As filed with the Securities and Exchange Commission on March 17, 1997.
Registration No. 333-
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 (504) 436-2121 Identification No.)
organization) (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 T. Mark Kelly
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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered(1) per share(2) offering price(2) fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per share(3) 3,450,000 shares $20.75 $71,587,000 $21,694
===========================================================================================================
</TABLE>
(1) Includes 450,000 shares that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) 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 March 14, 1997.
(3) 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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
Subject to completion
, 1997
Prospectus
3,000,000 Shares
Avondale Industries, Inc. [LOGO]
Common Stock
($1.00 par value)
Of the 3,500,000 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"), 2,946,387 are being sold by the Avondale
Industries, Inc. Employee Stock Ownership Plan (the "Selling Shareholder")
and 53,613 are being sold by the Company. See "Selling Shareholder."
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered by the Selling Shareholder. See "Use of
Proceeds."
The Common Stock is traded on the Nasdaq National Market under the symbol
"AVDL." On April _____, 1997, 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.
<TABLE>
<CAPTION>
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Price to Underwriting Proceeds Proceeds to
Public Discount to Company(1) Selling Shareholder(1)
<S> <C> <C> <C> <C>
Per Share. . . . . . . . . . $ $ $ $
Total(2) . . . . . . . . . . $ $ $ $
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses of the offering, estimated at $ ,
payable by the Company and $ , payable by the Selling Shareholder.
(2) The Company has granted the Underwriters an option, exercisable within
30 days of the date of this Prospectus, to purchase up to 525,000
additional shares of Common Stock at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Shareholder will be $ , $ , $ and $ , respectively.
See "Underwriting."
The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and 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 , 1997.
Salomon Brothers Inc Johnson Rice & Company L.L.C.
The date of this Prospectus is , 1997
INSIDE FRONT COVER OF PROSPECTUS
Picture #1 [Artist's rendering of the LPD-17 vessel, the U.S. Navy's new
class of amphibious ship. An alliance led by Avondale was
awarded a $641 million contract to design, construct and support
the initial ship in the LPD-17 program in December 1996.]
Picture #2 [The christening of USNS Bob Hope Sealift (T-AKR 300), to be
delivered to the U.S. Navy in January, 1998.]
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, purchasing Common Stock to cover
syndicate short positions and imposing penalty bids. For a description of
these activities, see "Underwriting."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 103 OF REGULATION M 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 the construction of U.S. Navy surface ships, although
it secured a large commercial contract in 1995 for the construction and
conversion of double-hulled product carriers. Management believes the
Company's low cost structure, experienced and skilled work force,
technological capabilities, sophisticated construction processes and
extensive experience gained over the past 25 years in building a variety
of military and commercial vessels position the Company as one of the
most cost-efficient and versatile shipbuilders in the United States. At
December 31, 1996, the Company's shipbuilding backlog (the "firm
backlog") was approximately $1.8 billion (including estimated contract
escalation), exclusive of unexercised options aggregating $1.1 billion
held by the U.S. Navy for additional ship orders (including estimated
contract escalation). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Overview."
In December 1996, an alliance led by the Company was awarded a
contract to construct the first of an anticipated 12 vessels under the
U.S. Navy's LPD-17 program. The U.S. Navy has stated that the LPD-17
vessels will be important to its amphibious operations over the next
three decades and will replace a number of ships that will be
decommissioned as they reach the end of their useful lives. The
contract award provides for options exercisable by the U.S. Navy for two
additional LPD vessels to be built by the alliance. Management believes
that by securing the LPD-17 contract, the Company has continued to
demonstrate its ability to compete successfully for U.S. Navy contracts
based on the high level of its technical, engineering and production
skills, as well as its cost efficient production methods. In addition,
the backlog created from the LPD-17 contract is a strong foundation that
will allow the Company to compete aggressively for other shipbuilding
opportunities, particularly in the commercial markets. Upon the
announcement of the award the unsuccessful bidder filed a protest which
is being reviewed by the General Accounting Office ("GAO"), and the U.S.
Navy issued a stop-work order pending the resolution of the protest.
Management expects the GAO decision by mid-April 1997 and anticipates
beginning design work immediately if a favorable decision is received.
For additional information on the LPD-17 award, see "-LPD-17 and Other
U.S. Navy Contracts" and "Business - Overview."
To assure that its shipyard remains among the most modern in the
world, Avondale has regularly made substantial capital investments to
upgrade its technological capabilities and improve its production
processes. In the 1980s, the Company entered into a technology sharing
agreement with a major Japanese shipbuilding company and became the
first U.S. shipyard to successfully implement modular construction
techniques that had previously been perfected in Japan. 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. In 1995, Avondale invested $20 million in shipyard
capital improvements, principally for the construction of a covered
facility that houses two production lines dedicated to military vessels
and two lines for commercial vessels. Sheltering the production process
and separating the unit lines has substantially enhanced production flow
and lowered unit production costs.
An important element of the award to Avondale of the LPD-17
contract was its utilization of computer hardware and software provided
by Intergraph Corporation ("Intergraph") that will permit the Company
to engage in more advanced three-dimensional ship design and modeling
than was previously used by the Company. This technology also provides
for sophisticated data storage, management and retrieval for future
projects. Among its other features, the technology permits engineering,
production and material procurement tasks to be performed cooperatively
in a teaming approach, thus enhancing the efficiency of the design phase.
In connection with the LPD-17 program and future shipbuilding contracts,
the Company will implement an Integrated Product Data Environment
("IPDE"), which captures data in digital form at creation and then
organizes, integrates, maintains and makes available such data to all
program participants.
LPD-17 and Other U.S. Navy Contracts
In addition to the contract award by the U.S. Navy to build the
first LPD-17 vessel, the alliance was awarded options, exercisable by
the U.S. Navy, for two additional ships of the LPD-17 class. It is
expected that a total of 12 vessels will be built under the LPD-17
program. The members of the alliance, Bath Iron Works ("Bath") (a
subsidiary of General Dynamics Corporation) and Hughes Aircraft Company
("Hughes") (a subsidiary of Hughes Electronics Corporation) and the
Company submitted a joint bid with the Company as the prime contractor.
Under the terms of an agreement between the alliance members, the
Company will build the vessel covered by the December 1996 contract, and
if the U.S. Navy exercises the two options, the Company would also
construct the second and Bath would construct the third of the three
LPD-17 vessels. Hughes will be responsible for total ship integration
and the alliance will use Intergraph technology for the design and
manufacture of the ship. For additional information on the terms of the
LPD-17 contract award, the relationship between the members of the
alliance and certain accounting considerations, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Overview."
In addition to the LPD-17, the Company currently has under
construction for the U.S. Navy five TAKR 300 Class Sealift Ships, one
LSD-CV and one Icebreaker. These vessels demonstrate the Company's
ability to construct a broad range of vessels from those that
principally require large-scale steel fabrication at a competitive cost,
to highly sophisticated vessels that require extensive outfitting of
electrical, command and control and weapons systems. The Company
anticipates that it will continue to focus primarily on securing
contracts to construct and convert military vessels, with its most
immediate priority being the securing of the exercise of an option by
the U.S. Navy for an additional Sealift vessel, as well as securing a
contract for up to two additional Sealift vessels expected to be ordered
by the U.S. Navy by the end of 1997.
Although no new major U.S. Navy shipbuilding programs are
anticipated before 2000, it is expected that additional U.S. Navy
shipbuilding opportunities, including a series of ADC(X) vessels, a
class of auxiliary vessels designed to deliver fuel, ammunition and
other supplies to the U.S. Navy fleet with capabilities similar to the
T-AOs constructed by Avondale, and the SC-21, which represents the next
generation of surface combatant vessels, will become available
thereafter.
Commercial Opportunities
While Avondale focuses its efforts primarily on pursuing U.S. Navy
shipbuilding contracts, it also pursues available commercial
shipbuilding opportunities. Domestically, this effort is enhanced by
the Oil Pollution Act of 1990, which requires the phased-in transition
of single-hulled tankers and product carriers to double-hulled vessels,
Title XI of the Merchant Marine Act, 1936, which, among other things,
permits the U.S. government to guarantee loan obligations of owners for
vessels built in U.S. shipyards, and the Jones Act, which requires all
vessels transporting products between U.S. ports to be built by U.S.
shipyards.
Avondale has gained valuable commercial shipbuilding experience
through its performance of two contracts for the construction of the
double-hulled forebodies and a series of river hopper barges. Although
the Company sustained operating losses with respect to these two
commercial contracts, the impact of these losses was mitigated by the
fact that these contracts absorbed a substantial amount of operating
expenses that would otherwise have been allocated to other contracts.
In addition, these contracts have been important in the Company's re-
emergence in the competitive commercial tanker and barge markets. The
Company believes that the opportunity to refine its design and
production techniques, as well as the credibility it has gained in the
commercial shipbuilding market, have positioned it to bid successfully
for commercial shipbuilding opportunities as they arise and to perform
such contracts profitably. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -
Overview - 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 2,946,387 shares
The Company 53,613
Shares outstanding before the Offering 14,493,211(1)
Shares outstanding after the Offering 14,546,824
Nasdaq National Market Symbol AVDL
Use of Proceeds The Company intends to use the net
proceeds from the sale of shares of
Common Stock offered by it to fund
capital expenditures and for other
general corporate purposes. The
Company will not receive any of the
proceeds from the sale of the shares
of Common Stock offered by the
Selling Shareholder.
____________
(1) Based on the number of shares of Common Stock outstanding at March
1, 1997. Does not include 197,368 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 owns 2,953,362 shares or
approximately 20.4% of the outstanding shares of the Common Stock (including
6,975 shares that will be distributed to employees who have notified the
Company of their intention to retire prior to March 12, 1997). After giving
effect to the Offering, the Selling Shareholder will no longer own any
shares of Common Stock of the Company.
Summary Historical Financial Information
(in thousands, except per share data)
Years Ended December 31,
1994 1995 1996
INCOME STATEMENT DATA:
Net sales $475,810 $576,308 $624,929
Gross profit 47,485 58,671 81,827
Income from operations 16,949 26,548 36,790
Income from continuing operations
before income taxes 13,375 23,780 34,495
Net income(1) 8,523 28,180 30,795
Income per share of common stock from
continuing operations 0.90 1.95 2.13
BALANCE SHEET DATA:
Working capital $ 34,836 $ 80,988 $119,475
Total assets 273,503 316,727 362,872
Long-term debt 48,875 60,593 54,866
Shareholders' equity 122,878 151,058 181,853
OTHER FINANCIAL DATA:
EBITDA(2) $28,501 $36,367 $47,599
OPERATING DATA:
Firm backlog $1,424,000 $1,413,000 $1,766,000
____________
(1) Net income for the year ended December 31, 1994 included a loss
from discontinued operations of approximately $4.6 million ($.31
per share). Net income for the years ended December 31, 1995 and
1996 include deferred income tax benefits of $13.0 million ($.90
per share) and $9.0 million ($.62 per share), respectively,
attributable to certain net operating loss carry forwards available
to offset estimated future taxable earnings.
(2) 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 is not a calculation under
generally accepted accounting principles and 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 measure of the Company's liquidity.
RISK FACTORS
Prosepctive purchasers of the Common Stock offered hereby should
carefully consider the risk factors set forth below. Statements included
in this Prospectus, particularly in the section entitled "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," regarding future financial
performance and results and other statements that are not historical fact
constitute "forward-looking statements," as defined in Section 27A(i)(1)
of the Securities Act of 1933, as amended. Many risks and uncertainties
can affect the outcome and timing of such events, including many factors
beyond the control of the Company. These factors include, but are not
limited to, the matters set forth belowe, which constitute meaningful
cautionary statements and identify important factors that could cause
actual results to differ materially from those in such forward-looking
statements.
