FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
For Quarter Ended March 31, 1999
Commission File Number 0-16572
AVONDALE INDUSTRIES, INC.
Louisiana 39-1097012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 50280, New Orleans, Louisiana 70150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 504/436-2121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to file such filing
requirements for the past 90 days. YES X NO .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at March 31, 1999
Common stock, par value $1.00 per share 13,260,867 shares
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Independent Accountants' Report 1
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 2
Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
Part II. Other Information 20
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Avondale Industries, Inc.
We have reviewed the consolidated financial statements of Avondale Industries,
Inc. and subsidiaries, as listed in the accompanying index, as of March 31, 1999
and for the three-month periods ended March 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Avondale Industries, Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, comprehensive income, shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated February 22,
1999, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1998 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
May 6, 1999
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
March 31, December 31,
1999 1998
------------ ------------
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ASSETS
Current Assets:
Cash and cash equivalents.............................................. $ 47,000 $ 52,262
Receivables (Note 2):
Accounts receivable.................................................. 8,622 10,559
Contracts in progress................................................ 116,276 115,358
Inventories:
Goods held for sale.................................................. 22,743 25,108
Materials and supplies............................................... 8,166 8,495
Deferred tax assets ................................................... 14,249 17,029
Prepaid expenses and other current assets ............................. 4,400 3,310
------------ ------------
Total current assets................................................. 221,456 232,121
------------ ------------
Property, Plant and Equipment:
Land................................................................... 8,227 8,227
Buildings and improvements............................................. 69,291 68,880
Machinery and equipment................................................ 221,453 213,068
------------ ------------
Total................................................................ 298,971 290,175
Less accumulated depreciation.......................................... (143,480) (141,249)
------------ ------------
Property, plant and equipment - net.................................. 155,491 148,926
------------ ------------
Goodwill - net........................................................... 4,862 4,961
Other assets............................................................. 11,136 11,194
------------ ------------
Total assets............................................................. $ 392,945 $ 397,202
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt...................................... $ 3,137 $ 3,137
Accounts payable....................................................... 62,781 79,876
Accrued employee compensation.......................................... 19,228 14,950
Other.................................................................. 13,484 11,889
------------ ------------
Total current liabilities............................................ 98,630 109,852
Long-term debt........................................................... 47,701 48,682
Deferred income taxes.................................................... 1,287 1,487
Other accrued employee compensation...................................... 27,294 26,766
------------ ------------
Total liabilities...................................................... 174,912 186,787
------------ ------------
Commitments and contingencies (Note 7)
Shareholders' Equity:
Common stock, $1.00 par value, authorized 30,000,000 shares; issued -
15,973,883 shares in 1999
and 15,967,082 shares in 1998 ........................................ 15,974 15,967
Additional paid-in capital.............................................. 376,656 376,512
Accumulated deficit........ ............................................ (124,884) (132,351)
Accumulated other comprehensive income/(loss)........................... (1,551) (1,551)
------------ ------------
Total.................................................................... 266,195 258,577
Treasury stock (common: 2,713,016 shares at cost) (Note 4)............... (48,162) (48,162)
------------ ------------
Total shareholders' equity............................................... 218,033 210,415
------------ ------------
Total liabilities and shareholders' equity............................... $ 392,945 $ 397,202
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1999 1998
------------ ------------
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Sales................................................................... $ 195,274 $ 184,625
Cost of sales........................................................... 174,871 164,497
------------ ------------
Gross profit............................................................ 20,403 20,128
Selling, general and administrative expenses............................ 8,326 8,313
------------ ------------
Income from operations.................................................. 12,077 11,815
Interest expense........................................................ (626) (1,137)
Other - net............................................................. 596 1,224
------------ ------------
Income before income taxes ............................................. 12,047 11,902
Income taxes............................................................ 4,580 4,525
------------ ------------
Income before accounting change ........................................ 7,467 7,377
Cumulative effect of accounting change (Note 5) ........................ -- (2,046)
------------ ------------
Net income.............................................................. $ 7,467 $ 5,331
============ ============
Income per share of common stock - BASIC (Notes 4 and 6):
Income before accounting change ........................................ $ 0.56 $ 0.51
Cumulative effect of accounting change (Note 5) ........................ -- (0.14)
------------ ------------
Net income ............................................................. $ 0.56 $ 0.37
============ ============
Weighted average number of shares outstanding........................... 13,256 14,493
============ ============
Income per share of common stock - DILUTED (Notes 4 and 6):
Income before accounting change ........................................ $ 0.56 $ 0.51
Cumulative effect of accounting change (Note 5)......................... -- (0.14)
------------ ------------
Net income ............................................................. $ 0.56 $ 0.37
============ ============
Weighted average number of shares outstanding........................... 13,361 14,575
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands)
(UNAUDITED)
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 7,467 $ 5,331
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................ 2,331 2,183
Deferred income taxes................................................ 2,580 4,525
Cumulative effect of accounting change (Note 5)...................... -- 2,046
Changes in operating assets and liabilities:
Receivables........................................................ 1,019 7,426
Inventories........................................................ 2,694 3,862
Prepaid expenses and other assets.................................. (1,032) (1,496)
Accounts payable................................................... (17,095) (5,087)
Accrued compensation and other liabilities......................... 6,401 5,811
------------ ------------
Net Cash Provided by Operating Activities........................... 4,365 24,601
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................... (8,797) (4,312)
------------ ------------
Net Cash Used for Investing Activities................................. (8,797) (4,312)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings........................................ (981) (981)
Other net.............................................................. 151 --
------------ ------------
Net Cash Used for Financing Activities................................... (830) (981)
------------ ------------
Net (decrease)/increase in cash and cash equivalents..................... (5,262) 19,308
Cash and cash equivalents at beginning of period......................... 52,262 81,752
------------ ------------
Cash and cash equivalents at end of period............................... $ 47,000 $ 101,060
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest................................................................. $ 677 $ 776
============ ============
Income taxes ............................................................ $ -- $ 1,300
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Avondale Industries, Inc. and its wholly-owned subsidiaries
("Avondale" or the "Company"). In the opinion of the management of the Company,
all adjustments (such adjustments consisting only of a normal recurring nature)
necessary for a fair presentation of the operating results for the interim
periods presented have been included in the interim financial statements. These
interim financial statements should be read in conjunction with the December 31,
1998 audited financial statements and related notes filed on Form 10- K for the
year ended December 31, 1998 (the "1998 Form 10-K").
