FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ X ]Quarterly Report Pursuant to Section 12 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995
[ ]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, 1995
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, 1995
Common stock, par value $1.00 per share 14,464,175 shares
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Independent Accountants' Report
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994
Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II.Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Avondale Industries, Inc.
We have reviewed the condensed consolidated financial statements of
Avondale Industries, Inc. and subsidiaries, as listed in the
accompanying index, as of March 31, 1995 and for the three-month
periods ended March 31, 1995 and 1994. 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 condensed consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Avondale
Industries, Inc. and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, shareholders' equity,
and cash flows for the year then ended (not presented herein); and in
our report dated February 24, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1994 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 11, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
March 31, December 31,
1995 1994
---------- ------------
ASSETS
Current Assets:
Cash and cash equivalents.... $ 2,030 $ 15,414
Restricted short-term investments (Note 3) 5,310 1,811
Receivables (Note 2):
Accounts receivable........ 30,740 25,342
Contracts in progress...... 66,687 59,168
Inventories:
Goods held for sale........ 7,975 7,908
Materials and supplies..... 7,977 8,201
Prepaid expenses and other current assets 5,672 10,092
------- -------
Total current assets....... 126,391 127,936
------- -------
Property, Plant and Equipment:
Land......................... 9,324 9,324
Buildings and improvements... 56,641 47,979
Machinery and equipment...... 174,253 174,694
------- -------
Total........................ 240,218 231,997
Less accumulated depreciation (116,994) (112,836)
------- -------
Property, plant and equipment - net 123,224 119,161
------- -------
Goodwill - net................. 15,197 15,431
Deferred tax assets............ 7,000 7,000
Funds held for construction (Note 3) 12,700
Other assets................... 5,508 3,975
------- -------
Total assets............... $ 290,020 $ 273,503
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
March 31, December 31,
1995 1994
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,459 $ 5,866
Accounts payable............. 56,171 60,917
Accrued employee compensation 11,786 12,948
Other........................ 16,293 13,369
------- -------
Total current liabilities.. 90,709 93,100
Long-term debt (Note 3)........ 62,584 45,875
Other liabilities and deferred credits 10,805 11,650
------- -------
Total liabilities............ 164,098 150,625
------- -------
Commitments and contingencies (Note 4)
Shareholders' Equity:
Common stock, $1.00 par value, authorized
30,000,000 shares; issued - 15,927,191
shares in 1995 and 1994.... 15,927 15,927
Additional paid-in capital... 373,911 373,911
Accumulated deficit.......... (252,060) (255,104)
------- -------
Total...................... 137,778 134,734
Treasury stock (common: 1,463,016 shares
in 1995 and 1994) at cost... ( 11,856) ( 11,856)
------- -------
Total shareholders' equity... 125,922 122,878
------- -------
Total........................ $ 290,020 $ 273,503
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1995 1994
Continuing Operations: ---- ----
Net sales.................... $ 133,575 $ 101,329
Cost of sales................ 120,171 91,823
------- -------
Gross profit................. 13,404 9,506
Selling, general and administrative
expenses 7,663 6,520
------- -------
Income from operations....... 5,741 2,986
Interest expense............. ( 1,279) ( 1,204)
Other - net.................. 332 136
------- -------
Income from continuing operations
before income taxes ....... 4,794 1,918
Income taxes ................ 1,750 ---
------- -------
Income from continuing operations 3,044 1,918
Discontinued Operations:
Income from discontinued
operations (Note 1) 116
------- -------
Net income..................... $ 3,044 $ 2,034
======= =======
Income per share of common stock
Continuing operations........ $ 0.21 $ 0.13
Discontinued operations...... --- 0.01
------- -------
Net income per share of common stock $ 0.21 $ 0.14
======= =======
Weighted average number of shares
outstanding 14,468 14,480
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In thousands)
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................... $ 3,044 $ 2,034
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization 2,418 2,878
Changes in operating assets and
liabilities:
Receivables.............. (12,917) 66,875
Inventories.............. 157 625
Prepaid expenses and other
current assets 2,670 415
Accounts payable......... ( 4,746) (5,001)
Accrued employee compensation ( 1,162) 107
Other - net.............. 2,313 (3,099)
------- -------
Net Cash Provided by (Used for)
Operating Activities..... (8,223) 64,834
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......... ( 6,251) ( 763)
Purchase of restricted short-term
investments - net (Note 3) (16,212) (13,891)
------- -------
Net Cash Used for Investing Activities (22,463) (14,654)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings ( 478) (44,472)
Proceeds from long-term
borrowings (Note 3) 17,780
------- -------
Net Cash Provided by (Used For)
Financing Activities....... 17,302 (44,472)
------- -------
Net increase (decrease) in cash and
cash equivalents............. (13,384) 5,708
Cash and cash equivalents at
beginning of period 15,414 3,195
------- -------
Cash and cash equivalents at
end of period $ 2,030 $ 8,903
======= =======
Supplemental disclosures of cash
flow information:
Cash paid during the period for interest $ 574 $ 761
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include the accounts of Avondale Industries, Inc. and its
subsidiaries ("Avondale" or the "Company"). In the opinion of
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, 1994 audited financial
statements and related notes filed on Form 10-K for the year
ended December 31, 1994 (the "1994 Form 10-K").