Reliance on Major Customer
Avondale's business is primarily dependent upon the ship
construction and conversion programs of the U.S. Navy and other branches
of the military, with over 90% of its $1.8 billion firm backlog at
December 31, 1996 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. Although a contract for the first of an anticipated 12 vessels
under the LPD-17 program was awarded to an alliance led by the Company,
the unsuccessful bidder filed a protest which is being reviewed by the
GAO whose report is expected by mid-April 1997. Furthermore, there can
be no assurance that the U.S. Navy will exercise its options for the two
additional ships under the initial LPD-17 contract or for the additional
Sealift vessels, or that Congress will appropriate funds for such
options or for any additional LPD-17 vessels. It is also possible that
the U.S. Navy may allocate the additional 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 1999, it is important that Avondale be a
successful bidder for all or a substantial portion of the remaining LPD-
17 vessels or other U.S. Navy or commercial work if it is to maintain
its current level of shipbuilding activity beyond 1999.
Commercial Contracts
Although the LPD-17 contract should provide, assuming exercise of
additional options by the U.S. Navy, a substantial base of work
continuing beyond the year 2000, the Company has significant fixed costs
associated with its operations and, in order for the Company to achieve
desirable operational efficiencies and profit levels during that period,
it is important that the Company complement its firm backlog with
additional shipbuilding orders. Other than the LPD-17, and the possible
order of an additional two Sealift vessels by the U.S. Navy in the next
year, the Company is unaware of any significant relevant military
shipbuilding initiatives that are likely to commence before 2000, and it
is therefore important that the Company secure additional commercial
shipbuilding orders. Although for the reasons discussed elsewhere
herein the Company believes that significant commercial shipbuilding
opportunities will become available during the next five years,
competition for such work is expected to be intense, and there can be no
assurance that the Company will be successful in obtaining such work, or
if awarded, will complete such work profitably. See "Business -
Overview - U.S. Government."
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."
In addition, although the LPD-17 contract award was made on a
cost-plus-award fee basis, the ability of Avondale to realize its award
fee is dependent not only upon its ability to perform its contractual
obligations but also the satisfactory performance by other members of
the team.
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 Avondale, that compete for
contracts to construct or convert surface vessels. Two of these
companies are subsidiaries of corporations that have substantially
greater resources than Avondale. 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 Avondale
considers to be its direct competitors for commercial contracts. With
respect to the international commercial shipbuilding market, Avondale
competes with numerous shipyards 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 shipyards, 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) the 1993
amendments to the loan guarantee program under Title XI of the Merchant
Marine Act, 1936, 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 to commercial shipbuilders, legislation was introduced in the
U.S. Congress that would eliminate the competitive advantages afforded
to U.S. shipyards under the 1993 amendments to the Title XI guarantee
program although during 1996 Congress adjourned without adopting or
ratifying the agreements. 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 assurance to this effect with respect to the Jones Act or any other
law or regulation benefitting U.S. shipbuilders. See "Business -
Overview - Commercial Shipbuilding."
Labor Matters
In February 1997 the National Labor Relations Board (the "NLRB")
upheld a 1993 election held among certain of the Company's New Orleans
area employees. The Company is continuing to pursue its objections to
the election before the NLRB and, if the union is certified by the NLRB,
can pursue its position before the U.S. Court of Appeals. If the NLRB
certifies the union and that decision is upheld, the Company will 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.
USE OF PROCEEDS
The proceeds to be received by the Company from the Offering,
after deducting underwriting discounts, commissions and estimated
expenses, are estimated to be approximately $957,000, or $9.8 million
if the Underwriters' over-allotment option is exercised in full. The
Company will not receive any of the proceeds from the sale of the shares
of Common Stock offered by the Selling Shareholder.
The Company intends to use the net proceeds from the Offering to
fund capital expenditures and any remaining net proceeds will be used
for general corporate purposes. Until the net proceeds of the Offering
are utilized for the purposes described above, they will be invested in
interest bearing accounts, U.S. government securities, other investment
grade debt securities and short-term investments.
CAPITALIZATION
The following table sets forth the cash position and
capitalization of the Company as of December 31, 1996, and as adjusted
to give effect to the issuance and sale by the Company of the 53,613
shares of Common Stock offered hereby and the application of the net
proceeds thereof as described above under "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the Notes thereto.
December 31, 1996
---------------------------
Historical As Adjusted(1)
------------ -------------
(in thousands)
Cash and cash equivalents................... $ 48,944 $ 50,056
============= ===========
Current maturities of long-term debt........ $ 4,957 $ 4,957
------------- -----------
Long-term debt, less current maturities..... $ 54,866 $ 54,866
------------- -----------
Shareholders' equity
Common Stock, $1.00 par value, 30,000,000
shares authorized; 15,927,191 shares issued
and outstanding, ________ shares issued and
outstanding as adjusted.................. 15,927 15,981
Preferred Stock, $1.00 par value, 5,000,000
shares authorized, none issued........... --- ---
Additional paid-in capital.................. 373,911 374,970
Accumulated deficit ........................ (196,129) (196,129)
Treasury stock, 1,463,016 shares at cost.... (11,856) (11,856)
------------- -----------
Total shareholders' equity............. 181,853 182,966
------------- -----------
Total capitalization................... $ 241,676 $ 242,789
============= ===========
__________________
(1) Does not include effects of issuance of 29,036 shares of Common
Stock upon the exercise of options between January 1, 1997 and
March 14, 1997.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol AVDL. The following
table sets forth the range of high and low per share sales prices, as
reported by the Nasdaq National Market, for the periods indicated.
Fiscal Year Ended December 31, High Low
- ------------------------------ ---- ---
1995
First Quarter $ 8 1/8 $ 7 1/8
Second Quarter 9 1/4 7
Third Quarter 15 7/8 8 1/8
Fourth Quarter 16 3/8 12 3/4
1996
First Quarter 18 1/8 14
Second Quarter 20 1/8 16 7/8
Third Quarter 19 1/8 13 7/8
Fourth Quarter 22 16 1/4
1997
First Quarter
(through March 14, 1997) 23 1/2 19 1/4
At December 31, 1996, there were 760 holders of record of the
Company's Common Stock. On March 14, 1997, the last sale price of the
Common Stock as reported by the Nasdaq National Market was $20.75 per
share.
DIVIDEND POLICY
The Company does not currently pay dividends on its Common Stock,
and no dividends were paid on the Company's Common Stock during the two
years ended December 31, 1996. As discussed in Note 4 of the Notes to
Consolidated Financial Statements, the terms of the Company's revolving
credit agreement limit or restrict, without bank approval, the payment
of cash dividends.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains selected consolidated financial data
for the Company and its subsidiaries for each of the fiscal years in the
five-year period ended December 31, 1996. The data for each of the
fiscal years in the five-year period ended December 31, 1996 are derived
from the consolidated financial statements of the Company and its
subsidiaries. The consolidated financial statements as of December 31,
1995 and 1996, and for each of the years in the three-year period ended
December 31, 1996, and the report of Deloitte & Touche LLP thereon, have
been included in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
(in thousands, except per share data)
1992 1993 1994(2) 1995(2) 1996(2)
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Continuing operations:
Net sales $ 576,384 $ 456,724 $ 475,810 $ 576,308 $ 624,929
Gross profit 37,796 33,180 47,485 58,671 81,827
Income from operations 7,281 3,400 16,949 26,548 36,790
Net ESOP contribution(3) 8,141 --- --- --- ---
Income (loss) from continuing operations (11,321) (5,233) 13,075 28,180 30,795
Income (loss) from discontinued operations 104 (3,561) (4,552) --- ---
Net income (loss)(4) (11,217) (8,794) 8,523 28,180 30,795
Income (loss) per share of Common Stock:
Continuing operations (0.78) (0.36) 0.90 1.95 2.13
Discontinued operations NM (0.25) (0.31) --- ---
Total (0.78) (0.61) 0.59 1.95 2.13
BALANCE SHEET DATA:
Working capital $ 63,158 $ 24,565 $ 34,836 $ 80,988 $ 119,475
Total assets 346,196 302,139 273,503 316,727 362,872
Long-term debt 90,469 43,848 45,875 60,593 54,866
Shareholders' equity 123,149 114,355 122,878 151,058 181,853
OTHER FINANCIAL DATA:
EBITDA(5) $ 19,599 $ 15,210 $ 28,501 $ 36,367 $ 47,599
OPERATIONAL DATA:
Firm backlog $ 678,000 $1,268,000 $1,424,000 $1,413,000 $1,766,000
</TABLE>
____________________
NM - Not Meaningful
(1) Income statement data for the years ended December 31, 1992 and
1993 have been restated to present Avondale's service contracting
subsidiary as discontinued operations (see Note 5 of the Notes to
Consolidated Financial Statements).
(2) 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 settlements of REAs in December 1995 and
(ii) the impact of revisions of estimated profit on a previously
completed shipbuilding contract in 1994, 1995 and 1996.
(3) The amounts reflected as Net ESOP contributions for 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
effect on shareholders' equity.
(4) Net income for the years ended December 31, 1995 and 1996 include
deferred income tax benefits of $13.0 million ($.90 per share) and
$9.0 million ($.62 per share), respectively, attributable to
certain net operating loss carry forwards available to offset
estimated future taxable earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(5) 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 is not a
calculation under generally accepted accounting principles and
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 measure of the Company's liquidity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
Avondale's Consolidated Financial Statements and the Notes thereto.
Overview
The improvement in the Company's operating results continued
during fiscal 1996 with the Company reporting record financial results
for 1996. Net sales were 8% above the prior year's level, income from
continuing operations before income taxes increased 45% and net income
increased by 9% compared to fiscal 1995.
The Company's firm backlog at December 31, 1996 was approximately
$1.8 billion (including estimated contract escalation) exclusive of
unexercised options aggregating $1.1 billion held by the U.S. Navy (the
"Navy") for additional ship orders (including estimated contract
escalation). Firm backlog includes two Navy contracts awarded in 1996,
the first of which was the exercise of a previously awarded option to
construct an additional Sealift ship for approximately $211.1 million
(or more than $240 million after considering certain additional
components and reimbursable escalation). The exercise of this option
represents the fifth ship which the Company has been awarded in the
Sealift program. The Navy holds an option for an additional Sealift ship
which is exercisable in 1997.
In December 1996, the U.S. Navy awarded a contract to build the
first ship of its new class of LPD-17 vessels to an alliance led by the
Company. In addition, the alliance was awarded options, exercisable by
the U.S. Navy, for two additional ships of the LPD-17 class. It is
expected that a total of 12 vessels will be built under the LPD-17
program. The members of the alliance, Bath, Hughes and the Company
submitted a joint bid with the Company as the prime contractor. Under
the terms of an agreement between the alliance members, the Company will
build the vessel covered by the December 1996 contract, and if the U.S.
Navy exercises the two options, the Company would also construct the
second and Bath would construct the third of the three LPD-17 vessels.
Hughes will be responsible for total ship integration and the alliance
will use Intergraph technology for the design and manufacture of the
ship. In order to fairly represent its role as the prime contractor
under the LPD-17 contract, the Company is required to report in its
financial statements the entire contract amount for each vessel in the
LPD-17 program constructed by the alliance as revenue. Under the
subcontracting agreements entered into between the Company and each of
Bath and Hughes, the award fees that can be earned under the LPD-17
contract are distributable among the alliance members in proportion to
each member's performance and participation in the construction of the
vessel for which the award was granted. To the extent that the Company's
revenues include costs incurred by and award fees paid to the other
alliance members, the Company's profit margins will be reduced. For
additional information on the terms of the LPD-17 contract award, the
relationship between the members of the alliance and certain accounting
considerations, see "Business - Overview."
