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 12 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 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 September 30, 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 September 30,1995
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 -
September 30, 1995 and December 31, 1994
Consolidated Statements of Operations -
Quarters and Nine Months Ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 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 September 30, 1995 and for the three-month
and nine-month periods ended September 30, 1995 and 1994. These
financial statements are the responsibility of the Company's
management.
We conducted our reviews 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 reviews, 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 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
November 6, 1995
New Orleans, Louisiana
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
September 30, December 31,
1995 1994
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents.... $ 32,976 $ 15,414
Restricted short-term
investments (Note 3) ...... 1,743 1,811
Receivables (Note 2):
Accounts receivable........ 23,067 25,342
Contracts in progress...... 71,811 59,168
Inventories:
Goods held for sale........ 8,105 7,908
Materials and supplies..... 8,180 8,201
Prepaid expenses and
other current assets ...... 5,055 10,092
------- -------
Total current assets....... 150,937 127,936
------- -------
Property, Plant and Equipment:
Land......................... 9,162 9,324
Construction in progress..... 21,152 5,698
Buildings and improvements... 44,471 42,281
Machinery and equipment...... 174,739 174,694
------- -------
Total........................ 249,524 231,997
Less accumulated depreciation (119,577) (112,836)
------- -------
Property, plant and equipment - net 129,947 119,161
------- -------
Goodwill - net................. 8,778 15,431
Deferred tax assets ........... 21,844 7,000
Funds held for construction (Note 3) 1,942 --
Other assets................... 4,231 3,975
------- -------
Total assets............... $ 317,679 $ 273,503
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
September 30, December 31,
1995 1994
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 5,062 $ 5,866
Accounts payable............. 66,120 60,917
Accrued employee compensation 12,709 12,948
Other........................ 15,738 13,369
------- -------
Total current liabilities.. 99,629 93,100
Long-term debt (Note 3)........ 60,593 45,875
Other liabilities and deferred credits 10,988 11,650
------- -------
Total liabilities............ 171,210 150,625
------- -------
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.......... (231,513) (255,104)
------- -------
Total...................... 158,325 134,734
Treasury stock (common: 1,463,016
shares in 1995 and 1994)
at cost.................... ( 11,856) ( 11,856)
------- -------
Total shareholders' equity... 146,469 122,878
------- -------
Total........................ $ 317,679 $ 273,503
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
Quarters Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1995
-------- -------- -------- --------
Continuing Operations:
Net sales................ $ 148,785 $ 125,487 $ 435,148 $ 345,253
Cost of sales............ 133,992 110,544 393,131 309,521
------- ------- ------- -------
Gross profit............. 14,793 14,943 42,017 35,732
Selling, general and
administrative expenses 7,958 7,766 23,219 22,376
------- ------- ------- -------
Income from operations... 6,835 7,177 18,798 13,356
Interest expense......... ( 1,119) ( 1,083) ( 3,676) ( 3,240)
Other - net.............. 638 229 1,469 595
------- ------- ------- -------
Income from continuing
operations before
income taxes........... 6,354 6,323 16,591 10,711
Income tax benefit (Note 5) 5,700 --- 7,000 ---
------- ------- ------- -------
Income from continuing
operations............. 12,054 6,323 23,591 10,711
Discontinued Operations:
Loss from discontinued
operations (Note 1).. --- ( 4,272) --- ( 4,552)
------- ------- ------- -------
Net income............... $ 12,054 $ 2,051 $ 23,591 $ 6,159
======= ======= ======= =======
Income (loss) per share of
common stock:
Continuing operations.. $ 0.83 $ 0.44 $ 1.63 $ 0.74
Discontinued operations --- ( 0.30) --- ( 0.31)
------- ------- ------- -------
Net income per share of
common stock........... $ 0.83 $ 0.14 $ 1.63 $ 0.43
======= ======= ======= =======
Weighted average number of
shares outstanding..... 14,464 14,468 14,464 14,476
======= ======= ======= =======
See Notes to Consolidated Financial Statements
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(in thousands)
