation Bonds by Harrison County,
Mississippi
(a) Loan Agreement dated April 1, 1991
between Harrison County, Mississippi
and AEI, pursuant to which AEI is
obligated to repay $3 million in
order to fund the County's bond
payment obligations.<F3>
(b) Guaranty Agreement dated April 1,
1991 between the Company, Harrison
County, Mississippi and the State of
Mississippi.<F3>
4.5 - Instruments relating to the Company's
$36.25 million Industrial Revenue
Refunding Bond Series 1994 Financing.
(a) Refunding Agreement dated April 1,
1994 between the Company and the
Board of Commissioners of the Port
of New Orleans, Exhibit A and First
Preferred Vessel Mortgage
thereto.<F4>
(b) Trust Indenture dated April 1, 1994
between the Board of Commissioners
of the Port of New Orleans and First
National Bank of Commerce.<F4>
(c) Form of Industrial Revenue Refunding
Bond Series 1994.<F4>
4.6 - Stockholder Protection Rights Agreement
dated as of September 26, 1994 between the
Company and Boatmen's Trust Company, as
Rights Agent<F7>
5 - Opinion of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P.*
15 - Letter re unaudited interim financial
information
23.1 - Consent of Deloitte & Touche LLP
23.2 - Consent of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P.
(included in Exhibit 5)
24 - Powers of Attorney (included on the
signature page of this Registration
Statement)
* To be filed by amendment.
[FN]
<F1> Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June
30, 1993.
<F2> Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June
30, 1995
<F3> Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1991, as amended by Form 10-K/A.
<F4> Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994.
<F5> Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1993.
<F5> Incorporated by reference from the Company's
Registration Statement on Form S-1 (Registration No.
33-20145) filed with the Commission on February 16,
1988.
<F6> Incorporated by reference from the Company's Current
Report on Form 8-K filed with the Commission on
September 30, 1994.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability
under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(2) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item
15 above, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(3) (a) That, for purposes of determining any
liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this
registration statement as of the time it was declared
effective.
(b) That, for purposes of determining any
liability under the Securities Act of 1933, each post-
effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Orleans, State of Louisiana, on
December 21, 1995.
AVONDALE INDUSTRIES, INC.
By: /s/ Albert L. Bossier
________________________
Albert L. Bossier
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
immediately below constitutes and appoints Albert L. Bossier and Thomas M.
Kitchen, or either of them, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Albert L. Bossier Chairman of the Board of Directors, December 21, 1995
________________________ President and Chief Execuitve
Albert L. Bossier Officer
/s/ Thomas M. Kitchen Executive Vice President December 21, 1995
________________________ and Chief Financial Officer
Thomas M. Kitchen
/s/ Director December 21, 1995
________________________
Kenneth S. Dupont
/s/ Director December 21, 1995
________________________
Anthony J. Correro, III
/s/ Director December 21, 1995
________________________
Francis R. Donovan
/s Director December 21, 1995
________________________
William A. Harmeyer
/s/ Director December 21, 1995
________________________
Hugh A. Thompson
/s/ Controller & Treasurer December 21, 1995
________________________ (principal accounting officer)
Bruce L. Hicks
EXHIBIT INDEX
Exhibit
Number Document Description Location<F+>
1 Form of Underwriting Agreement F
4.1(a) Articles of Incorporation of the Company<F1> I
4.1(b) By-laws of the Company,<F2> I
4.2 Specimen of Common Stock certificate<F3> I
4.3 Instruments Relating to Title XI Vessel I
Financing
(a) Trust Indenture dated October 21, 1975,
by and between the Company and
Manufacturers Hanover Trust Company, as
Indenture Trustee, relating to
$19,012,000 of United States Government
Guaranteed Ship Financing Bonds, as
amended by an Assumption Agreement and
Supplemental Indenture dated September
16, 1985<F6>, as further amended by a
Master Assumption Agreement,
Supplemental Indenture No. 2 and
Amendment to Title XI Finance
Agreements dated March 13, 1991 (the
"Master Assumption Agreement").<F5>
(b) Title XI Reserve Fund and Financial
Agreement dated October 21, 1975, by
and between the Company and the United
States of America, as amended by
Amendments Nos. 1 and 2<F6>, as further
amended by the Master Assumption
Agreement (filed as Exhibit 4.3(a)
hereto).