Vessel deliveries in fiscal 1996 included the third of three LSD-
CVs and a double-hulled T-AO representing the 16th vessel built by the
Company since the program's inception in 1982. These deliveries
represent the completion of construction on two multi-ship programs
which provided a significant portion of the Company's workload over the
past several years. Additionally, the Company delivered the third of
four MHC-51 vessels in 1996, and in January 1997, the Company delivered
the fourth and final vessel under the contract.
The Company's operating results projected for 1997 are expected to
be related principally to the LSD-CV 52, the Sealift ship contracts and
the Icebreaker, while results projected for 1998 are expected to reflect
primarily the Sealift and Icebreaker contracts. Except for the LPD-17
contract, the Company records profits under the percentage-of-completion
method of accounting based on direct labor charges. See "Business
- - Overview." Although the Company generally does not begin to record
profits on its contracts until contract performance is sufficient to
estimate final results with reasonable accuracy, actual profits taken
with respect to such contracts may be affected if the Company is required
in the future to revise its estimate of the cost to complete one or
more of such contracts.
As previously disclosed, certain of the Company's operations
closed in 1994 with the completion of their respective contracts. One of
these facilities was sold in December 1996, and the other is currently
offered for sale. With respect to the remaining property, the Company
currently is not aware of any material environmental liabilities to be
incurred for site restoration, post closure monitoring commitments or
other exit costs.
Results of Operations
1996 vs. 1995. The Company recorded net income of $30.8 million,
or $2.13 per share, for 1996 compared to $28.2 million, or $1.95 per
share, for 1995 representing an increase of 9% in net income over the
prior year. Net income for 1996 and 1995 include income tax benefits of
$9.0 million, or $0.62 per share, and $13.0 million, or $0.90 per share,
respectively, as discussed below. Also included in 1996 and 1995 net
income are $4.4 million, or $0.30 per share, and $4.5 million, or $0.31
per share, respectively, reductions of a previously recognized loss
which was recorded in prior years on the contract to construct three
LSD-CVs. The reductions were due primarily to revisions of the total
estimated contract cost as it neared completion.
In addition to the improvements on the three LSD-CV contract, the
increases in the Company's operating results in 1996 reflect improved
operating profits recognized on the seven T-AO contract, which was
completed in 1996, and the LSD-CV 52 contract. In addition, the Company
began profit recognition on the contract to construct five Strategic
Sealift vessels for the Navy. Also contributing to the increase in
operating results for 1996 were operating profits of $8.2 million
recorded by the Company's marine repair, modular construction and
wholesale steel operations.
These profits were offset, in part, by losses recorded on two
commercial marine construction contracts. The Company recognized an $8.5
million loss on the contract to construct river hopper barges, primarily
representing costs incurred in connection with the Company's entry into
this competitive market. In addition, the Company recorded a $20
million loss with respect to the contract to retrofit four single-hull
commercial tankers with new double hulls. This loss resulted from
several factors, the most important of which related to certain
modifications to the hull design that were required in order to comply
with American Bureau of Shipbuilding standards after construction had
been commenced by the Company in order to respond to a significantly
compressed construction schedule caused by the customer's delay in
obtaining financing. In addition, this project was commenced prior to
the time that the Company's new automated production facility had become
fully operational, and therefore did not benefit from the efficiencies
which would have been realized from the completed factory. Finally, the
pre-delivery testing of the first vessel revealed a condition which
required certain modifications causing the Company to incur incremental
costs.
The impact of these losses was mitigated by the fact that these
contracts absorbed a substantial amount of operating expenses that
would otherwise have been allocated to other contracts. In addition,
these contracts have been important in the Company's reemergence in the
competitive commercial tanker and barge markets. The tanker contract
has also enabled the Company to construct four forebodies which are
patterned after the forebody of Avondale's standard tanker, providing
experience in constructing this portion of the vessel, enabling the
Company to refine the design and production techniques, and furthering
the Company's progress toward achieving its stated goal of a more
balanced mix of military and commercial work. The first double-hull
tanker was delivered on October 3, 1996 while the second hull was
delivered January 16, 1997. The remaining vessels are scheduled to be
delivered in May and September 1997.
The Company's net sales in 1996 increased $48.6 million, or 8%, as
compared to the prior year. The increase in 1996 net sales was due
primarily to increases in sales revenues recognized on the contracts to
construct the first five Sealift ships, the Icebreaker and the
forebodies for four double-hulled product tankers, which collectively
accounted for 63% of the Company's 1996 net sales revenue. The increase
in net sales was partially offset by reductions in sales revenues
recognized on the contracts to construct the three LSD-CVs (the last of
which was delivered in March 1996), LSD-CV 52 (scheduled for completion
in November 1997), the seven T-AOs (the last of which was delivered in
May 1996) and four MHCs (the third of which was delivered in July 1996
and the last of which was delivered in January 1997). The increase in
1996 net sales was also partially offset by reduced net sales recorded
on paddle-wheeled gaming vessels (the last of which was delivered in
1995). The contracts to construct the three LSD-CVs, the LSD-CV 52, the
seven T-AOs and four MHCs collectively accounted for 24% of the
Company's 1996 net sales revenue.
Gross profit for 1996 increased $23.2 million, or 39%, compared to
1995. The increase in 1996 gross profit was due primarily to profits
recognized on the contract to construct the LSD-CV 52 and the seven T-
AOs. Also contributing to the increase in gross profit was the start of
profit recognition on the contract to construct the Strategic Sealift
vessels. The increase in gross profit was partially offset by the
losses recorded on the barge and forebodies contracts discussed above.
Selling, general and administrative ("SG&A") expenses increased
$12.9 million, or 40%, for 1996 compared to 1995. The overall increase
in SG&A expenses was due primarily to increased labor costs,
professional fees and computer equipment rental costs associated with
the Company's successful LPD-17 proposal. These increases represent 76%
of the increase in 1996 SG&A expenses.
The Company's 1996 and 1995 operating results include income tax
benefits of $9.0 million, or $0.62 per share, and $13.0 million, or $0.90
per share, respectively. As further discussed in Note 7 of the Notes to
Consolidated Financial Statements, these amounts were principally the
result of recognizing, for financial reporting purposes, income tax
benefits from certain net operating loss carry forwards available to
offset estimated future taxable earnings. In 1996 and 1995, the $9.0
million and $13.0 million respective tax benefits were offset by income
tax provisions of $12.7 million and $8.6 million related to 1996 and
1995 operating results, respectively. As of December 31, 1996,
substantially all of the Company's net operating loss carry forwards
have been recognized for financial reporting purposes.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations and has
adopted the disclosure-only provisions of SFAS 123. Implementation of
the provisions of SFAS 123 had no material effect on the financial
statements.
1995 vs. 1994. The Company recorded net income of $28.2 million,
or $1.95 per share, for 1995 compared to $8.5 million, or $0.59 per
share, for 1994 representing a threefold increase in net income over the
prior year. The 1995 net income includes a $4.4 million, or $0.30 per
share, net income tax benefit (discussed below). Also included in 1995
net income is $4.5 million, or $0.31 per share, which is a reduction of
a previously recognized loss which was recorded in prior years on the
contract to construct three LSD-CVs. The reduction was due primarily to
a revision of the total estimated contract cost as it nears completion.
Included in net income for 1994 are a $3.5 million, or $0.24 per share,
net gain related to revisions of estimated contract profits on several
previously completed shipbuilding contracts and a loss from discontinued
operations of $4.6 million, or $0.31 per share, reflecting the Company's
decision in 1994 to discontinue its service contracting business.
The significant increases in the Company's operating results in
1995 primarily reflect increased operating profits recognized on the
LSD-CV 52 contract, as well as the reversal of part of a previously
recognized loss on the contract to construct three LSD-CVs, and the
recognition of operating profit on the T-AO contract. Also contributing
to the increase in operating results for 1995 were profits recorded by
the Company's marine repair and wholesale steel operations and an
increase in interest income primarily resulting from an increase in the
Company's invested cash balances.
The Company's net sales in 1995 increased $100.5 million, or 21%,
as compared to the prior year. The increase in 1995 net sales was due
primarily to increases in sales revenues recognized on the contracts to
construct the first three Sealift ships, the forebodies for four
double-hulled product tankers, the LSD-CV 52 and the Icebreaker, which
collectively accounted for 54% of the Company's 1995 net sales revenue.
The increase in net sales was partially offset by reductions in sales
revenues recognized on the contracts to construct the seven T-AOs (the
fifth and sixth of which were delivered in 1995), three LSD-CVs (the
second of which was delivered in 1995) and four MHCs (the first of which
was delivered in 1995), as these contracts approach completion. The
contracts to construct the T-AOs, three LSD-CVs, and four MHCs
collectively accounted for 28% of the Company's 1995 net sales revenue.
Gross profit for 1995 increased $11.2 million, or 24%, compared to
1994. The increase in 1995 gross profit was primarily due to profits
recognized on the contract to construct the LSD-CV 52 as the percentage
of completion was sufficient to begin profit recognition in 1995.
Selling, general and administrative ("SG&A") expenses increased
$1.6 million, or 5%, for 1995 compared to 1994. The overall increase in
SG&A expenses primarily reflected increased operating activity at the
Company's main shipyard and, in part, an increase in indirect labor and
associated costs resulting from a wage increase given in January 1995 to
all employees. These increases in SG&A expenses were partially offset by
a decrease in SG&A expenses resulting from the closing of certain
subsidiary operations.
Interest expense increased by $457,000, or 10%, in 1995 as
compared to 1994. The increase was due principally to interest expense
associated with the $17.8 million Title XI financing completed in
February 1995 (as discussed below), $36.3 million of Series 1994
industrial revenue bonds (see Note 4 of the Notes to Consolidated
Financial Statements) and a note issued as part of a litigation
settlement (discussed in Note 10 of the Notes to Consolidated Financial
Statements). These increases were partially offset by an increase in
interest capitalized on assets under construction relating primarily to
the modernization project.
The Company's 1995 operating results include a net income tax
benefit of $4.4 million, or $0.30 per share. As further discussed in
Note 7 of the Notes to Consolidated Financial Statements, the net income
tax benefit is 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 partially offset by
an income tax provision of $8.6 million related to 1995 operating
results. There was a minor 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.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $48.9 million at
December 31, 1996 as compared to $38.5 million at December 31, 1995.
Contributing to the improved cash balance at December 31, 1996 were
amounts collected as a result of the settlement of the Company's Request
for Equitable Adjustment ("Minehunter REA") filed with the U.S. Navy
related to the four MHCs currently under contract (as discussed in
further detail in Note 2 of the Notes to Consolidated Financial
Statements). The Company's operating activities represented a
significant source of cash in 1996, generating approximately $26.7
million. The Company's primary uses of cash in the current year
consisted of capital expenditures of $13.8 million and principal
payments on long-term borrowings of $5.8 million.
The Company's $42.5 million revolving credit agreement ("the
agreement") provides available liquidity for working capital purposes,
capital expenditures and letters of credit. At December 31, 1996, there
were approximately $11.3 million of letters of credit issued against
the agreement leaving approximately $31.2 million of liquidity available
to Avondale for operations and other purposes. Continuing access to the
agreement is conditioned upon the Company remaining in compliance with
the covenants which include certain financial ratios. At December 31,
1996 the Company was in compliance with the covenants contained therein.
The Company believes that its capital resources will be sufficient to
finance current and projected operations.
In order to comply with the terms of the LPD-17 contract, the
Company will make significant capital expenditures, particularly to
enhance its computer-aided design and product modeling capabilities.