(UNAUDITED)
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................... $ 23,591 $ 6,159
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .... 7,207 8,734
Deferred income tax benefit ...... (7,000) ---
Gain on sale of assets............ (813) ---
Changes in operating assets and liabilities,
net of dispositions:
Receivables..................... (11,368) 59,322
Inventories..................... (700) (1,423)
Prepaid expenses and other current assets 3,237 (747)
Accounts payable................ 5,203 (6,430)
Accrued employee compensation (239) 1,942
Other - net..................... 3,548 2,594
------- -------
Net Cash Provided by Operating Activities 22,666 70,151
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................ (18,392) (2,287)
Purchase of investments - net....... (1,874) (1,498)
Proceeds from sale of assets........ 3,248 ---
Payment to former corporate parent.. --- (5,000)
------- -------
Net Cash Used for Investing Activities (17,018) (8,785)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings..... (5,866) (81,228)
Proceeds from long-term borrowings (Note 3) 17,780 36,250
------- -------
Net Cash Provided by (Used For)
Financing Activities.............. 11,914 (44,978)
------- -------
Net increase in cash and cash equivalents 17,562 16,388
Cash and cash equivalents at beginning of period 15,414 3,195
------- -------
Cash and cash equivalents at end of period $ 32,976 $ 19,583
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,532 $ 2,810
======= =======
Note issued in litigation settlement (Note 4) $ 2,000
=======
Note issued to former corporate parent $ 8,000
=======
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
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,
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 periods 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 disclosed in its 1994 Annual Report on 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 MHC-51 Class
Minehunters ("MHC"), the first of which was delivered in
August 1995 with the remaining three currently being built by
the Company. The Company, in consultation with outside
counsel, reviewed the Minehunter REA and determined a minimum
estimate of its probable recoverable amount. During the
second quarter of 1995, the Company evaluated the underlying
facts and circumstances, and as a result, the cost to complete
estimates and minimum probable amount of recovery were revised
upward. Based on its review of the Minehunter REA and
supported by the view of outside counsel that they had no
reason to believe that the use of $23 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. In addition, the
effects of the cost increase have been partially offset by
certain contractual cost sharing and cost escalation
provisions which obligate the U.S. Navy to bear a portion of
the additional costs. To the extent that any portion of the
$23 million recognized is not recovered, then losses in
addition to those previously recorded will have to be
recognized. The Minehunter REA currently is being evaluated
by the U.S. Navy.
3. FINANCING ARRANGEMENTS
In February 1995 the Company completed financing of its
approximately $20 million plant modernization effort by
issuing $17.8 million of mortgage bonds utilizing a U.S.
Government guarantee under Title XI of the Merchant Marine
Act, 1936, as amended. The bonds bear interest at an annual
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 bond
proceeds to be held in escrow and released to the Company as
allowable project costs are incurred by the Company and
approved by the U.S. Department of Transportation, Maritime
Administration. At September 30, 1995, $14.3 million of these
bond proceeds have been released to the Company. The Company
estimates, based on costs incurred, that it is currently
entitled to $1.6 million of the remaining escrow and
accordingly has included this amount as a current asset in
Restricted Short-term Investments. The balance of the escrow,
$1.9 million at September 30, 1995, is recorded as Funds Held
for Construction.
In the second quarter of 1995 the Company amended its
revolving credit agreement. The amendment, among other
things, increased the amount available under the credit
agreement to $42.5 million and extended its term to May 1997.
Further, the amendment permitted the issuance of the mortgage
bonds and revised the level of permitted capital expenditures
and certain coverage ratios to take into consideration the
plant modernization project. While there have been no
borrowings in 1995 under the revolving credit agreement, there
are $25.1 million of letters of credit outstanding under the
facility at September 30, 1995.