(c) Form of 8.80% Sinking Fund Bond, Series
A (included in Exhibit 4.3(a)).
(d) Form of 9.30% Sinking Fund Bond, Series
B (included in Exhibit 4.3(a)).
4.4 Instruments relating to AEI's and the Company's I
obligations arising in connection with the
issuance of General Obligation Bonds by Harrison
County, Mississippi
(a) Loan Agreement dated April 1, 1991
between Harrison County, Mississippi
and AEI, pursuant to which AEI is
obligated to repay $3 million in order
to fund the County's bond payment
obligations.<F3>
(b) Guaranty Agreement dated April 1, 1991
between the Company, Harrison County,
Mississippi and the State of
Mississippi.<F3>
4.5 Instruments relating to the Company's $36.25 I
million Industrial Revenue Refunding Bond Series
1994 Financing.
(a) Refunding Agreement dated April 1, 1994
between the Company and the Board of
Commissioners of the Port of New
Orleans, Exhibit A and First Preferred
Vessel Mortgage thereto.<F4>
(b) Trust Indenture dated April 1, 1994
between the Board of Commissioners of
the Port of New Orleans and First
National Bank of Commerce.<F4>
(c) Form of Industrial Revenue Refunding
Bond Series 1994.<F4>
4.6 Stockholder Protection Rights Agreement dated as I
of September 26, 1994 between the company and
Boatmen's Trust Company, as Rights Agent<F7>
5 Opinion of Jones, Walker, Waechter, Poitevent, F
Carrere & Denegre, L.L.P.
15 Letter re: unaudited interim financial F
information
23.1 Consent of Deloitte & Touche L.L.P. F
23.2 Consent of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. (included in Exhibit 5)
24 Powers of Attorney (included on the signature
page of this Registration Statement)
* To be filed by amendment.
<FN>
<F+> "I" indicates that the Exhibit is incorporated by reference herein. "F"
indicates that the Exhibit is filed herewith.
<F1> Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1993.
<F2> Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1995.
<F3> Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, as amended by Form 10-K/A.
<F4> Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
<F5> Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
<F6> Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 33-20145) filed with the Commission on
February 16, 1988.
<F7> Incorporated by reference from the Company's Current Report on Form 8-K
filed with the Commission on September 30, 1994.
</TABLE>
EXHIBIT 15
Avondale Industries, Inc.
5100 River Road
Avondale, Louisiana 70094
RE: Registration Statement on Form S-3
Gentlemen:
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 1995, June 30 1994
and 1995 and September 30, 1994 and 1995, as indicated in our reports
dated May 11, 1995, August 4, 1995 and November 6, 1995, respectively;
because we did not perform an audit we expressed no opinion on that
information.
We are aware that our reports referred to above, which are included in
your Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995, are incorporated by reference in
this Registration Statement.
We are also aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, such report is not considered part of
a 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.
Very truly yours,
/s/ DELOITTE & TOUCHE
Deloitte & Touche LLP
New Orleans, Louisiana
December 21, 1995
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors and
Stockholders of Avondale Industries, Inc.:
We consent to the use in this Registration Statement of Avondale Industries,
Inc. on Form S-3 of our report dated February 24, 1995, included in the
Annual Report on Form 10-K of Avondale Industries, Inc. for the year ended
December 31, 1994, and to the use of our report dated February 24, 1994,
appearing in the Prospectus which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
New Orleans, Louisiana
December 21, 1995