The Company currently has sufficient cash and available lines of credit
to fund these capital expenditures. Nevertheless, the Company and its
banks agreed to increase the size of its revolving credit agreement from
$42.5 million to $85 million conditioned upon the favorable resolution
of the protest of the LPD-17 contract (which resolution is anticipated
in early April 1997). The increase in the size of the agreement is
sufficient to allow the Company to fund the expenditures on an interim
basis with borrowings under the agreement while preserving the current
level of available liquidity. The amended agreement provides that the
available credit under the agreement will be reduced to approximately
$50 million once a long-term financing for the LPD-17 expenditures is
in place (as discussed below) and, at the same time, the banks have
agreed to eliminate all collateral except their second mortgage on the
Company's 900-foot floating drydock. In addition, the amended agreement
would extend the expiration date until April 2000.
Under planned long-term financing for the LPD-17 expenditures, the
Company, in conjunction with the University of New Orleans (the
"University", and the University of New Orleans Research and Technology
Foundation (the "Foundation"), intends to construct a 200,000 square
foot building on property owned by the Company adjacent to the Company's
main shipyard. In addition, the plan includes the purchase of the
hardware and software required to comply with the LPD-17 contract terms
related to the implementation of the extensive three-dimensional ship
design and IPDE teaming technology. The initial investment in this new
facility, which will be known as the "UNO/Avondale Maritime Technology
Center of Excellence," is estimated at $40 million, and will be financed
by the Foundation using third-party debt or lease financing to be repaid
through annual appropriations from the state and guaranteed by the
Company. The Company will enter into a long-term lease for the Center
requiring only a nominal lease payment. The Company will guarantee the
debt and provide access to the technology and a portion of the Center
to the University for their use in research and the development of
educational curricula. The Company and the University are in the process
of securing the required approvals. Development of the Center and the
requisite state support are contigent on the successful resolution of
the LPD-17 protest.
The Company's estimated net operating loss carry forward for
income tax purposes was $29 million at December 31, 1996. This amount,
plus available income tax credits from prior years of $5.4 million, and
$2.7 million of alternative minimum tax credits will be used to reduce
the income tax liabilities for 1997 and later years. The $1.76 million
cash paid in 1996 for income taxes reflects payments for alternative
minimum tax. The net operating loss carry forwards expire in years 2006
through 2008 and the tax credit carry forwards expire in years 2000
through 2011. The alternative minimum tax credits may be carried
forward indefinitely. The ESOP's sale of its shares of Common Stock will
result in a "change of control" of the Company for tax purposes and may
limit the timing of the Company's use of its net operating loss carry
forwards in 1997 and later years.
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 the construction of U.S. Navy surface ships, although
it secured a large commercial contract in 1995 for the construction and
conversion of double-hulled product carriers. Management believes the
Company's low cost structure, experienced and skilled work force,
technological capabilities, sophisticated construction processes and
extensive experience in building a variety of military and commercial
vessels position the Company as one of the most cost-efficient and
versatile shipbuilders in the United States. At December 31, 1996, the
Company's shipbuilding backlog (the "firm backlog") was approximately
$1.8 billion (including estimated contract escalation), exclusive of
unexercised options aggregating $1.1 billion held by the U.S. Navy for
additional ship orders (including estimated contract escalation).
In December 1996, an alliance led by the Company was awarded a
contract to construct the first of an anticipated 12 vessels under the
U.S. Navy's LPD-17 program. The contract award provides for options
exercisable by the U.S. Navy for two additional LPD vessels to be built
by the alliance. Management believes that by securing the LPD-17
contract the Company has continued to demonstrate its ability to compete
successfully for U.S. Navy contracts based on the high level of its
technical, engineering and production skills, as well as its cost
efficient production methods. In addition, the backlog created from the
LPD-17 contract is a strong foundation that will allow the Company to
compete aggressively for other shipbuilding opportunities, particularly
in the commercial markets. Upon the announcement of the award the
unsuccessful bidder filed a protest which is being reviewed by the GAO
and the U.S. Navy issued a stop-work order pending the resolution of the
protest. Management expects the GAO decision by mid-April 1997 and
anticipates beginning design work immediately if a favorable decision is
received. For additional information on the LPD-17 award, see "-U.S.
Government."
Historical Information. Avondale is a versatile shipyard that 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, container 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 shipyards,
many of which are heavily subsidized by their governments. The effects
of the elimination of these subsidies were largely offset, however, by
the initiative to expand the U.S. Navy fleet to 600 ships, 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
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 AOJs (which constituted conversions of AOs previously
built by Avondale), one T-AGS 45, 15 LCACs, four MHCs and three SL 7
conversions.
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. Government. In addition to the contract award by the U.S.
Navy to build the first LPD-17 vessel, the alliance was awarded options,
exercisable by the U.S. Navy, for two additional ships of the LPD-17
class. It is expected that a total of 12 vessels will be built under
the LPD-17 program. The members of the alliance, Bath, Hughes and the
Company submitted a joint bid with the Company as the prime contractor.
Under the terms of an agreement between the alliance members, the
Company will build the vessel covered by the December 1996 contract, and
if the U.S. Navy exercises the two options, the Company would also
construct the second and Bath would construct the third of the three
LPD-17 vessels. Hughes will be responsible for total ship integration
and the alliance will use Intergraph technology for the design and
manufacture of the ship.
The first three vessels of the LPD-17 program will be built
pursuant to a cost-plus-award fee contract, with the Company, Hughes and
Bath being entitled to reimbursement for their respective allowable
costs in performing the contracts as such costs are incurred. The
contract provides for the payment of an award fee to the members of the
alliance, the amount of which is dependent upon the results of periodic
evaluations of contract performance. The maximum award fee to be earned
is 10% of the bid cost for the LPD-17 contract, and it is anticipated
that any award fee granted will be paid incrementally upon completion of
each periodic evaluation. Pursuant to the subcontracting agreements
entered into between the Company and each of Bath and Hughes, any award
fees earned by the alliance will be distributed to the alliance members
in proportion to each member's performance and participation in the
construction of the vessel for which the award was granted. Unlike the
Company's other principal shipbuilding contracts, where profits are
recognized under the percentage of completion method of accounting, the
Company will record profit on the LPD-17 contract upon award of any
incremental fee. In addition, although the LPD-17 contract is on a
cost-plus-award fee basis, the ability of Avondale to realize any
incremental award fee is dependent not only upon its ability to perform
its contractual obligations but also the satisfactory performance by
other members of the team.
In accordance with the U.S. Navy's requirement of a streamlined
contractual relationship, the alliance's agreement provides that the
Company will act as the prime contractor for all three vessels, and as
such, the Company will be responsible for billing not only its own
costs, but also any costs incurred by Bath and Hughes. Accrodingly,
all such amounts will be reflected in the Company's financial statements.
The Company's backlog at December 31, 1996 includes $641 million,
which amount is the aggregate of the estimated cost to complete the first
LPD-17 vessel and the maximum award fee that would be payable to Avondale
and the alliance. However, a substantial portion of the reported backlog
for the first vessel is related to work to be performed by the other
alliance members. To the extent that the Company's revenues include costs
incurred by and award fees paid to other alliance members, the Company's
profit margins will be reduced.
If the U.S. Navy proceeds with its previously announced intention
to construct additional LPD vessels beyond the first three, the Company
expects that the contracts for such vessels will provide for a more
traditional pricing arrangement, such as a fixed-price incentive
contract or fixed-price contract.
The U.S. Navy has stated that the LPD-17 vessels will be important
to its amphibious operations over the next three decades, and will
replace a number of ships that will be decommissioned as they reach the
end of their useful lives. In 1995, Congress appropriated $974.0
million for the construction of the first of an anticipated 12 ships
under the LPD-17 program. The award to the Company-led alliance of the
contract to construct the initial LPD-17 ship enhances the viability and
competitiveness of the alliance in its pursuit of the remaining LPD-17
ships. If the U.S. Navy awards contracts to construct the 12 ships, the
Company would construct eight ships and Bath would construct four ships.
Also included in the current firm backlog for the military are
contracts to construct five Sealift ships with remaining contract
billings of $875.1 million (including estimated contract escalation).
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 previously constructed by
Avondale for the military. In addition, the Navy holds an option to
require the Company to construct an additional Sealift vessel for an
additional $240 million (including estimated contract escalation), which
option is expected to be exercised by the end of 1997. 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 option)
scheduled for delivery in 2000.
Although no new major U.S. Navy shipbuilding programs are
anticipated before 2000, it is expected that additional U.S. Navy
shipbuilding opportunities including a series of ADC(X) vessels, a class
of auxiliary vessels designed to deliver fuel, ammunition and other
supplies to the U.S. Navy fleet with capabilities similar to the T-AOs
constructed by Avondale, and the SC-21, which represents the next
generation of surface combatant vessels, will become available
thereafter.
Commercial Shipbuilding. Two legislative enactments in the early
1990s have significantly enhanced U.S. commercial shipbuilding
opportunities. 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, 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 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. shipyards.
Management believes these initiatives have assisted Avondale in
attracting recent commercial shipbuilding opportunities. In May 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. The completed vessels
incorporating the first two forebodies were delivered in October 1996
and January 1997, respectively, with the remaining two forebodies
scheduled for completion by the third quarter of 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 November 1995, the Company signed a contract for the
construction of up to six (but not less than four) double-hulled product
carriers. This contract is subject to the customer's ability to qualify
for and receive a Title XI MARAD financing guarantee. The contract
originally called for delivery of the vessels by the end of 1998.
However, in April 1996 at the request of the customer a modification of
the agreement was reached to extend the delivery from 1998 to the year
2000. 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.
Prior to 1997, legislation was introduced in the U.S. Congress
that would eliminate the competitive advantages afforded to U.S.
shipyards 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.
During 1996, Congress adjourned without adopting or ratifying the OECD
Agreement. Proponents of the OECD Agreement may seek to have it
reconsidered in 1997 and, if such legislation were 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 available 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 shipyards 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 vessels of the worldwide tanker and product carrier fleet approach
the end of their useful lives.
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 assurance to this effect with
respect to the Jones Act or any other law or regulation benefitting U.S.
shipbuilders.
The Company believes that significant commercial shipbuilding
opportunities will become available during the next five years. Future
commercial opportunities include constructing vessels with national
defense features for the RRF and the retrofitting of existing
tankers or product carriers and construction of new double-hulled
tankers or product carriers in response to the Oil Pollution Act of 1990
which requires the phase-in transition of single-hulled tankers and
product carriers to double-hulled vessels beginning January 1, 1995.
Although orders for new vessels have not been placed at the rate
originally expected by the Company, management believes a significant
volume of such work will begin to become available before 2000, with
orders being placed in the next two years.
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 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. As a result of these efforts,
Avondale realized substantial increases in labor productivity.
In addition, in 1994 the Company entered into a technology sharing
agreement with 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 with 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.
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, Avondale's ability to
compete effectively for additional commercial work should be enhanced by
the new assembly-line process.
An important element of the award to Avondale of the LPD-17
contract was its utilization of computer hardware and software provided
by Intergraph that will permit the Company to engage in more advanced
three-dimensional, ship design and modeling than was previously used by
the Company. This technology also provides for sophisticated data
storage, management and retrieval for future projects. Among its other
features, the technology permits engineering, production and material
procurement tasks to be performed cooperatively in a teaming approach,
thus enhancing the efficiency of the design phase. In connection with
the LPD-17 program and future shipbuilding contracts, the Company will
implement an IPDE which captures data in digital form at creation
and then organizes, integrates, maintains and makes available such data
to all program participants.
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 almost any type of vessel other than
nuclear submarines and certain surface vessels, such as ultra-large
crude carriers. Avondale also operates several other facilities in
the vicinity of the main shipyard, including its Westwego shipyard,
which is used primarily for boat construction and repair, and its Algiers
shipyard, which is used primarily for the repair and overhaul of
ocean-going vessels. In addition, the Company operates a marine
fabrication facility in Gulfport, Mississippi, which currently is being
used to construct the river hopper barges.