The financial statements required by Rule 10-01 of Regulation S-X have been
reviewed by independent public accountants as stated in their report included
herein.
2. RECEIVABLES
The following information presents the elements of receivables at March 31, 1999
and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Long-term contracts:
U.S. Government:
Amounts billed.......................................... $ 1,519 $ 2,857
Unbilled costs, including retentions, and
estimated profits on contracts in
progress............................................ 109,592 101,931
------------ ------------
Total................................................... 111,111 104,788
Commercial:
Amounts billed.......................................... 2,772 1,934
Unbilled costs, including retentions, and
estimated profits on contracts in
progress............................................ 6,684 13,427
------------ ------------
Total from long-term contracts.......................... 120,567 120,149
Trade and other current receivables....................... 4,331 5,768
------------ ------------
Total .................................................... $ 124,898 $ 125,917
============ ============
</TABLE>
Unbilled costs and estimated profits on contracts in progress were not billable
to customers at the balance sheet dates under terms of the respective contracts.
<PAGE>
The Company currently has an issue with the U.S. Navy related to certain
materials purchased from a subcontractor for use in the Strategic Sealift
program. The materials were purchased based on government-provided
specifications which have proven to be defective. In addition to delay and
disruption costs, the Company has incurred approximately $13.4 million in direct
costs through March 31, 1999 related to this issue. The Company believes that it
is entitled to recovery from the U. S. Navy of these costs and has recorded a
receivable for the amount of direct costs incurred to date. While the Company
hopes to resolve this issue through negotiations, the Company has engaged legal
counsel to assist in the development of a claim. Avondale is currently in
discussions with the U.S. Navy concerning these issues.
3. FINANCING ARRANGEMENTS
The Company's $65 million revolving credit agreement ("the agreement") provides
liquidity for working capital purposes, capital expenditures and letters of
credit. At March 31, 1999, there were approximately $11.3 million of letters of
credit issued against the agreement leaving approximately $53.7 million of
liquidity available to Avondale for operations and other purposes. There have
been no borrowings under the agreement since its inception in 1994. Continuing
access to the agreement is conditioned upon the Company remaining in compliance
with the covenants contained therein. At March 31, 1999, the Company is in
compliance with such covenants.
4. TENDER OFFER
In June 1998, the Company completed a tender offer purchasing 1.25 million
shares of its common stock at $28 7/8 per share. Under the terms of the offer,
the Company invited its shareholders to tender their shares at prices ranging
from $26 1/2 to $29 per share as specified by each shareholder. The total cost
to the Company of completing the tender offer was approximately $36.3 million,
including legal, consulting and other professional fees. The total shares
represented approximately 8.6% of the outstanding shares at that date, and
following the tender offer, the Company had approximately 13.2 million shares of
its common stock outstanding. The transaction was funded using existing cash
balances.
5. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In December 1997, the American Institute of Certified Public Accountants
promulgated Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-related Assessments" ("SOP 97-3"). SOP 97-3 prescribes
certain accounting treatment for entities that are subject to a variety of
assessments related to insurance activities, including assessments by worker's
compensation second-injury funds. SOP 97-3 requires that companies estimate and
record the entity's future liabilities related to these assessments. Although
SOP 97-3 was not effective until fiscal years beginning after December 15, 1998,
it encouraged entities to early adopt its requirements. As Avondale has ceded
certain worker's compensation claims to a second injury fund administered by the
U. S. Department of Labor and is subject to an annual assessment, the Company
elected to adopt SOP 97-3 early. As a result, the Company recorded as a
liability the estimated present value of its future assessments. Thus, in
accordance with SOP 97-3, the Company recorded the after-tax impact of the early
adoption of SOP 97-3 as a cumulative effect of accounting change within the
Company's Consolidated Statement of Operations for the three months ended March
31, 1998. The effect of this change in accounting principle was to decrease net
income by $2.0 million (net of related tax benefits of $1.3 million) or $0.14
per share basic and diluted.
<PAGE>
6. EARNINGS PER SHARE
The number of weighted average shares outstanding for "basic" EPS was 13,256,461
and 14,493,211 for the three months ended March 31, 1999 and 1998, respectively.
The number of weighted average shares outstanding for "diluted" EPS was
13,361,373 and 14,575,258 for the three months ended March 31, 1999 and 1998,
respectively. The difference in weighted average shares outstanding of 104,912
and 82,047 for 1999 and 1998 , respectively, relate to stock appreciation rights
and options.