As disclosed in Note 7 of the Company's Annual Report on the 1994
Form 10-K, during the third quarter of 1994 the Company decided
to discontinue its service contracting line of business.
Accordingly, its operating results for the prior-year period are
reported as discontinued operations.
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
As discussed in the 1994 Form 10-K the Company has filed a
Request for Equitable Adjustment ("Minehunter REA") with the
U.S. Navy seeking substantial increases in the contract
prices for four MHCs currently being built by the Company.
In connection with developing the Minehunter REA, the
Company realized that it would be necessary to increase its
cost to complete estimates for the MHC vessels. The Company,
in consultation with outside counsel, reviewed the Minehunter
REA and determined a minimum estimate of its probable
recoverable amount. Based on this review and supported by
the view of outside counsel that they had no reason to
believe that the use of $16 million in quantifying the
minimum probable amount of recovery was unreasonable,
management concluded that it was appropriate to offset the
loss that it would have otherwise had to recognize with
respect to the MHC program by such amount. To the extent
that any portion of the $16 million recognized is not
recovered, then losses in addition to those previously
recorded will have to be recognized. The Minehunter REA is
being evaluated currently by the U.S. Navy.
3. FINANCING ARRANGEMENTS
In February 1995 the Company completed financing of $17.8 million
of an approximately $20 million plant modernization effort by
issuing mortgage bonds utilizing a U.S. Government guarantee
under Title XI of the Merchant Marine Act, 1936, as amended. The
bonds bear interest at the rate of 8.16% and are payable in equal
semi-annual principal payments of $593,000 over a fifteen year
period beginning March 30, 1996.
The terms of the Title XI guarantee provide for the proceeds from
the financing to be held in a construction escrow fund and
released to the Company as allowable project costs are incurred
by the Company and approved by the U.S. Department of
Transportation, Maritime Administration. At March 31, 1995, the
Company estimates that it is currently entitled to $5.1 million
of the escrowed funds and accordingly has classified this amount
as a current asset in Restricted Short-term Investments. The
balance of the financing, $12.7 million at March 31, 1995, is
recorded as Funds Held for Construction which represents the
balance of the project costs which the Company will be entitled
to receive over the remaining life of the modernization project.
Shortly after the first quarter of 1995 the Company amended its
revolving credit agreement. The amendment, among other things,
increased the amount of the credit agreement to $42.5 million and
extended the term of the credit agreement from May 1996 to May
1997. Further, the amendment revised the credit agreement to
permit the issuance of the mortgage bonds discussed in the
preceding paragraph and revised the level of permitted capital
expenditures and certain coverage ratios, such revisions to take
into consideration the plant modernization project. There have
been no borrowings in 1995 under the revolving credit agreement.
There were $23.3 million of letters of credit outstanding under
the facility at March 31, 1995.
4. COMMITMENTS AND CONTINGENCIES
Litigation
As discussed in further detail in Note 12 of the Company's Annual
Report on the 1994 Form 10-K, in 1986 the Company was advised
that it may be 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 for the site have funded the site's remediation
under a preliminary cost-sharing agreement. As of March 31,
1995, clean-up costs totalled $15 million, of which the Company
has contributed $3.5 million. Additional work scheduled for the
site includes the completion of site studies in 1995 and 1996,
and, if required by the results of these studies, subsequent
post-closure activities. Future aggregate expenses are expected
to be approximately $1 million, exclusive of any groundwater
monitoring and remediation, for which no estimate is currently
available. The Company believes that its proportionate share of
expenditures for any additional remedial work will not have a
material effect on the Company's financial statements. In
addition, the Company believes that its proportionate
responsibility for the clean-up costs will not be materially
increased.