The Company 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 year ended December 31,
1996 was comprised of new military construction. Commercial new
construction increased in 1995 and 1996, principally due to the
construction of the four forebodies and the construction of the river
hopper barges discussed in "-Other Operations - Boat Division."
Distribution of Marine Construction and Repair Work
Years Ended December 31,
--------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
U.S. MILITARY:
New construction 87% 88% 81% 80% 81%
Repair, overhaul and
conversion 6% 2% -- -- --
COMMERCIAL:
New construction 2% 6% 11% 16% 17%
Repair, overhaul and
conversion 5% 4% 8% 4% 2%
---- ---- ---- ---- ----
TOTAL 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
The percentage of new construction for the U.S. Navy in 1996 was
virtually unchanged since 1994. Commercial repair, overhaul and
conversion decreased in 1995 as compared to 1994, as the Company's work
on several contracts with a private contractor for the repair of Sealift
ships 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, although the recent LPD-17 contract is a cost-plus
- -award fee contract. 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 payment of 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. The LPD-17
contract provides for the payment of all costs that are reimbursable
under government contracts. The award fee is payable periodically after
the Navy's evaluation of the alliances's performance in executing the
contract's performance goals and objectives. See "-Overview."
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 may then re-evaluate a bid
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
and cost 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. In addition, 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 of the Company's
Common Stock is increased to a level that could result in foreign
dominance or control of its activities, the Company 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. There are currently no such amounts
recorded. Although management believes its estimates are 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 this 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. 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.
Vessel Deliveries and Backlog. At December 31, 1996, the Company
had a firm backlog of shipbuilding contracts of approximately $1.8
billion (exclusive of unexercised options aggregating $1.1 billion held
by the U.S. Navy for additional ship orders (including estimated
contract escalation)) compared with backlogs of $1.4 billion each at
December 31, 1995 and 1994. The Company's firm backlog at December 31,
1996 primarily consisted of $186 million to complete the Icebreaker,
$875 million to complete the remaining five Sealift ships and $641
million related to the LPD-17 contract.
Vessel deliveries in 1995 and 1996 included three T-AOs, two
LSD-CVs, three MHCs, one gaming vessel and one double-hulled forebody.
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 - 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 Company will be the
successful bidder or that the vessels bid on will actually be built.
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 power plant that was floated up the Mississippi River
and installed in Vidalia, Louisiana in 1990. In 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. Sales to
unrelated third parties for the years ended December 31, 1996, 1995 and
1994 were $8.5 million, $9.8 million and $10.3 million, respectively.
Avondale's modular construction division has not engaged in any
significant projects since the floating detention center was delivered
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.
Boat Division. The Company has a facility equipped for boat
construction at its Westwego, Louisiana shipyard that is capable of
building vessels up to 450 feet in length, as well as a facility in
Gulfport, Mississippi. In 1994 and 1995, the Boat Division delivered
three gaming vessels ranging from 210 to 350 feet in length. In 1996,
the division was primarily engaged in the construction of river hopper
barges under a contract signed in 1995 with the Ingram Ohio Barge
Company. The Boat Division is actively pursuing other projects,
including 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, 1996, 1995, 1994 was approximately
$11.9 million, $18.8 million and $18.3 million, respectively. Sales to
unrelated third parties for the years ended December 31, 1996, 1995 and
1994 were $10.2 million, $29.4 million and $40.6 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 third
parties for the years ended December 31, 1996, 1995 and 1994 were
approximately $40.1 million, $28.2 million and $22.4 million,
respectively.
Repair Operations. At its main shipyard and the Algiers shipyard,
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 shipyard, the Company is capable of offering a complete range of
vessel repairs and overhaul services. The Algiers shipyard 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 the vessels'
home ports. Sales to unrelated third parties for the years ended
December 31, 1996, 1995 and 1994 were $13.5 million, $27.3 million and
$30.3 million, respectively.
Competition
The shipbuilding 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 intensified competition
significantly. With respect to the market for U.S. military contracts,
there are principally five private U.S. shipyards, including Avondale,
that compete for contracts to construct or convert surface vessels. Two
of these companies are subsidiaries of much larger corporations that
have substantially greater resources than Avondale.
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 Avondale considers to be its 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 shipyards in several countries, many of
which are heavily subsidized by their governments. See "-Overview -
Commercial Shipbuilding."
Substantially all military and commercial contracts awarded to
U.S. shipyards are competitively bid. The Company believes that it 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. However, the Company believes that its
recent securing of the LPD-17 award has continued to demonstrate
Avondale's ability to compete successfully for U.S. Navy contracts based
on the high level of its technical, engineering and production skills as
well as its cost efficient production methods. 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.
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. See Note 10 of the Notes to Consolidated Financial
Statements.
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
At December 31, 1996, Avondale had approximately 5,200 employees,
many of whom have been employed by the Company for many years. In
February 1997 the National Labor Relations Board ("NLRB") confirmed the
results of a 1993 election. The Company continues to believe that it
has substantive and meritorious bases for overturning the decision of
the NLRB and intends to take steps to have the propriety of the election
reviewed in court. If the NLRB certifies the union and that decision
is upheld, the Company will 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
in potentially disruptive activities such as strikes or picketing, or
that the Company may incur higher labor 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 his or her 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 the Company's
financial condition, results of operations or cash flows.
MANAGEMENT
The following table sets forth certain information regarding the
executive officers and directors of Avondale.
Name Age Position
- ----------------------- ------ --------------------------------
Albert L. Bossier, Jr. 64 Chairman of the Board, Chief
Executive Officer and President
Thomas M. Kitchen 49 Vice President, Chief Financial
Officer and Secretary and a
Director
Kenneth B. Dupont 58 Vice President and a Director
Vice Admiral Francis R. 62 Director
Donovan (Retired, USN)
William A. Harmeyer 76 Director
Anthony J. Correro, III 55 Director
Hugh A. Thompson 62 Director
Albert L. Bossier, Jr. 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. The Company has an
employment contract with Mr. Bossier with a term ending December 31,
1999.
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. The Company
has an employment contract with Mr. Kitchen with a term ending December
31, 1999.
Kenneth B. Dupont has been a director and Vice President of the
Company since March 1987. From September 1985 until March 1987, he was
Vice President of the Shipyards Division of the Company, and from 1969
until September 1985, he was Vice President of the Offshore Division of
Avondale Shipyards, Inc. The Company has an employment agreement with
Mr. Dupont with a term ending December 31, 1999.
Vice Admiral Francis R. Donovan (Retired, USN) has been a
director of the Company since August 1994 and 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 from November 1994 to June
1996 he was employed as Strategic Mobility Coordinator for PRC Inc.
Since July 1996 he has served as President of Designers and Planners,
Inc., a marine engineering, naval architecture and environmental
planning firm.
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 of the Company.
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 Haygood Phelps Weiss Walmsley & Casteix, L.L.P.
Hugh A. Thompson has been a director of the Company since 1988 and
is currently Emeritus Professor of Mechanical Engineering and Emeritus
Dean of Engineering of Tulane University's School of Engineering, from
which he retired in 1996. From 1991 to 1996, Dr. Thompson was a Professor
of Engineering at, and from 1976 to 1991 Dr. Thompson was the Dean of
the School of Engineering of Tulane University.
During February 1997, the Board of Directors adopted, subject to
shareholder approval and favorable resolution of the protest filed by
the unsuccessful bidder relating to the LPD-17 contract, the Avondale
Industries, Inc. 1997 Stock Incentive Plan (the "1997 Plan") which
provides for the award of various economic incentives to key employees
and directors. Incentives granted under the 1997 Plan may be in the
form of stock options, stock appreciation rights, restricted stock and
performance shares or any combination thereof. A total of 1,450,000
shares of Common Stock of the Company would be reserved for issuance
under the 1997 Plan.
SELLING SHAREHOLDER
Of the 3,000,000 shares of Common Stock offered hereby, 53,613
are being sold by the Company and 2,946,387 are being sold by the ESOP.
At March 11, 1997, the ESOP owned 2,946,387 shares of Common Stock,
including 6,975 shares that will be distributed to employees who have
notified the Company of their intent to retire prior to the date of this
Prospectus), or 20.4% of the outstanding shares of Common Stock of the
Company, and after completion of the Offering the ESOP will no longer
own any shares of Common Stock of the Company. The ESOP Trustees are
Blanche S. Barlotta, R. Dean Church and Rodney J. Duhon, Jr., all three
of whom are officers or former officers of the Company.
Each of the Company and the ESOP will bear the expenses of the
registration of the shares of Common Stock offered by it, other than
Avondale's legal and accounting fees and related costs which will be
borne by the Company. The expenses to be paid by the Company and the
ESOP for the registration of the shares of Common Stock offered hereby
are estimated at $100,000 and $150,000, respectively.
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 March 1, 1997, the Company had 14,493,211 shares of
Common Stock issued and outstanding, not including 197,368 reserved
for issuance upon the exercise of options that are currently exercisable
or will be exercisable within 60 days. No shares of Preferred Stock are
outstanding, but 1,000,000 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 March 1, 1997, 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 Louisiana Business Corporation Law 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, none 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 Company and the Selling Shareholder have 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 Company and the Selling
Shareholder, the number of shares of Common Stock set forth opposite its
name below:
Number of
Underwriter Shares
----------- ----------
Salomon Brothers Inc ...........................
Johnson Rice & Company L.L.C. ..................
---------
Total .......................................... 3,000,000
=========
In the Underwriting Agreement, the several 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
Company and the Selling Shareholder have 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 Company 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 no longer hold any
of the Company's outstanding Common Stock. The Company has agreed, and
the ESOP has agreed in the event that all of the shares of Common Stock
held by it are not sold in the Offering, 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 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 provided
further, that the ESOP may sell shares if the ESOP committee in good
faith determines that its fiduciary duties require it to sell such
shares.
Each of Salomon Brothers Inc and Johnson Rice & Company L.L.C. from
time to time provides investment banking and financial advisory
services to the Company, including acting as underwriters of the February
1996 Common Stock offering, and such firms may in the future provide
similar services to the Company, for which they have received or expect
to receive customary fees.
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.
Until the distribution of the Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase
the Common Stock. As an exception to these rules, the Representatives
are permitted to engage in certain transactions that stabilize the price
of the Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common
Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, by selling more shares of Common Stock than
are set forth on the cover page of this Prospectus, the Represntatives
may reduce that short position by purchasing Common Stock in the open
market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the
Representatives purchase shares of Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the
Common Stock, they may reclaim the amount of selling concession from the
Underwriters and selling group members who sold those shares as part of
the offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might in the absence of of such purchases. The imposition
of a penalty bid might also have an effect on the price of a security to
the extent that it were to discourage resales of the security.
Nether the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of
the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Representatives will engage
in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
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 as of December
31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report,
appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
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 Commission maintains
an internet web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission (http://www.sec.gov). 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, D.C. 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, 1996
(File No. 0-16572); and (ii) 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 T-AOs
currently under construction at Avondale.
AO An auxiliary oil tanker constructed for the U.S. Navy and
crewed by U.S. Navy personnel. Avondale has built five AOs.
AOJ An AO which has been "jumboized" i.e., lengthened by the
Company by inserting a 108 foot midbody. Avondale has
converted five AOJs.
Icebreaker WAGB-20 Polar Icebreaker, which has been ordered by the U.S.
Coast Guard for its polar operations.
IPDE An Integrated Product Data Environment which captures data
in digital format at the point of creation and then
organizes, integrates, maintains and makes the information
available to all program participants.
Jones Act Merchant Marine Act of 1920, as amended.
LASH "Lighter aboard ship," a LASH vessel 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 "Landing craft air cushion," a surface effect vessel that
was constructed at the Company's Gulfport facility.
Avondale has built 15 LCACs.