As discussed in Note 4 of the Notes to Consolidated Financial Statements herein,
the Company completed a tender offer purchasing 1.25 million shares of its
common stock in June 1998. Had the repurchase taken place as of January 1, 1998,
the Company's earnings per share basic and diluted would have been $0.38.
7. COMMITMENTS AND CONTINGENCIES
Litigation
As discussed in Note 10 of the Notes to Consolidated Financial Statements
included in the 1998 Form 10-K, the Company was advised in 1986 that it was a
potentially responsible party ("PRP") with respect to an oil reclamation site
operated by an unaffiliated company in Walker, Louisiana. 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 March 31, 1999 such costs totaled approximately
$19.5 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 are
placed in escrow to fund future expenses. At March 31, 1999, the balance of the
escrow was $9.9 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 consolidated financial statements. In addition, the Company and
other 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 will not exceed 17.5% for any additional costs.
<PAGE>
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 numerous
other lawsuits and proceedings arising in the ordinary course of business, some
of which involve substantial claims.
The Company has established accruals as appropriate for certain of the matters
discussed above. While the ultimate outcome of lawsuits and proceedings against
the Company cannot be predicted with certainty, management believes, based on
current facts and circumstances and after review with counsel, that the eventual
resolution of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
Guarantee
Pursuant to agreements related to the University of New Orleans ("UNO")/Avondale
Maritime Technology Center of Excellence ("the Center"), the Company has agreed
to guarantee indebtedness with a principal amount not to exceed $40 million
incurred by the UNO Research and Technology Foundation, Inc. (the "Foundation")
for the construction of the facility and the acquisition of computer-aided
technology. Under the terms of a Cooperative Endeavor Agreement, the State of
Louisiana made a non-binding commitment to appropriate $40 million, plus
interest, in installments over a period from 1997 through 2007 for donation to
the Foundation for purposes of funding the Center. Avondale and the Foundation
anticipate that appropriations by the State will be sufficient for the
Foundation to service its debt. However, if the State's appropriations are
insufficient, Avondale will ultimately be required to repay any remaining debt.
The Company's guarantee is unsecured. In addition to the amounts expected to be
funded by the State, the Foundation, at the Company's request, is incurring
approximately $15.5 million in additional costs to enhance the integration and
functionality of the ship design and IPDE technology. The Company is reimbursing
the Foundation for these additional amounts as incurred and will capitalize
these costs and amortize them over their estimated useful lives in accordance
with the Company's stated policies. (See Note 1 of the Notes to Consolidated
Financial Statements included in the 1998 Form 10-K). As of March 31, 1999, the
Foundation had incurred $42.9 million of cost to construct and equip the Center.
In connection with its non-binding commitment, the State appropriated and paid
$3.7 million during 1997 and $6.3 million in 1998, representing the first two
installments to the Foundation.
Letters of Credit and Bonds
In the normal course of its business activities, the Company is required to
provide letters of credit and bonds to secure the payment of workers'
compensation obligations, other insurance obligations and to provide a debt
service reserve fund related to$34.4 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 and bonds relating to these
business activities amounted to approximately $32.3 million at March 31, 1999
and December 31, 1998.
<PAGE>
OSHA
During the fourth quarter of 1998, Avondale consented to a comprehensive
inspection of its main facility by the federal Occupational Safety and Health
Administration ("OSHA"). Avondale believes this inspection was based on
complaints filed by the union that is seeking to organize certain of Avondale's
employees. On April 5, 1999, OSHA proposed penalties totaling $537,000 against
Avondale based on its six month inspection. OSHA issued three citations
identifying more than 60 alleged violations of OSHA's safety standards. OSHA is
also investigating Avondale's compliance with OSHA's record keeping
requirements. Avondale believes the citations are invalid and legally
unjustified. While Avondale plans to confer with OSHA informally to state its
position and, if necessary, contest the citations before the Occupational Safety
and Health Review Commission, it does not believe that the outcome of these
matters will have a material adverse effect on its consolidated financial
statements or operations.
8. PROPOSED MERGER
On January 19, 1999, Avondale announced a proposed merger with a subsidiary of
Newport News Shipbuilding Inc. ("Newport News") which would result in Avondale
becoming a subsidiary of Newport News. The proposed merger is structured as a
stock-for-stock transaction and is subject to regulatory and shareholder
approval. Upon consummation of the proposed merger, each Avondale share would be
exchanged for a maximum of 1.25 and a minimum of 1.15 of Newport News
Shipbuilding Inc. shares based on the average closing price of Newport News
shares during the fifteen day trading period ending on the fourth trading day
prior to the shareholder vote. If such average closing price is $28.40 or less,
Avondale shareholders would receive 1.25 Newport News shares for each Avondale
share. If such price is $30.87 or more, Avondale shareholders would receive 1.15
Newport News shares for each Avondale share. If such price is between $28.40 and
$30.87, Avondale shareholders would receive that number of Newport News shares
determined by dividing $35.50 by such price, or between 1.25 and 1.15 Newport
News shares.
On February 22, 1999, Avondale and Newport News announced that their proposed
merger had been cleared by the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. In addition, on May 5, 1999, the Company
received the consent of the Administrator of the Maritime Administration of the
U.S. Department of Transportation. The antitrust clearance and Maritime
Administration consent satisfy certain of the conditions to closing the
transaction, which remains subject to the approval of the shareholders of both
companies.