Since July 1986, a number of "toxic tort" lawsuits have been
filed against the Company and numerous other defendants alleging
various claims in connection with the oil reclamation site
discussed above. The plaintiffs also seek substantial punitive
damages. These cases have been consolidated and certified as a
class action. The court has set a trial date for September 3,
1996 and significant discovery activities are scheduled to occur
throughout 1995 and 1996.
Furthermore, the Company initiated litigation against its insurer
for a declaration of coverage of the liability, if any, that may
arise in connection with the remediation of the site or the
related tort litigation referred to in the preceding paragraphs.
The court has ruled that the insurer has the duty to defend the
Company, but has not yet ruled on whether the carrier has a duty
to indemnify the Company if any liability is ultimately assessed
against it.
In May 1995, the Board of Directors of the Company approved a
settlement of the class action. This settlement will not become
final unless and until it has been approved by the Federal
District Court before which the action is currently pending.
If the settlement agreement is judicially approved, Avondale
would make a cash payment and deliver a promissory note for an
additional sum that would be payable over 18 months. Avondale
could also be responsible for payment to the plaintiffs of an
additional sum in the event that the plaintiffs were unsuccessful
in collecting certain amounts with respect to claims that would
be assigned to the plaintiffs by the Company under the settlement
agreement. Management of the Company believes that the cash
payment and issuance of the promissory note will not have a
material effect on the Company's financial condition or results
of operation because the Company had previously recorded an
accrual for a substantial portion of the settlement. The Company
has sufficient available cash from operations or under its credit
facility to fund the cash payment and the promissory note.
With respect to the potential contingent liability of the Company
to pay additional sums under the settlement agreement, management
believes that the eventual resolution of this matter will not
have a material affect on the Company's financial statements.
The Company will continue to consult with its counsel and to
establish a reserve against such exposure in an appropriate
amount if and when developments warrant.
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 damage 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 and insurance obligations. Additionally,
under certain contracts the Company may be required to provide
letters of credit which may be drawn down in the event of the
Company's failure to perform under the contracts. Outstanding
letters of credit relating to these business activities amounted
to approximately $23.3 million at March 31, 1995 and December 31,
1994.
Plant Modernization Program
The Company's plant modernization and expansion project is
currently in progress. At an estimated cost of approximately
$20.0 million, the project is expected to be completed by the
third quarter of 1995.
The Company has recorded project costs to date of approximately
$7.6 million of which approximately $4.8 million was incurred in
1995. Outstanding purchase commitments at March 31, 1995 were
approximately $7.6 million. Refer to Note 3 herein regarding
financing for this project.
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, 1995 and 1994 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, 1994 (the "1994 Form 10-K").
Overview
The Company continued the trend of improvement in its operating
results, recording significant increases compared to the same period
in the prior year. Net sales for the first quarter of 1995 increased
over the first quarter of the prior year while the current quarter's
income from continuing operations before taxes more than doubled the
level reported in the first quarter of 1994.
In February 1995 the Company completed financing of $17.8 million of
its approximately $20.0 million plant modernization project (see Note
3 of the notes to the consolidated financial statements contained
elsewhere in this Form 10-Q). The project is estimated to be
completed in the third quarter of 1995.
The Company's backlog at March 31, 1995 was $1.3 billion (excluding
options). Included in the backlog is work to be performed on a $420
million U. S. Navy contract to construct two additional Strategic
Sealift ships which represent the second and third ships which the
Company has now been awarded in the Sealift program. Under the
original contract awarded in 1993, there are three remaining options
which are exercisable over the next three years. Not included in the
backlog is an approximately $144 million contract to construct
forebodies for four product carriers. Financing for the project was
completed on May 12, 1995 and the contract became effective at that
time. These will be the first U.S.-flag product carriers built in
the United States in eight years and are designed to comply fully
with the provisions of the Oil Pollution Act of 1990.
The delivery schedule for the balance of 1995 includes four vessels
for the U.S. Navy and one paddle-wheel gaming vessel. Included in
the scheduled deliveries to the U.S. Navy are two T-AO Oilers ("T-
AOs"), one of which is the first double-hulled ship built in the
United States. Also to be delivered in 1995 to the U.S. Navy is one
MHC-51 Class Minehunter ("MHC") and one Landing Ship Dock-Cargo
Variant ("LSD-CV").