LPD-17 The next class of amphibious transport ship for the U.S.
Navy. Avondale was awarded a contract, with two options, for
the design, construction and support of the initial LPD-17
ships.
LSD "Landing ship dock," designed to carry troops, materials and
up to four LCACs. Avondale has built five LSDs.
LSD-CV An LSD with a "cargo variant" design allowing for carrying
of more cargo and only 2 LCACs. Avondale has built four
LSD-CVs.
MARAD United States Maritime Administration, Department of
Transportation.
MHC MHC-51 class fiberglass coastal minehunter. Avondale has
built four MHCs.
REAs Requests for Equitable Adjustments submitted by a government
contractor to the U.S. government.
RRF Ready Reserve Fleet, an inactive reserve of merchant ships
and naval auxiliaries maintained by MARAD which can be
activated to meet U.S. shipping requirements during national
emergencies.
SC-21 "Surface Combatant 21st Century," 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.
SL7 A "Roll on Roll off" vessel operated by the Military Sealift
Command and crewed by a civilian crew. Avondale has
converted three SL7s.
Sealift As used herein, TAKR 300 Class Sealift vessels are transport
vessels built for the U.S. Navy. Avondale has contracts to
build five Sealift vessels with an option to build an
additional vessel.
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. Avondale has built sixteen
T-AOs.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.... F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996.............................. F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1994, 1995 and 1996........................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996............................. F-6
Notes to Consolidated Financial Statements...................... F-7
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, 1995 and 1996, and
the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended December
31, 1996. 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, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
\s\ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 17, 1997
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
---------------------
1995 1996
ASSETS ---- ----
Current Assets:
Cash and cash equivalents $ 38,524 $ 48,944
Receivables (Note 2) 93,184 119,139
Inventories (Note 3) 15,289 21,785
Deferred tax assets (Note 7) 23,650 30,157
Prepaid expenses and other current assets 2,946 2,465
-------- --------
Total current assets 173,593 222,490
-------- --------
Property, Plant and Equipment (Note 4):
Land 9,161 7,984
Buildings and improvements 59,991 59,598
Machinery and equipment 182,547 187,029
-------- --------
Total 251,699 254,611
Less accumulated depreciation (121,661) (127,009)
-------- --------
Property, plant and equipment - net 130,038 127,602
-------- --------
Goodwill - net 8,637 8,073
Other assets 4,459 4,707
-------- --------
TOTAL ASSETS $316,727 $362,872
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 4) $ 5,062 $ 4,957
Accounts payable 65,517 73,589
Accrued employee compensation 10,777 11,630
Other 11,249 12,839
-------- --------
Total current liabilities 92,605 103,015
Long-term debt (Note 4) 60,593 54,866
Deferred income taxes (Note 7) 850 10,300
Other liabilities and deferred credits 11,621 12,838
-------- --------
Total liabilities 165,669 181,019
-------- --------
Commitments and Contingencies (Notes 6 and 10)
SHAREHOLDERS' EQUITY (Note 9):
Common stock, $1.00 par value; authorized -
30,000,000 shares; issued -
15,927,191 shares in 1995 and 1996 15,927 15,927
Additional paid-in capital 373,911 373,911
Accumulated deficit (226,924) (196,129)
-------- --------
Total 162,914 193,709
Treasury stock (1,463,016 shares in 1995
and 1996) at cost (11,856) (11,856)
-------- --------
Total shareholders' equity 151,058 181,853
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $316,727 $362,872
======== ========
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31,
------------------------------
1994 1995 1996
---- ---- ----
Continuing operations:
Net sales (Note 2) $475,810 $576,308 $624,929
Cost of sales 428,325 517,637 543,102
-------- -------- --------
Gross profit 47,485 58,671 81,827
Selling, general and administrative expenses 30,536 32,123 45,037
-------- -------- --------
Income from operations 16,949 26,548 36,790
Interest expense (4,385) (4,842) (4,986)
Other - net 811 2,074 2,691
-------- -------- --------
Income from continuing operations before
income taxes 13,375 23,780 34,495
Income taxes (Note 7) 300 (4,400) 3,700
-------- -------- --------
Income from continuing operations 13,075 28,180 30,795
-------- -------- --------
Discontinued operations (Note 5):
Loss from discontinued operations (1,909) --- ---
Disposal costs (2,643) --- ---
-------- -------- --------
Loss from discontinued operations (4,552) --- ---
-------- -------- --------
NET INCOME $ 8,523 $ 28,180 $ 30,795
======== ======== ========
Income (Loss) per share of common stock
(Note 9):
Continuing operations $ 0.90 $ 1.95 $ 2.13
Discontinued operations (0.31) --- ---
-------- -------- --------
INCOME PER SHARE OF COMMON STOCK $ 0.59 $ 1.95 $ 2.13
======== ======== ========
Weighted average number of shares outstanding 14,464 14,464 14,464
======== ======== ========
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994, 1995 and 1996
(in thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $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
Net income 28,180 28,180
------------------------------------------------------
BALANCE, DECEMBER 31, 1995 15,927 373,911 (226,924) (11,856) 151,058
Net Income 30,795 30,795
------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $15,927 $373,911 $(196,129) $(11,856) $181,853
======================================================
</TABLE>
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
-----------------------------
1994 1995 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,523 $28,180 $30,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,552 9,819 10,809
Deferred income taxes --- (5,900) 3,700
(Gain) loss on sale of assets --- (813) 3,135
Change in operating assets and
liabilities, net of dispositions:
Receivables 45,542 (9,674) (25,955)
Inventories (2,500) 296 (6,496)
Prepaid expenses and other current
assets (1,251) 3,429 98
Accounts payable 4,120 4,600 8,072
Accrued employee compensation 596 (2,171) 853
Other - net 2,546 229 1,690
------- ------- -------
Net cash provided by operating activities 69,128 27,995 26,701
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,120) (21,290) (13,830)
Proceeds from sale of assets --- 3,248 2,998
Change in restricted short-term
investments - net (1,811) 1,243 383
Payment to former corporate parent (5,000) --- ---
------- ------- -------
Net cash used for investing activities (11,931) (16,799) (10,449)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings (81,228) (5,866) (5,832)
Proceeds from issuance of long-term
borrowings (Note 4) 36,250 17,780 ---
------- ------- -------
Net cash (used for) provided by
financing activities (44,978) 11,914 (5,832)
------- ------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 12,219 23,110 10,420
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,195 15,414 38,524
------- ------- -------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $15,414 $38,524 $48,944
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 4,537 $ 5,255 $ 5,207
======= ======= =======
Income taxes paid $ 945 $ 1,760
======= =======
Noncash investing and financing activities:
Note issued in litigation settlement $ 2,000
=======
Note issued to former corporate parent $ 8,000
=======
See 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.
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 2). 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" 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 values of the Company's
significant financial instruments (consisting of cash and cash
equivalents, short-term investments, receivables, payables, accrued
liabilities and long-term debt) approximate fair values.
Inventories
Inventories are recorded principally at the lower of cost (average
or first-in, first-out) or market.
Property, Plant and Equipment
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.
Interest costs for the construction of certain long-term assets are
capitalized as part of the cost of property, plant and equipment and
amortized over the related assets' useful lives. Interest costs
capitalized in fiscal 1994 were not material. Interest costs capitalized
in fiscal 1995 and 1996 approximated $1.2 million and $759,000,
respectively.
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, 1995 and 1996 amounted to
$74.5 million and $75.0 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.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations and has
adopted the disclosure-only provisions of SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock. See
Note 9.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications of prior year amounts have been made to
conform to the current year presentation. These reclassifications were
made for comparative purposes only and have no effect on net income as
previously reported.
2. Receivables
Receivables consisted of the following at December 31, 1995 and 1996 (in
thousands):
1995 1996
-------- --------
Long-term contracts:
U.S. Government:
Amounts billed $ 30,151 $ 859
Unbilled costs, including retentions, and
estimated profits on contracts in progress 41,119 90,325
-------- --------
Total 71,270 91,184
Commercial:
Amounts billed 4,364 7,274
Unbilled costs, including retentions, and
estimated profits on contracts in progress 12,312 14,681
-------- --------
Total from long-term contracts 87,946 113,139
Trade and other current receivables 5,238 6,000
-------- --------
Total $ 93,184 $119,139
======== ========
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 $36.3 million is expected to
be collected in 1997 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 1994, 1995, and 1996 account
for approximately 77%, 74% and 77% of the net sales, respectively.
In December 1995, the Company settled the Minehunter Request for
Equitable Adjustment ("Minehunter REA") for $23 million, which
approximated the previously recorded estimate of the amount recoverable.
In connection with the settlement of the Minehunter REA in December
1995, the Company submitted invoices totaling $30.7 million to the U.S.
Navy, which included certain contractual cost sharing and cost
escalation provisions which obligate the U.S. Navy to bear a portion of
the additional costs. The Company collected these amounts in full during
the first quarter of 1996.
Costs and estimated profits (losses) on contracts in progress at
December 31, 1995 and 1996 were as follows (in thousands):
1995 1996
----------- -----------
Costs incurred on contracts in progress $ 2,668,388 $ 3,026,965
Estimated profits recognized 49,287 92,080
Reserve for anticipated contract losses (34,500) (58,600)
----------- -----------
Total 2,683,175 3,060,445
Less billings to date (2,643,912) (2,956,710)
----------- -----------
Net value of contracts in progress $ 39,263 $ 103,735
=========== ===========
Net value of contracts in progress was comprised of the following amounts
(in thousands):
1995 1996
-------- --------
Unbilled costs and estimated
profits on contracts in progress
(included in receivables) $ 53,431 $105,006
Billings in excess of costs and estimated
profits on contracts in progress (included
in accounts payable) (14,168) (1,271)
-------- --------
Total $ 39,263 $103,735
======== ========
The reserve for anticipated contract losses of $34.5 million and
$58.6 million included in the net value of contracts in progress at
December 31, 1995 and 1996, respectively, is related to certain
contracts which are presently scheduled for delivery through September
1997. In 1995 and 1996 the Company recorded reductions of $4.5 million
and $4.4 million, respectively, of a previously recognized loss due
primarily to a revision of the total estimated contract cost as it nears
completion. Additionally, during 1996 the Company recorded a $28.5
million increase in the reserve related to the contracts to construct
the four double-hulled forebodies and a series of river hopper barges.
3. Inventories
Inventories consisted of the following at December 31, 1995 and 1996 (in
thousands):
1995 1996
-------- --------
Goods held for sale $ 7,409 $ 13,184
Materials and supplies 7,880 8,601
-------- --------
Total $ 15,289 $ 21,785
======== ========
4. Financing Arrangements
Revolving Credit Agreement
The Company has available a two-year revolving credit agreement
("the agreement") with various financial institutions. The agreement
provides for an available line of credit equal to the lesser of $42.5
million or a specified borrowing base with a term which in 1996 was
extended to May 1998. A commitment fee based on the average daily amount
of the unused line of credit is payable on a quarterly basis. Borrowings
under the agreement bear interest at fluctuating rates. The agreement 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. The agreement also 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 which letters of credit
reduce the remaining available credit (see Note 10). There were no
borrowings in 1995 and 1996 under the revolving credit agreement.
As a result of the award of the LPD-17 contract the Company will
be required to make significant capital expenditures. The Company and
its banks agreed to increase the size of the revolving credit agreement
up to $85 million upon the favorable resolution of a protest filed by
the unsuccessful bidder for the LPD-17 contract. The amended agreement
provides that the available credit will be reduced to approximately $50
million once a long-term financing for the LPD-17 expenditures is in
place. The banks have also agreed to eliminate all collateral except
the second mortgage on the 900-foot floating drydock and to extend the
agreement's expiration until April 2000.