In addition, on February 18, 1999, the Company announced that it had been
advised by Newport News that Newport News had received an unsolicited offer from
General Dynamics Corporation ("General Dynamics") proposing to acquire Newport
News for $38.50 per share in cash, subject to due diligence and regulatory
clearance. Although the General Dynamics offer did not specifically ask Newport
News to terminate its agreement with Avondale, the offer did state that Newport
News' proposed merger with Avondale would create antitrust problems in a
combination of General Dynamics and Newport News.
<PAGE>
Newport News advised General Dynamics that it was not prepared to evaluate the
General Dynamics proposal until it was able to obtain reliable assurance that a
combination of General Dynamics and Newport News would not be opposed by the
Department of Defense and Department of Justice. To that end, Newport News made
a request to the Department of Defense seeking a prompt indication of the
Department's position on the General Dynamics proposal. In response to this
request, on April 14, 1999, Secretary of Defense William S. Cohen announced that
the Department of Defense was not in support of General Dynamics' proposed
acquisition of Newport News. As a result, General Dynamics immediately withdrew
its unsolicited offer.
In addition, on May 6, 1999, the Company announced that Litton Industries, Inc.
("Litton") submitted an unsolicited written proposal to acquire Avondale in an
all cash transaction of $38.00 per common share. Avondale further announced that
it has simultaneously been provided by Litton with a copy of an independent
proposal made by Litton to merge with Newport News in a tax-free,
stock-for-stock transaction in which each Newport News share would be converted
into 0.55 Litton shares. Neither Litton's offer to Avondale nor its offer to
Newport News is conditioned upon acceptance or rejection of the other.
According to the terms of the merger agreement with Newport News, neither party
to the transaction is permitted to engage in discussions with other companies
unless either Avondale or Newport News determines that a subsequent proposal
could lead to a superior offer. The boards of directors of each of Avondale and
Newport News have made this determination and authorized the respective
management teams to commence in preliminary discussions with Litton.
9. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") which establishes accounting and reporting
standards for derivative instruments and hedging activities. This statement is
effective for the Company on January 1, 2000. The Company has considered the
implications of SFAS 133 and has concluded that its implementation will not have
a material effect on the Company's consolidated financial statements.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements for the periods ended March 31, 1999
and 1998 and Management's Discussion and Analysis of Financial Condition and
Results of Operations included under Item 7 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K").
Overview
The Company continued its progress toward completion of its major contracts.
This progress is highlighted by steady but improving sales, gross profit, income
from operations, income before income taxes and net income.
The Company's firm backlog at March 31, 1998 was approximately $1.8 billion
(including estimated contract escalation) exclusive of unexercised options
aggregating approximately $470 million held by the U.S. Navy (the "Navy")
(including estimated contract escalation) and approximately $330 million held by
a commercial customer for additional ship orders.
As previously disclosed, in December 1996 the Navy awarded, and in April 1997
the General Accounting Office affirmed, a $641 million contract to a Company-led
alliance, which includes Bath Iron Works ("Bath") and Raytheon Company
("Raytheon"), to design and construct the first of an anticipated 12 ships under
the Navy's LPD program. The original contract provided for options exercisable
by the Navy for two additional LPD class ships. During 1998, the U. S. Navy
exercised the first such option for the second vessel of the program, LPD-18, at
a contract price of approximately $391 million. Under the terms of an agreement
between the alliance members, the Company will build the ships covered under the
December 1996 and December 1998 contracts, and, if the Navy exercises the
remaining option, Bath would construct the third of the three LPD ships to be
built under the initial contract. Raytheon is responsible for total ship
integration and the alliance is using an advanced three-dimensional ship design
and product modeling technology for the design and manufacture of the ship. As
the prime contractor under the LPD contract, the Company is required to report
in its financial statements as sales and cost of sales the entire contract
amount for each vessel in the LPD program constructed by the alliance. Under the
subcontracting agreements entered into between the Company and each of Bath and
Raytheon, the award fees that can be earned under the LPD contract are
distributable among the alliance members in proportion to each member's
performance and participation in the construction of the vessel during the
period for which the award was granted. To the extent that the Company's
revenues include costs incurred and award fees paid to the other alliance
members, such revenues will be recorded with no corresponding operating margin.
<PAGE>
Also included in the firm backlog is the largest commercial contract ever
awarded to Avondale. In June 1997, the Company was awarded a $332 million
contract for the construction of two 125,000 DWT crude oil carriers for the
Jones Act Trade to be built with double hulls in compliance with the Oil
Pollution Act of 1990. The original contract also provided for options
exercisable by the customer for three additional ships, and, in September 1998,
the customer exercised the first such option, valued at approximately $164
million. The first ship is scheduled for delivery in 2000. With the current
level of crude oil prices, ARCO announced plans to reduce costs and capital
spending. To this end, ARCO and the Company agreed to delay the deliveries of
the three vessels currently under contract by up to 16 months and the customer
has agreed to modify the terms of its original contract thereby increasing its
sales price by approximately $11.1 million and pay the Company its estimated
out-of-pocket expenses (consisting principally of storage, preventive
maintenance and other delay related costs) for completing the vessels in a later
time frame. As the contract is still in initial stages of contract performance,
no profit has been recognized to date. (Refer to the 1998 Form 10-K for a
discussion of the Company's policies and procedures for revenue recognition.) In
addition, on April 1, 1999, ARCO announced a planned business combination with
BP Amoco, Inc. in a stock for stock transaction which is expected to be
completed prior to the end of 1999. In light of the above, there can be no
assurance that ARCO will exercise its remaining options.