As discussed in the 1994 Form 10-K the Company has filed a Request
for Equitable Adjustment ("Minehunter REA") with the U.S. Navy
seeking substantial increases in the contract prices for four MHCs
currently being built by the Company. In connection with developing
the Minehunter REA, the Company realized that it would be necessary
to increase its cost to complete estimates for the MHC vessels. The
Company, in consultation with outside counsel, reviewed the
Minehunter REA and determined a minimum estimate of its probable
recoverable amount. Based on this review and supported by the view
of outside counsel that they had no reason to believe that the use of
$16 million in quantifying the minimum probable amount of recovery
was unreasonable, management concluded that it was appropriate to
offset the loss that it would have otherwise had to recognize with
respect to the MHC program by such amount. To the extent that any
portion of the $16 million recognized is not recovered, then losses
in addition to those previously recorded will have to be recognized.
The Minehunter REA is being evaluated currently by the U.S. Navy.
As detailed in Note 12 of the Company's Annual Report on the 1994
Form 10-K and as discussed in Note 4 of the notes to the consolidated
financial statements contained elsewhere in this Form 10-Q, the
Company has been informed that it may be a potentially responsible
party ("PRP") in connection with an oil reclamation site operated by
an unaffiliated company. The Company, along with other PRPs, has
funded fully its share of the cleanup costs incurred to date under a
preliminary agreement to fund the site's remediation. Additional
work scheduled for the site includes completion of site studies in
1995 and 1996, and, if required by the results of these studies,
subsequent post-closure activities. Future aggregate expenses are
expected to be approximately $1 million, exclusive of any groundwater
monitoring and remediation, for which no estimate is currently
available. The Company believes that its proportionate share of
expenditures for any additional remedial work will not have a
material effect on the Company's financial statements. In addition,
the Company believes that its proportionate responsibility for the
cleanup costs will not be materially increased.
Additionally, since July 1986 a number of "toxic tort" lawsuits have
been filed against the Company and numerous other defendants alleging
various claims in connection with the oil reclamation site discussed
above. The plaintiffs also seek substantial punitive damages. These
cases have been consolidated and certified as a class action. The
court has set a trial date for September 3, 1996 and significant
discovery activities are scheduled to occur throughout 1995 and 1996.
The Company initiated litigation against its insurer for a
declaration of coverage of the liability, if any, that may arise in
connection with the remediation of the site or the related tort
litigation referred to in the preceding paragraphs. The court has
ruled that the insurer has the duty to defend the Company, but has
not yet ruled on whether the carrier has a duty to indemnify the
Company if any liability is ultimately assessed against it.
In May 1995, the Board of Directors of the Company approved a
settlement of the class action. This settlement will not become
final unless and until it has been approved by the Federal District
Court before which the action is currently pending.
If the settlement agreement is judicially approved, Avondale would
make a cash payment and deliver a promissory note for an additional
sum that would be payable over 18 months. Avondale could also be
responsible for payment to the plaintiffs of an additional sum in the
event that the plaintiffs were unsuccessful in collecting certain
amounts with respect to claims that would be assigned to the
plaintiffs by the Company under the settlement agreement. Management
of the Company believes that the cash payment and issuance of the
promissory note will not have a material effect on the Company's
financial condition or results of operations because the Company had
previously recorded an accrual for a substantial portion of the
settlement. The Company has sufficient available cash from
operations or under its credit facility to fund the cash payment and
the promissory note.
With respect to the potential contingent liability of the Company to
pay additional sums under the settlement agreement, management
believes that the eventual resolution of this matter will not have a
material affect on the Company's financial statements. The Company
will continue to consult with its counsel and to establish a reserve
against such exposure in an appropriate amount if and when
developments warrant.
As discussed in the 1994 Form 10-K, certain of the Company's
operations closed in 1994 with the completion of their respective
contracts. Two of these facilities are currently offered for sale
while the Company continues to seek alternative uses for these
facilities. With respect to environmental matters, the Company
currently is not aware of any material liabilities to be incurred for
site restoration, post closure, monitoring commitments, or other exit
costs that may occur or result from the sale, disposal or abandonment
of any of these properties.