Long-Term Debt
Long-term debt consisted of the following at December 31, 1995 and 1996
(in thousands):
1995 1996
-------- --------
Industrial revenue bonds $ 36,250 $ 36,250
Mortgage bonds, interest at 8.16%, payable
in semi-annual principal installments to 2010 17,780 16,594
Mortgage bonds, payable in semi-annual
principal installments to 2000 3,880 3,104
General obligation industrial bonds, interest at 7%,
payable in annual installments to 2008 2,745 1,875
Other long-term debt 5,000 2,000
-------- --------
Total 65,655 59,823
Less current maturities of long-term debt (5,062) (4,957)
-------- --------
Long-term debt $ 60,593 $ 54,866
======== ========
The $36.3 million of industrial revenue bonds represent Series
1994 bonds which 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) $30.3 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 which
had a net book value of approximately $21.2 million at December 31,
1996. 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 $16.6 million of mortgage bonds represent the remaining
balance of $17.8 million of bonds issued in February 1995 as part of the
financing of the Company's approximately $20 million plant modernization
effort. The bonds were issued utilizing a U.S. Government guarantee
under Title XI of the Merchant Marine Act, 1936, as amended ("Title
XI"), bear interest at the annual rate of 8.16% and are payable in equal
semi-annual principal payments of $593,000 over a 15 year period
beginning in 1996. The terms of the financing 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. The plant modernization assets
having a net book value of approximately $20.7 million at December 31,
1996 have been pledged as collateral for these mortgage bonds.
The $3.1 million of mortgage bonds at December 31, 1996 represent
the balance of an earlier mortgage bond issue which also utilized a
Title XI guarantee. The Company refinanced these mortgage bonds in
February 1995 (approximately $4.3 million) which reduced the annual
interest rate from 9.30% to 7.86%. The refinancing agreement contains
various restrictive covenants similar to those for the $17.8 million of
Title XI mortgage bonds discussed above. These bonds are payable in
equal semi-annual principal payments of $388,000 and mature in the year
2000. Property, plant and equipment having a net book value of
approximately $12.9 million at December 31, 1996 has been pledged as
collateral for these mortgage bonds.
Other long-term debt at December 31, 1996 represents a $2 million
unsecured note issued as part of the settlement of certain claims
against the Company (as further discussed in Note 10). The note bears
interest at 8% per annum and is due in January 1997.
Annual maturities of long-term debt for each of the next five years and
in total thereafter follow (in thousands):
1997 $ 4,957
1998 3,047
1999 3,137
2000 3,237
2001 2,571
Thereafter 42,874
-------
Total $59,823
=======
5. 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 operating results for 1994 are reported as discontinued
operations. Summarized results are as follows (in thousands):
Net sales $13,520
Costs and expenses 15,429
-------
Loss from discontinued operations (1,909)
Loss on disposal of discontinued operations (2,643)
-------
Loss from discontinued operations $(4,552)
=======
6. 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.
Rental expense for operating leases was $5.8 million, $6.3 million
and $9.0 million in 1994, 1995 and 1996, respectively.
Minimum rental commitments under leases having an initial or
remaining noncancelable term in excess of twelve months follow (in
thousands):
1997 $2,811
1998 2,268
1999 1,240
2000 929
2001 92
------
Total $7,340
======
7. Income Taxes
Income taxes are accounted for under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109")
which requires the use of the asset and liability approach for financial
accounting and reporting for income taxes.
The Company has provided for Federal income taxes as follows (in
thousands):
1994 1995 1996
------ ------- -------
Current provision $ 600 $ 1,500 $ 1,100
Deferred provision (benefit) (300) 7,100 11,600
Deferred benefit attributable to the
realization of net operating loss
carry forwards --- (13,000) (9,000)
------ ------- -------
Provision (benefit) for income taxes $ 300 $(4,400) $ 3,700
====== ======= =======
The provision (benefit) for income taxes varied from the Federal
statutory income tax rate due to the following (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996
----------- ------------ ------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Taxes at Federal statutory rate $ 3,088 35 $ 8,323 35 $ 12,409 35
Amortization of goodwill
not deductible 511 6 246 1 197 1
Net operating loss
carry forwards utilized --- --- (13,000) (55) (9,000) (25)
Settlement of prior year
tax examinations (3,200) (36) --- --- --- ---
Other ( 99) ( 1) 31 --- 94 ---
-------- ---- -------- ---- -------- ----
Total $ 300 4 $ (4,400) (19) $ 3,700 11
======== ==== ======== ==== ======== ====
</TABLE>
At December 31, 1996 the Company has available for Federal income
tax purposes net operating loss carry forwards and tax credit carry
forwards of $29.0 million and $5.4 million, respectively. The net
operating loss carry forwards expire in years 2006 through 2008 and the
tax credit carry forwards expire in the years 2000 through 2011.
Additionally, the Company has $2.7 million of minimum tax credits which
may be carried forward indefinitely.
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 carry forwards. The tax effects of
significant items comprising the Company's net deferred tax balances at
December 31, 1995 and 1996 are as follows (in thousands):
1995 1996
------- -------
Deferred Tax Liabilities:
Differences between book
and tax basis of property, plant
and equipment $26,266 $24,753
Other 759 976
------- -------
Total 27,025 25,729
------- -------
Deferred Tax Assets:
Reserves not currently deductible 5,174 4,417
Long-term contracts 18,557 18,844
Other temporary differences 4,263 4,761
Operating loss carry forwards 24,334 10,211
Tax credit carry forwards 7,200 8,036
------- -------
59,528 46,269
Valuation Allowance (9,703) (683)
------- -------
Total 49,825 45,586
------- -------
Net deferred tax assets $22,800 $19,857
======= =======
The net deferred tax assets are included in the following balance sheet
captions (in thousands):
1995 1996
------- -------
Current deferred tax assets $23,650 $30,157
Non-current deferred income tax liabilities (850) (10,300)
------- -------
Net deferred tax assets $22,800 $19,857
======= =======
During 1996, the deferred tax valuation allowance decreased
approximately $9.0 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.
8. Retirement Plans
ESOP
In 1985, the Company established the Avondale Industries, Inc.
Employee Stock Ownership Plan (the "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. The ESOP owned approximately 6,822,000 and
2,980,000 shares of the Company's Common Stock at December 31, 1995 and
1996, respectively. In February 1996 the ESOP sold 3,581,100 shares of
the Company's common stock. The Company did not receive any of the
proceeds from this public offering.
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 the
participant's ESOP account or (ii) the benefit calculated under the
pension plan formula. The pension plan formula benefits are based on a
defined dollar amount multiplied by a fraction related to a
participant's credited service.
The net periodic pension cost for the years ended December 31,
1994, 1995 and 1996 included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Service costs of the current period $ 3,400 $3,300 $3,700
Interest cost on the projected benefit obligation 3,800 4,200 3,700
Actual return on plan assets (2,700) (3,600) (4,600)
Net amortization of transition liability and
deferred investment (loss) gain (200) 300 (400)
------- ------ ------
Net periodic pension cost $ 4,300 $4,200 $2,400
======= ====== ======
</TABLE>
The following table sets forth the pension plan's estimated funded
status as of December 31, 1995 and 1996 (in thousands):
1995 1996
Projected benefit obligation:
Vested benefits $ 49,100 $ 38,800
Nonvested benefits 400 400
-------- --------
Accumulated benefit obligation 49,500 39,200
Effect of projected future compensation levels 12,700 2,600
-------- --------
Projected benefit obligation 62,200 41,800
Plan assets at market value 50,400 58,800
-------- --------
Plan assets (less than) in excess of projected
benefit obligation (11,800) 17,000
Unrecognized net transition obligation 100 100
Unrecognized prior service costs (2,500) (2,100)
Unrecognized net loss (gain) 12,600 (14,500)
-------- --------
(Pension liability) Prepaid pension costs $ (1,600) $ 500
======== ========
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 stocks and corporate bonds and notes. The weighted-average
discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% for 1995 and 7.75% for 1996. The
rate of increase in future compensation levels used was 4.0% for 1995
and 1996 and thereafter. The expected long-term rate of return on the
assets was 9.0% for 1995 and 1996.
401(k) Savings Plan
Beginning in 1996 the Company sponsored a 401(k) Savings Plan.
Participation in this defined contribution plan is available to
substantially all employees of the Company. The Company may elect to
make contributions to the Plan; however, the timing and amount of such
contributions is at the discretion of the Company's Board of Directors.
There were no contributions made in 1996.
9. 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,
1995 and 1996.
Income (Loss) Per Share
The weighted average number of shares used in the computation of
income (loss) per share was 14,464,000, for each of the years ended
December 31, 1994, 1995 and 1996, respectively. The assumed exercise of
stock options would not result in dilution in any of such periods.
Stock-Based Compensation Plans
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.
A summary of the status of the Performance Share Plan as of
December 31, 1994, 1995 and 1996 and changes during the three years
ended December 31, 1996 are presented below:
1994 1995 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
Options outstanding
and exercisable,
January 1 303,159 $ 15.975 279,155 $ 15.885 240,971 $ 17.463
Forfeited/expired 23,834 17.122 2,280 15.965 1,360 19.000
------- ------- -------
Exercised 170 4.150 35,904 5.285 13,207 12.940
------- ------- -------
Options outstanding
and exercisable,
December 31 279,155 $ 15.885 240,971 $ 17.463 226,404 $ 17.718
======= ======= =======
The range of exercise prices for options outstanding at December 31,
1996 (the majority of which contain a stock appreciation right feature
was $3.875 to $19.00 and the weighted-average remaining contractual
life for such options was 2.6 years.
The Company provided a Stock Appreciation Plan for key management
employees which contains a stock appreciation right feature. This plan
has expired and no further award will be made.
There were no transactions relating to this plan for the year ended
December 31, 1996. A summary of changes in the Stock Appreciation Plan
during the years ended December 31, 1994 and 1995 are presented below:
1994 1995
------------------ -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ --------- ------ ---------
Options outstanding, January 1 50,000 $ 12.675 40,000 $ 11.25
Forfeited/expired (10,000) $ 18.375 (40,000) $ 11.25
------ ------
Options outstanding, December 31 40,000 $ 11.250 --- $ ---
====== ======
There were no options exercisable at December 31, 1994, 1995 and 1996.
Shares available for grant under the plan at December 31, 1994 and 1995
totaled 397,000 and 437,000 shares, respectively, and no shares
were available for grant at December 31, 1996. Options were outstanding
at $11.25 per share at December 31, 1994. Under the terms of the plan,
options expired on March 31, 1995.
Compensation expense for the years ended December 31, 1994, 1995 and
1996 was not material.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its plans. Accordingly, no compensation expense is
recognized for its stock-based compensation plans other than for
performance-based awards. Since no options were granted under the
Company's stock-based compensation plans during 1995 and 1996, there
would have been no effect on net income and income per common share had
compensation cost for the Company's stock option plans been determined
based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
10. Commitments and Contingencies
Litigation
In January 1986, the Louisiana Department of Environmental Quality
("DEQ") advised the Company that it could 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.
To date, the Company and certain of the other PRPs (the "Funding
Group") for the site have funded the site's remediation expenses, PRP
identification expenses and related costs for the participating parties.
As of December 31, 1996 such costs totaled $18.8 million, of which the
Company has funded approximately $4.0 million. Since 1988 the Funding
Group filed petitions to add a number of companies as third-party
defendants with regard to the remedial action. The Funding Group has
agreed to settle with the majority of these companies. All funds
collected through these settlements are placed in escrow to fund future
expenses. At December 31, 1996, the balance of the escrow was $6.2
million, which is to be used to fund any ongoing remediation expenses.
The Company will not owe any future assessments until the balance in
escrow is depleted. There are additional settlements being negotiated
which should add to the balance in escrow.