During 1999, the Company expects to deliver the Icebreaker to the U. S. Coast
Guard. In addition, the Company is scheduled to deliver the second and third
vessels of a contract to construct seven Strategic Sealift vessels.
On January 19, 1999, Avondale announced a proposed merger with a subsidiary of
Newport News Shipbuilding Inc. ("Newport News") which would result in Avondale
becoming a subsidiary of Newport News. The proposed merger is structured as a
stock-for-stock transaction and is subject to regulatory and shareholder
approval. Upon consummation of the proposed merger, each Avondale share would be
exchanged for a maximum of 1.25 and a minimum of 1.15 of Newport News
Shipbuilding Inc. shares based on the average closing price of Newport News
shares during the fifteen day trading period ending on the fourth trading day
prior to the shareholder vote. If such average closing price is $28.40 or less,
Avondale shareholders would receive 1.25 Newport News shares for each Avondale
share. If such price is $30.87 or more, Avondale shareholders would receive 1.15
Newport News shares for each Avondale share. If such price is between $28.40 and
$30.87, Avondale shareholders would receive that number of Newport News shares
determined by dividing $35.50 by such price, or between 1.25 and 1.15 Newport
News shares.
On February 22, 1999, Avondale and Newport News announced that their proposed
merger had been cleared by the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. In addition, on May 5, 1999, the Company
received the consent of the Administrator of the Maritime Administration of the
U.S. Department of Transportation. The antitrust clearance and Maritime
Administration consent satisfy certain of the conditions to closing the
transaction, which remains subject to the approval of the shareholders of both
companies.
<PAGE>
In addition, on February 18, 1999, the Company announced that it had been
advised by Newport News that Newport News had received an unsolicited offer from
General Dynamics Corporation ("General Dynamics") proposing to acquire Newport
News for $38.50 per share in cash, subject to due diligence and regulatory
clearance. Although the General Dynamics offer did not specifically ask Newport
News to terminate its agreement with Avondale, the offer did state that Newport
News' proposed merger with Avondale would create antitrust problems in a
combination of General Dynamics and Newport News.
Newport News advised General Dynamics that it was not prepared to evaluate the
General Dynamics proposal until it was able to obtain reliable assurance that a
combination of General Dynamics and Newport News would not be opposed by the
Department of Defense and Department of Justice. To that end, Newport News made
a request to the Department of Defense seeking a prompt indication of the
Department's position on the General Dynamics proposal. In response to this
request, on April 14, 1999, Secretary of Defense William S. Cohen announced that
the Department of Defense was not in support of General Dynamics' proposed
acquisition of Newport News. As a result, General Dynamics immediately withdrew
its unsolicited offer.
In addition, on May 6, 1999, the Company announced that Litton Industries, Inc.
("Litton") submitted an unsolicited written proposal to acquire Avondale in an
all cash transaction of $38.00 per common share. Avondale further announced that
it has simultaneously been provided by Litton with a copy of an independent
proposal made by Litton to merge with Newport News in a tax-free,
stock-for-stock transaction in which each Newport News share would be converted
into 0.55 Litton shares. Neither Litton's offer to Avondale nor its offer to
Newport News is conditioned upon acceptance or rejection of the other.
According to the terms of the merger agreement with Newport News, neither party
to the transaction is permitted to engage in discussions with other companies
unless either Avondale or Newport News determines that a subsequent proposal
could lead to a superior offer. The boards of directors of each of Avondale and
Newport News have made this determination and have authorized the respective
management teams to commence in preliminary discussions with Litton.
Results of Operations
The Company recorded net income for the first quarter of 1999 of $7.5 million,
or $0.56 per share basic and diluted, compared to $5.3 million, or $0.37 per
share basic and diluted, for the first three months of 1998. This increase is
primarily a result of the Company's early adoption of the American Institute of
Certified Public Accountants' Statement of Position 97-3 and its retroactive
application to the first quarter of 1998. The adoption of this SOP, which
prescribes accounting treatment for entities which are subject to assessments
related to certain insurance activities, resulted in an after-tax charge of
approximately $2.0 million, or $0.14 per share basic and diluted. (See
additional discussion in Note 5 of the Notes to Consolidated Financial
Statements, contained elsewhere in this Form 10-Q).
Income from operations for the first three months of 1999 was consistent with
the year earlier period increasing approximately $262,000 to $12.1 million. The
steady operating results reflect continued successful progress on the Company's
contracts in progress. Also contributing to the 1999 operating results were
operating profits recorded by the Company's modular construction and marine
repair operations.
<PAGE>
Sales for the first three months of 1999 increased $10.7 million, or 6%, to
$195.3 million compared to $184.6 million for the first quarter of 1998. The
increase in sales in the current quarter is primarily a result of increased
costs associated with contracts in the initial stages of construction. The
Company recorded increased sales on the contracts to construct the two LPDs (the
second of which is scheduled for delivery in 2004) and the three 125,000 DWT
double-hulled crude oil carriers (the last of which is expected to be delivered
in 2002). These contracts are in the initial stages of construction resulting in
significant engineering design and material acquisition costs. The increases
noted above were partially offset by decreased sales recorded on contracts at or
near completion. The Company recorded decreased sales on the contracts to
construct the seven Strategic Sealift ships (the Company has already delivered
the first vessel and expects to deliver the second and third vessels during
1999), the Icebreaker (scheduled for delivery in the fourth quarter of 1999) and
the LSD-CV 52 (delivered in February 1998).