Results of Operations
The Company recorded net income of approximately $3.0 million, or
$0.21 per share, for the first three months of 1995 compared to
approximately $2.0 million, or $0.14 per share, for the first three
months of 1994, representing a 50% increase over the first quarter of
1994. Additionally, income from operations of approximately $5.7
million in the current period increased approximately 92% over the
same period in the prior year. The increases in the Company's
operating results in the current period primarily reflect operating
profits recognized for the first time on the LSD-CV 52 contract. As
disclosed in Item 7 of the 1994 Form 10-K, the operating profit
projected to be recognized in 1995 will be related principally to the
LSD-CV 52 and seven T-AO contracts. Also contributing to the 1995
income from operations were profits recognized on the third gaming
vessel (scheduled for delivery in mid-1995) and by the Company's
marine repair, foundry and wholesale steel operations.
In the third quarter of 1994 the Company decided to discontinue its
service contracting business. The Company has restated first quarter
1994 results to record income from discontinued operations of
approximately $116,000, or $0.01 per share.
The first quarter of 1995 reflects an increase in net sales of
approximately $32.2 million, or 32%, as compared to the prior year's
quarter. The increase in net sales is primarily due to increased net
sales revenues recorded on the contracts to construct the LSD-CV 52
and the first of three Strategic Sealift ships. These increases were
partially offset by reduced net sales revenues recorded on the
contracts to construct the three LSD-CVs and the seven T-AOs as these
contracts are in the latter stages of completion.
Gross profit for the first quarter of 1995 increased approximately
$3.9 million, or 41%, compared to the same period in 1994. The
increase in gross profit is primarily due to profits recognized on
contracts to construct the LSD-CV 52 and seven T-AOs (as discussed
above).
Selling, general and administrative ("SG&A") expenses for the first
three months of 1995 increased by approximately $1.1 million, or 18%,
compared to the same period in 1994. The increase is primarily due to
an increase in indirect labor and associated costs (resulting from an
across-the-board rate increase effective January 1, 1995) and an
overall increase in operating activity.
Interest expense increased by $75,000, or 6%, for the first quarter
of 1995 as compared to the same period in the prior year. The
Company projects an overall increase in interest expense for 1995
compared to 1994 due principally to the $17.8 million Title XI
financing completed in February.
The Company recorded a $1.75 million income tax provision for the
first quarter of 1995 which is essentially a non-cash charge due
primarily to the current utilization of available net operating loss
carryforwards for income tax purposes. For financial reporting
purposes the benefit of such carryforwards was recognized in prior
periods (including 1994) as a deferred tax asset.
Liquidity and Capital Resources
During the quarter ended March 31, 1995 the Company experienced a net
decrease in its cash resources of $13.4 million. This cash was used
primarily to fund current operating activities, including a $6.7
million increase in contracts in progress, and for capital
expenditures of $6.3 million primarily related to the plant
modernization project. As further discussed below, a significant
portion of the cash used for capital expenditures represents interim
funding of this project until such time as the proceeds from the
permanent financing are made available to the Company.
In February 1995 the Company completed financing of $17.8 million of
its approximately $20 million plant modernization effort by issuing
mortgage bonds utilizing a U.S. Government guarantee under Title XI
of the Merchant Marine Act, 1936, as amended. The terms of the Title
XI guarantee provide for the proceeds from the financing to be held
in a construction escrow fund and released to the Company as
allowable project costs are incurred by the Company and approved by
the U.S. Department of Transportation, Maritime Administration. At
March 31, 1995, the Company estimates that it is currently entitled
to $5.1 million of the escrowed funds and accordingly has classified
this amount as a current asset in Restricted Short-term Investments.
The balance of the financing, $12.7 million at March 31, 1995, is
recorded as Funds Held for Construction which represents the balance
of the project costs which the Company will be entitled to receive
over the remaining life of the modernization project. The Company
has recorded project costs to date of approximately $7.6 million of
which approximately $4.8 million was incurred in 1995. Outstanding
purchase commitments at March 31, 1995 were approximately $7.6
million. Project completion is estimated for the third quarter of
1995.
Additionally, shortly after the first quarter of 1995 the Company
obtained additional liquidity as its improved financial results
enabled it to amend its revolving credit agreement. The amendment,
among other things, increased the amount of the credit agreement to
$42.5 million and extended the term of the credit agreement from May
1996 to May 1997. Further, the amendment revised the credit
agreement to permit the issuance of the mortgage bonds discussed in
the preceding paragraph and revised the level of permitted capital
expenditures and certain coverage ratios, such revisions to take into
consideration the plant modernization project. There have been no
borrowings in 1995 under the revolving credit agreement. There were
$23.3 million of letters of credit outstanding under the facility at
March 31, 1995. The Company believes that its capital resources will
be sufficient to finance current and projected operations.