Additional remedial work scheduled for the site includes
completion of studies and if required by the results of these studies,
subsequent remediation. Following completion of any such required
additional remediation, it will be necessary to obtain Environmental
Protection Agency approval to close the site, which consent may require
subsequent post-closure activities such as groundwater monitoring and
site maintenance for many years. The Company is not able to estimate
the final costs for any such additional remedial work or post-closure
costs that may be required; however, the Company believes that its
proportionate share of expenditures for any additional work will not
have a material impact on the Company's financial statements. In
addition, the members of the Funding Group have entered into a final
cost sharing agreement under which all parties have agreed that there
would be no re-allocation of previous remediation costs, but that future
remediation costs would be established by a formula. Under this
agreement, the Company's share of future costs is 17.5%.
In 1996, the Company settled a class action lawsuit involving
alleged personal injury and property damage arising from the Walker, La.
reclamation site. Under the terms of the settlement, the Company has
paid approximately $6.0 million into a settlement fund. The Company
also agreed to pay up to an additional $6.0 million (plus interest at 8%
per annum) 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. During the first
quarter of 1997, certain remaining parties to the litigation, including
Avondale's insurers, reached a tentative settlement, pursuant to which
Avondale's insurers agreed to pay the plaintiffs an amount in excess of
the $6.0 million (plus interest) for which Avondale was responsible in
full and final satisfaction of the plaintiffs' claims against Avondale
and Avondale would be released from liability. The tentative settlement
agreement is subject to a fairness review by the trial court. With
respect to the potential contingent liability of the Company to pay
additional sums if the tentative settlement is not approved by the court,
management believes that the eventual resolution of this matter will
not have a material adverse effect on the Company's results of
operations, financial position or cash flows.
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 referred to above.
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 is unable to predict the eventual
outcome of this litigation or the degree to which such potential
liability would be indemnified by its insurance carrier.
In addition to the above, the Company is also named as a defendant
in 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.
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, other insurance obligations and to provide a
debt service reserve fund related to $36.3 million of Series 1994
industrial revenue bonds. Additionally, under certain contracts the
Company may be required to provide letters of credit to secure certain
performance obligations of the Company thereunder. Outstanding letters
of credit relating to these business activities amounted to
approximately $25.4 million at December 31, 1995 and $11.3 million at
December 31, 1996.
11. Quarterly Results (Unaudited)
Consolidated operating results for the four quarters of 1995 and 1996
were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996
-------------------------------------- --------------------------------------
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 $133,575 $152,788 $148,785 $141,160 $156,496 $152,577 $148,384 $167,472
Gross Profit 13,404 13,820 14,793 16,654 17,286 18,166 19,048 27,327
Income from
Operations 5,741 6,222 6,835 7,750 8,253 8,874 9,237 10,426
Net Income 3,044 8,493 12,054 4,589 4,736 14,290 5,612 6,157
Net Income per Share $ 0.21 $ 0.59 $ 0.83 $ 0.32 $ 0.33 $ 0.99 $ 0.39 $ 0.43
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
INSIDE PROSPECTUS BACK COVER
Picture #1: [Aerial view of Avondale's main shipbuilding facility
in Avondale, Louisiana.]
Picture #2: [The King Fisher (MHC-56), a coastal minehunter delivered to
the U.S. Navy in July 1996.]
No dealer, salesperson or any other person 3,000,000 Shares
has been authorized to give any information
or to make any representations other than
those contained or incorporated by reference
in this Prospectus in connection with the
offer made by this Prospectus and, if given
or made, such information or representations
must not be relied upon as having been
authorized by the Company, the Selling AVONDALE
Shareholder or any of the Underwriters. INDUSTRIES, INC.
Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any
circumstances, create 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 solicitation by anyone in any jurisdiction Common Stock
in which such offer or solicitation is not ($1.00 par value)
authorized or in which the person making
such offer or solicitation is not qualified
to do so or to any person to whom it is
unlawful to make such solicitation.
_______________
[LOGO]
Table of Contents
Page
Prospectus Summary.............
Risk Factors...................
Use of Proceeds................
Capitalization.................
Price Range of Common Stock.... Salomon Brothers Inc
Dividend Policy................
Selected Consolidated
Financial Data...............
Management's Discussion
and Analysis of Financial
Condition and Results of Johnson Rice &
Operations................... Company L.L.C.
Business.......................
Management.....................
Selling Shareholder............
Description of Capital Stock...
Underwriting...................
Legal Matters..................
Experts........................
Available Information..........
Incorporation of Certain Prospectus
Documents by Reference.......
Glossary of Selected Industry
Terms........................
Index to Consolidated Financial Dated , 1997
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.......................... $ 21,694
Nasdaq listing fee*......................... 7,659
Printing fees and expenses*.................
Legal fees and expenses*....................
Accounting fees and expenses*...............
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(1)
4.1(b) - By-laws of the Company(2)
4.2 - Specimen of Common Stock certificate(3)
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(4), 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"),(5) as further amended by a third
Supplemental Indenture dated February 9, 1995.(6)
(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(4), as further amended by the Master Assumption
Agreement (filed as Exhibit 4.3(a) hereto); as further
amended by Amendment No. 5 to the Title XI Reserve Fund
and Financial Agreement dated February 9, 1995(6), and
by Amendment No. 6 dated August 22, 1996.(7)
(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)).
(e) Form of 7.86% Sinking Fund Bond, 2000 Series.(6)
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.(3)
(b) Guaranty Agreement dated April 1, 1991 between the
Company, Harrison County, Mississippi and the State of
Mississippi.(3)
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.(8)
(b) Trust Indenture dated April 1, 1994 between the Board
of Commissioners of the Port of New Orleans and First
National Bank of Commerce.(8)
(c) Form of Industrial Revenue Refunding Bond Series 1994.(8)
4.6 - Instruments relating to February 1995 Title XI Vessel Financing.
(a) Trust Indenture dated February 9, 1995 by and between
the Company and Chemical Bank, as Indenture Trustee,
relating to $17,780,000.00 of United States Government
Guaranteed Ship Financing Bonds.(6)
(b) Title XI Reserve Fund and Financial Agreement dated
February 9, 1995 by and between the Company and the
United States of America(6) and amended by Amendment
No. 1 dated August 22, 1996.(7)
(c) Form of 8.16% Sinking Fund Bond, 2010 Series.(6)
4.7 - Stockholder Protection Rights Agreement dated as of September
26, 1994 between the Company and Boatmen's Trust Company, as
Rights Agent(9)
5 - Opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, L.L.P.
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.
(1) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1993.
(2) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1995.
(3) 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.
(4) 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.
(5) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993.
(6) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1995.
(7) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
(8) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
(9) 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 March 11, 1997.
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.
Signature Capacity Date
/s/ Albert L. Bossier Chairman of the Board of March 11, 1997
- ------------------------ Directors, President and
Albert L. Bossier Chief Executive Officer
/s/ Thomas M. Kitchen Executive Vice President March 11, 1997
- ------------------------ and Chief Financial Officer
Thomas M. Kitchen
/s/ Kenneth S. Dupont Director March 11, 1997
- ------------------------
Kenneth S. Dupont
/s/ Anthony J. Correro, III Director March 7, 1997
- ------------------------
Anthony J. Correro, III
/s/ Francis R. Donovan Director March 11, 1997
- ------------------------
Francis R. Donovan
/s/ William A. Harmeyer Director March 7, 1997
- ------------------------
William A. Harmeyer
/s/ Hugh A. Thompson Director March 11, 1997
- ------------------------
Hugh A. Thompson
/s/ Bruce L. Hicks Controller & Treasurer March 11, 1997
- ------------------------ (princiapl accounting
Bruce L. Hicks officer)
EXHIBIT INDEX
Exhibit
Number Document Description Location(+)
1 Form of Underwriting Agreement* F
4.1(a) Articles of Incorporation of the Company(1) I
4.1(b) By-laws of the Company(2) I
4.2 Specimen of Common Stock certificate(3) I
4.3 Instruments Relating to Title XI Vessel Financing I
(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(4), 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"),(5) as further amended by a third
Supplemental Indenture dated February 9,
1995.(6)
(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(4), as
further amended by the Master Assumption
Agreement (filed as Exhibit 4.3(a) hereto), as
further amended by Amendment No. 5 to the
Title XI Reserve Fund and Financial Agreement
dated February 9, 1995(6), and by Amendment No.
6 dated August 22, 1996.(7)
(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)).
(e)Form of 7.86% Sinking Fund Bond, 2000
Series.(6)
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.(3)
(b)Guaranty Agreement dated April 1, 1991 between
the Company, Harrison County, Mississippi and
the State of Mississippi.(3)
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.(8)
(b)Trust Indenture dated April 1, 1994 between
the Board of Commissioners of the Port of New
Orleans and First National Bank of
Commerce.(8)
(c)Form of Industrial Revenue Refunding Bond
Series 1994.(8)
4.6 Instruments relating to February 1995 Title XI I
Vessel Financing.
(a)Trust Indenture dated February 9, 1995 by and
between the Company and Chemical Bank, as
Indenture Trustee, relating to $17,780,000.00
of United States Government Guaranteed Ship
Financing Bonds.(6)
(b)Title XI Reserve Fund and Financial Agreement
dated February 9, 1995 by and between the
Company and the United States of America(6),
as amended by Amendment No. 1 dated August 22,
1996.(7)
(c)Form of 8.16% Sinking Fund Bond, 2010
Series.(6)
4.7 Stockholder Protection Rights Agreement dated as I
of September 26, 1994 between the company and
Boatmen's Trust Company, as Rights Agent(9)
5 Opinion of Jones, Walker, Waechter, Poitevent, F
Carrere & Denegre, L.L.P.
23.1 Consent of Deloitte & Touche LLP 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.
(+) "I" indicates that the Exhibit is incorporated by reference herein. "F"
indicates that the Exhibit is filed herewith.
(1) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1993.
(2) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1995.
(3) 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.
(4) 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.
(5) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993.
(6) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1995.
(7) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
(8) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
(9) Incorporated by reference from the Company's Current Report on Form 8-K
filed with the Commission on September 30, 1994.
EXHIBIT 5
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE L.L.P.
March 14, 1997
Avondale Industries, Inc.
5100 River Road
Avondale, Louisiana 70094
Dear Sirs:
We have acted as your counsel in connection with the
preparation of the registration statement on Form S-3 (the
"Registration Statement") filed by you with the Securities
and Exchange Commission on the date hereof, with respect to
the offer by the Selling Shareholder, as described therein,
of up to 2,946,387 shares of Common Stock, $1.00 par value
per share (the "ESOP Shares"), and the offer by Avondale
Industries, Inc. of up to 503,613 shares of Common Stock
(the "Company Shares"). In so acting, we have examined
original, or photostatic or certified copies, of such
records of the Company, certificates of officers of the
Company and of public officials, and such other documents as
we have deemed relevant. In such examination, we have
assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the
conformity to original documents of all documents submitted
to us as certified or photostatic copies and the
authenticity of the originals of such documents.
Based upon the foregoing, we are of the opinion that
the ESOP Shares have been duly authorized and validly issued
and are fully paid and non-assessable, and that the Company
Shares have been duly authorized and, when issued and sold
in accordance with the terms described in the Registration
Statement, will be validly issued, fully paid and non-
assessable.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and the reference to
us under the caption "Legal Matters" as counsel for the
Company. In giving this consent, we do not admit that we
are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended,
or the general rules and regulations of the Commission.
Very truly yours,
/s/ JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.
JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Avondale
Industries, Inc. on Form S-3 of our report dated February 17, 1997,
appearing in the Prospectus which is part of this Registration
Statement. We also consent to the reference to us under the headings
"Selected Consolidated Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche, LLP
New Orleans, Louisiana
March 12, 1997