Gross profit for the first quarter of 1999 remained in excess of 10% of sales;
however, the gross profit margin percentage decreased approximately 0.4% as
compared to the same period in the prior year. The decrease in the gross profit
margin percentage is primarily attributable to two factors. First, the LPD and
ARCO contracts are in the initial stages of contract performance which result in
significant engineering design and material acquisition costs recorded as sales
with little or no corresponding gross profit. The Company does not begin profit
recognition until final results can be estimated with reasonable accuracy.
(Refer to the 1998 Form 10-K for a discussion of the Company's policies and
procedures for revenue recognition.) Second, as stated above, the Company
includes in its consolidated financial statements both costs incurred and award
fees paid to other members of the alliance in the LPD program as sales and cost
of sales with no corresponding gross profit margin. The total costs incurred and
award fees paid to other alliance members in the LPD program for the three month
periods ended March 31, 1999 and 1998 totaled $21.2 million and $14.7 million,
respectively.
The Company currently has an issue with the U.S. Navy related to certain
materials purchased from a subcontractor for use in the Strategic Sealift
program. The materials were purchased based on government-provided
specifications which have proven to be defective. In addition to delay and
disruption costs, the Company has incurred approximately $13.4 million in direct
costs through March 31, 1999 related to this issue. The Company believes that it
is entitled to recovery from the U. S. Navy of these costs and has recorded a
receivable for the amount of direct costs incurred to date. While the Company
hopes to resolve this issue through negotiations, the Company has engaged legal
counsel to assist in the development of a claim. Avondale is currently in
discussions with the U.S. Navy concerning these issues.
Other income decreased $0.6 million, or 51%, reflecting a decrease in interest
income resulting from significantly lower cash and cash equivalents available
for investment during 1999 as compared to the period in 1998 immediately
preceding the June 1998 stock repurchase.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") which establishes accounting and reporting
standards for derivative instruments and hedging activities. This statement is
effective for the Company on January 1, 2000. The Company has considered the
implications of SFAS 133 and has concluded that its implementation will not have
a material effect on the Company's consolidated financial statements.
<PAGE>
Year 2000
In accordance with the U. S. Securities and Exchange Commission's ("SEC") Staff
Legal Bulletin No. 5 and the SEC's subsequent interpretive release, the Company
has assessed both the cost of addressing and the cost or the consequence of
incomplete or untimely resolution of the Year 2000 issue. This process includes:
(a) the development of Year 2000 ("Y2K") awareness, (b) a comprehensive review
to identify systems that could be affected by the Y2K issue, (c) an assessment
of potential risk factors (including noncompliance by the Company's suppliers,
subcontractors and customers, including the U. S. Navy), (d) the allocation of
required resources, (e) a determination of the extent of remediation work
required, (f) the development of an implementation plan and timetable, and (g)
the development of contingency plans.
In response to the Y2K issue, Avondale established its own team as a
collaborative effort involving key Company personnel. In addition, the Company
commissioned an outside consultant to make inquiries and provide observations
relating to the Company's plan for identifying and resolving Y2K issues within
its information technology ("IT") systems. The consultant discussed its
observations with members of senior management. A major observation of the
consultant identified some segments of the Company's overall accounting system
as non-compliant. As a result, management considered several alternatives for
remediating non-compliant systems including: repairing/modifying only those
systems, replacing only those systems or developing a more comprehensive
solution. After a thorough review of all options, the Company decided to replace
its entire accounting systems software. The acquisition and implementation of
this replacement software is projected to cost approximately $6.0 to $7.0
million. This project began in October 1998 and is scheduled for completion in
October 1999.
The Company has established a two-phased approach for its solution of the Y2K
issue which includes: assessment of each system's compliance with the Y2K issue,
and the testing and modification/replacement of non-compliant systems. The
Company's remediation plan focuses on both IT systems as well as non-IT systems
which are integral to the Company's operating and support functions. This plan
includes both replacement and upgrades of these systems or equipment.
The Company is incurring both internal staff costs as well as consulting and
other expenses relating to these issues. All costs related to remediating the
Y2K issue will be funded with cash on hand. Expenditures, including consulting
fees and other expenses, have totaled approximately $2.3 million since the
inception of the Company's Y2K effort. Approximately $650,000 has been expended
in 1999 and total aggregate expenditures for both IT and non-IT systems
remediation and testing are projected to be approximately $7.0 to $9.0 million,
including the business systems software discussed above much of which is not
required for remediation of the Company's Y2K issue. The Company expects to
complete its remediation of non-compliance systems during the second quarter of
1999.
In addition, the Company has initiated communications with its significant
suppliers, large customers (including the U. S. Navy), subcontractors and others
to determine the extent to which the Company is vulnerable to these third
parties' failure to remediate their own Y2K issues. The Company can give no
assurance that the systems of these third parties on which the Company relies
will be remediated on time or that failure to remediate by them would not have a
material adverse effect on the Company.