On May 15, 1995 the Company entered into an agreement to sell the
assets used in its foundry operation. Certain of the assets to be
sold are subject to final determination at a later date. The sale
could generate $3 - $5 million in cash proceeds and will not
significantly affect the Company's results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In May 1995, the Board of Directors of the Company approved
a settlement of the class action discussed in further detail
in Note 4 of the notes to the financial statements contained
elsewhere in this Form 10-Q. This settlement will not
become final unless and until it has been approved by the
Federal District Court before which the action is currently
pending.
If the settlement agreement is judicially approved, Avondale
would make a cash payment and deliver a promissory note for
an additional sum that would be payable over 18 months.
Avondale could also be responsible for payment to the
plaintiffs of an additional sum in the event that the
plaintiffs were unsuccessful in collecting certain amounts
with respect to claims that would be assigned to the
plaintiffs by the Company under the settlement agreement.
Management of the Company believes that the cash payment and
issuance of the promissory note will not have a material
effect on the Company's financial condition or results of
operation because the Company had previously recorded an
accrual for a substantial portion of the settlement. The
Company has sufficient available cash from operations or
under its credit facility to fund the cash payment and the
promissory note.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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(1), 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")(2),
which has been further amended by a Third
Supplemental Indenture dated February 9,
1995.
(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(1), as further amended by the
Master Assumption Agreement (filed as
Exhibit 4.3(a) hereto). The Reserve Fund
and Financial Agreement has been further
amended, including the most recent
Amendment No. 5 to the Title XI Reserve
Fund and Financial Agreement dated
February 9, 1995.
(c) Form of 8.8% Sinking Bond Fund, Series A
(included in Exhibit 4.3(a)).
(d) Form of 9.3% Sinking Bond Fund, Series B
(included in Exhibit 4.3(a)).
(e) Form of 7.86% Sinking Bond Fund, 2000
Series.
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 of United States Government
Guaranteed Ship Financing Bonds.
(b) Title XI Reserve Fund and Financial
Agreement dated February 9, 1995, by and
between the Company and the United States
of America.
(c) Form of 8.16% Sinking Fund Bond, 2010
Series.
10.3 Employee Benefit Plans
(c) The Company's Amended and Restated
Employee Stock Ownership Plan and the
Related Trust Agreement(1) , as amended
and restated on December 5, 1994(3), as
further amended by Amendment No. 1
adopted April 5, 1995.
(i) Avondale Industries, Inc. Management
Incentive Plan
15 Letter re: unaudited interim financial
information.
27 Financial Data Schedule
(b) Reports on Form 8-K:
Not applicable.
_______________
(1) 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.
(2) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
(3) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
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 15 , 1995 By:/s/ ALBERT L. BOSSIER, JR.
Albert L. Bossier, Jr.
Chairman, President &
Chief Executive Officer
Date: May 15 , 1995 By:/s/ THOMAS M. KITCHEN
Thomas M. Kitchen
Vice President &
Chief Financial Officer
EXHIBIT INDEX
Number Description
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(1), 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")(2), which has been further amended by a
Third Supplemental Indenture dated February 9, 1995.
(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(1), as further amended by the Master Assumption
Agreement (filed as Exhibit 4.3(a) hereto). The Reserve
Fund and Financial Agreement has been further amended,
including the most recent Amendment No. 5 to the Title
XI Reserve Fund and Financial Agreement dated February
9, 1995.
(c) Form of 8.8% Sinking Bond Fund, Series A (included in
Exhibit 4.3(a)).
(d) Form of 9.3% Sinking Bond Fund, Series B (included in
Exhibit 4.3(a)).
(e) Form of 7.86% Sinking Bond Fund, 2000 Series.
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 of United States Government Guaranteed Ship
Financind Bonds.
(b) Title XI Reserve Fund and Financial Agreement dated
February 9, 1995, by and between the Company and the United
States of America.
(c) Form of 8.16% Sinking Fund Bond, 2010 Series.
10.3 Employee Benefit Plans
(c) The Company's Amended and Restated Employee Stock
Ownership Plan and the Related Trust Agreement(1) , as
amended and restated on December 5, 1994(3), as further
amended by Amendment No. 1 adopted April 5, 1995.
(i) Avondale Industries, Inc. Management Incentive Plan
EXHIBIT INDEX - CONTINUED
Number Description
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule
_______________
(1) 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.
(2) Incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
(3) Incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.