<PAGE>
If the Company is unable to timely resolve Y2K issues inherent in its IT and
non-IT systems or any of the Company's significant suppliers, customers,
subcontractors and others are unsuccessful in resolving Y2K issues inherent in
their own systems and existent in machinery, equipment, and other systems
supplied to the Company, the Company may experience some operating disruption.
However, although the Company cannot give assurance on the Y2K issue, based on
current information, the Company does not expect such disruptions to be severe
and therefore does not expect unsatisfactory resolution of Y2K issues by the
Company or its significant suppliers, customers, subcontractors and others to
have a material adverse impact on the Company's consolidated financial
statements.
The Company believes that it will successfully implement its Y2K remediation
plan on schedule and will be Y2K compliant before the end of 1999. However,
managment believes that there is a risk that significant suppliers, customers,
subcontractors, and others on whom the Company's finances and operations largely
depend may experience their own Y2K problems that could affect the Company's
operations or financial position. Such risks include but are not limited to: the
inability of the Company to retain qualified personnel and outside consultants
to successfully remediate Y2K issues and implement the new business system as
demand for their services rises due to other companies' unanticipated or more
severe Y2K problems; the inability of the Company's customers, including the U.
S. Navy, to accurately and timely pay invoices; the inability of the Company to
access necessary capital from lenders or other sources when required; and the
inability of the Company's significant suppliers, customers, subcontractors and
others to provide the necessary materials, services, or systems required to run
the Company's business.
If the Company does not experience severe Y2K financial and operating
difficulties, notwithstanding its efforts to avoid or mitigate Y2K issues in its
own systems or adverse effect of Y2K issues experienced by third parties on whom
the Company relies, the Company is in the process of developing a continency
plan for dealing with the most reasonably likely worst case scenario. The
development of this plan is the current focus of senior management.
The Company will continue to review its plan for solution of Y2K issues for
effectiveness. As such, the Company can give no assurance that the estimated
costs herein for solving its own Y2K issues or the estimated impact of Y2K
issues on the Company's financial condition, operations, and cash flows will not
be revised as a result of the facts that become known to the Company.
<PAGE>
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $47.0 million at March 31, 1999
as compared to $52.3 million at December 31, 1998. The Company's operations
generated approximately $4.4 million of cash during the quarter ended March 31,
1999. The Company's primary uses of cash in the current year consisted of
capital expenditures of $8.8 million and payments on long-term borrowings of
approximately $1.0 million.
Capital expenditures for the first three months of 1999 increased $4.5 million
to $8.8 million compared to the $4.3 million for the same period in 1998. The
increase is primarily attributable to $4.5 million in additional costs relating
to enhancing the integration and functionality of the ship design and IPDE
technology. In addition, the Company is finalizing certain plant and facilities
improvements required to construct the ARCO vessels. Capital spending for 1999
also includes approximately $530,000 relating to the acquisition and
implementation of new integrated business systems software. The remainder of
1999 capital expenditures represents plant improvements and equipment additions
which are designed to improve the Company's overall operating efficiency. The
Company continues to evaluate investment opportunities, particularly
productivity and technology-focused capital expenditures, in order to enhance
the Company's overall efficiency and provide for future growth. As a result, the
Company expects capital spending for 1999 to approximate the level of 1998.
The Company's $65 million revolving credit agreement ("the agreement") provides
liquidity for working capital purposes, capital expenditures and letters of
credit. At March 31, 1999, there were approximately $11.3 million of letters of
credit issued against the agreement leaving approximately $53.7 million of
liquidity available to Avondale for operations and other purposes. There have
been no borrowings under the agreement since its inception in 1994. Continuing
access to the agreement is conditioned upon the Company remaining in compliance
with the covenants contained therein. At March 31, 1999, the Company was in
compliance with such covenants. The Company believes that its capital resources
will be sufficient to finance current and projected operations, existing debt
service requirements and planned capital expenditures.
<PAGE>
In order to comply with the terms of the LPD contract, the Company was required
to make significant capital improvements, including enhancing its computer-aided
design and product modeling capabilities. As a result, the Company teamed with
the University of New Orleans (the "University" or "UNO"), the University of New
Orleans Research and Technology Foundation, Inc. (the "Foundation") and the
State of Louisiana in a cooperative effort. Pursuant to terms of various
agreements, the Foundation is purchasing hardware and software required to
implement the extensive three-dimensional ship design and Integrated Product
Data Environment teaming technology and constructed a 200,000 square foot
building on property donated to the University by the Company and located
adjacent to the Company's main shipyard. This facility was completed during the
second quarter of 1998. The initial $40 million investment in this new
technology and facility, which is known as the "UNO/Avondale Maritime Technology
Center of Excellence" (the "Center"), is being financed by the Foundation using
third-party debt and lease financing, both of which are guaranteed by the
Company. The Company has entered into a long-term lease for the Center requiring
a nominal annual lease payment. The Company provides access to the technology
and a portion of the Center to the University for its use in research and the
development of educational curricula related to naval architecture and marine
engineering. In addition to the amounts expected to be funded by the State, the
Foundation, at the Company's request, is incurring approximately $15.5 million
in additional costs to enhance the integration and functionality of the ship
design and IPDE technology. The Company is reimbursing the Foundation for these
additional amounts as incurred and will capitalize these costs and amortize them
over their estimated useful lives in accordance with the Company's stated
policies. (See Note 1 of the Notes to Consolidated Financial Statements included
in the 1998 Form 10-K).
The Foundation is the borrower on all indebtedness incurred to construct and
equip the Center. Under the terms of a Cooperative Endeavor Agreement, the State
of Louisiana made a non-binding commitment to appropriate $40 million, plus
interest, in installments over a period from 1997 through 2007 for donation to
the Foundation for purposes of funding the Center. Avondale and the Foundation
anticipate that appropriations by the State will be sufficient for the
Foundation to service its debt. However, if the State's appropriations are
insufficient, Avondale will ultimately be required to repay any remaining debt.
The Company's guarantee is unsecured. As of March 31, 1999, the Foundation had
incurred $42.9 million of cost to construct and equip the Center. In connection
with its non-binding commitment, the State appropriated and paid $3.7 million
during 1997 and $6.3 million in 1998, representing the first two installments to
the Foundation.
During the fourth quarter of 1998, Avondale consented to a comprehensive
inspection of its main facility by the federal Occupational Safety and Health
Administration ("OSHA"). Avondale believes this inspection was based on
complaints filed by the union that is seeking to organize certain of Avondale's
employees. On April 5, 1999, OSHA proposed penalties totaling $537,000 against
Avondale based on its six month inspection. OSHA issued three citations
identifying more than 60 alleged violations of OSHA's safety standards. OSHA is
also investigating Avondale's compliance with OSHA's record keeping
requirements. Avondale believes that the citations are invalid and legally
unjustified. While Avondale plans to confer with OSHA informally to state its
position and, if necessary, contest the citations before the Occupational Safety
and Health Review Commission, it does not believe that the outcome of these
matters will have a material adverse effect on its consolidated financial
statements or operations.
<PAGE>
Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
Certain statements, other than statements of historical fact, contained in this
Quarterly Report on Form 10-Q are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are generally accompanied by such terms and phrases as "anticipates,"
"estimates," "expects," "believes," "should," "projects," "scheduled," or
similar statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause the Company's results to differ materially from the
results discussed in such forward-looking statements include the Company's
reliance on U.S. Navy contracts, including its ability to replenish its backlog
by securing additional contracts from the U.S. Navy, profit recognition on
government contracts, the outcome of the Company's litigation involving efforts
to unionize the Company's production workers and the competitive impact of a
resolution in favor of the union, the importance of obtaining commercial
contracts, the Company's ability to complete its contracts within its cost
estimates, intense competition for government and commercial contracts, labor,
regulatory and other risks in the shipbuilding and marine construction
industries, and other unanticipated events affecting the Company's efforts of
its suppliers, subcontractors, and customers (including the U. S. Navy) to
timely correct Year 2000 problems inherent in essential computer systems which
could impair the Company's operations or the ability of its customers to timely
pay for products and services provided. All forward-looking statements in this
Form 10-Q are expressly qualified in their entirety by the cautionary statements
in this paragraph.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company(1).
3.2 Bylaws of the Company(2).
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule
(b) Reports on Form 8-K:
On January 22, 1999, the Company filed a Current Report
on Form 8-K to report under Item 5 that it had issued a
press release on January 19, 1999 regarding the
Company's entering into of an Agreement and Plan of
Merger with Newport News Shipbuilding Inc.
On February 22, 1999, the Company filed a Current Report
on Form 8-K to report under Item 5 that it had issued a
press release on February 18, 1999 to report that it had
been informed by Newport News Shipbuilding Inc. that
Newport News had received an unsolicited offer from
General Dynamics to acquire Newport News.
On February 23, 1999, the Company filed a Current Report
on Form 8-K to report under Item 5 that it had issued a
press release on February 22, 1999 to report that its
proposed merger with Newport News Shipbuilding Inc. had
been cleared by the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
- --------------
(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, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVONDALE INDUSTRIES, INC.
Date: May 14, 1999 By:/s/ ALBERT L. BOSSIER, JR.
------------ -----------------------------
Albert L. Bossier, Jr.
Chairman, President &
Chief Executive Officer
Date: May 14, 1999 By:/s/ THOMAS M. KITCHEN
------------ ------------------------------
Thomas M. Kitchen
Corporate Vice President
& Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------------------------------------------------------------
3.1 Articles of Incorporation of the Company(1).
3.2 Bylaws of the Company(2).
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule
- ---------------
(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, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AVONDALE
INDUSTRIES, INC.'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 47,000
<SECURITIES> 0
<RECEIVABLES> 124,898
<ALLOWANCES> 0
<INVENTORY> 30,909
<CURRENT-ASSETS> 221,456
<PP&E> 298,971
<DEPRECIATION> (143,480)
<TOTAL-ASSETS> 392,945
<CURRENT-LIABILITIES> 98,630
<BONDS> 47,701
0
0
<COMMON> 15,974
<OTHER-SE> 202,059
<TOTAL-LIABILITY-AND-EQUITY> 392,945
<SALES> 195,274
<TOTAL-REVENUES> 195,274
<CGS> 174,871
<TOTAL-COSTS> 174,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 626
<INCOME-PRETAX> 12,047
<INCOME-TAX> 4,580
<INCOME-CONTINUING> 7,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,467
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
May 12, 1999
Avondale Industries, Inc.
Post Office Box 50280
New Orleans, Louisiana 70150
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Avondale Industries, Inc. and subsidiaries for the periods ended
March 31, 1999 and 1998, as indicated in our report dated May 6, 1999; because
we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 is
incorporated by reference in Registration Statement No. 333- 32165 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(C) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