4. COMMITMENTS AND CONTINGENCIES
Litigation
As discussed in further detail in Note 12 of the Company's
Annual Report included in the 1994 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 for the site have funded
the cost of the site's remediation under a preliminary cost-
sharing agreement. At September 30, 1995, clean-up costs
totalled $17 million, of which the Company has contributed
$3.6 million. Additional remedial work scheduled for the site
includes the completion of 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, as to which no estimate is
currently available. The Company believes that its
proportionate share of expenditures for any additional
remedial work will not have a material effect on the Company's
financial statements. In addition, the Company believes that
its proportionate responsibility for the clean-up costs will
not be materially increased.
On July 28, 1995 the Federal District Court for the Middle
District of Louisiana approved the Company's settlement of a
class action lawsuit, filed against the Company and numerous
other defendants, that had asserted various toxic tort claims
arising out of the alleged contamination at the Walker oil
reclamation site. Under the terms of the settlement, in the
third quarter of 1995 the Company paid $4.0 million, using
cash from operations, into a settlement fund and issued a $2.0
million unsecured note to the plaintiff class. The note bears
interest at 8% per annum and is due on January 28, 1997. The
Company had previously recorded an accrual sufficient to
provide for the $6 million settlement and has sufficient cash,
available from operations or under its credit facility, to
fund the note. Avondale could also be responsible for payment
to the plaintiffs of an additional sum of up to $6 million in
the event that the plaintiffs are unsuccessful in collecting
certain amounts with respect to rights that have been assigned
to them under the settlement agreement. With respect to the
potential contingent liability of the Company to pay
additional sums under the settlement agreement, management
believes that the eventual resolution of this matter will not
have a material effect on the Company's financial statements.
The Company will continue to consult with its counsel and
establish a reserve against such exposure in an appropriate
amount if and when circumstances 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 made by the plaintiffs.
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 to secure certain
performance obligations of the Company thereunder.
Outstanding letters of credit relating to these business
activities amounted to approximately $25.1 million and $23.3
million at September 30, 1995 and December 31, 1994,
respectively.
Plant Modernization Program
The Company's plant modernization and expansion project is
nearing completion. The Company recorded project costs
through September 30, 1995 of approximately $18.3 million of
which approximately $15.5 million have been incurred in 1995.
Outstanding purchase commitments at September 30, 1995 were
approximately $1.0 million. Refer to Note 3 herein regarding
financing for this project.
5. INCOME TAXES
During the nine month period ended September 30, 1995 the
deferred tax valuation allowance decreased by $18 million in
accordance with ongoing evaluations of the Company's ability
to utilize net operating loss carry forwards. The first $5
million of this decrease was recorded as a reduction in
goodwill in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (see Note 9
in the Company's 1994 Annual Report on Form 10-K). The
remaining $13 million was recorded as a reduction of income
tax expense in the second and third quarters of 1995 ($5
million and $8 million, respectively). The net income tax
benefit of $5.7 million recorded in the third quarter of 1995
includes this $8 million benefit net of a tax provision of
$2.3 million related to current period operating results. The
net income tax benefit of $7 million recorded for the nine
month period ended September 30, 1995 includes the $13 million
deferred tax benefit net of a tax provision of $6 million
related to current period operating results. The recognition
of any additional available tax benefit (approximately $9.5
million) will depend on future assessments of estimated
taxable income.
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 September 30, 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's results of operations continued to improve compared
to the prior year. Net sales for the third quarter and first
nine months of 1995 were 19% and 26%, respectively, above the
levels in the prior year's periods. Third quarter 1995 income
from continuing operations before income taxes was more than
twice that of the prior year period after removing the effect of
a $3.5 million net gain recorded in the third quarter of 1994 (as
discussed below). The first nine months of 1995 also showed a
significant increase in income from continuing operations before
income taxes, more than 50% higher than the level reported for
the same period in 1994.
The Company's backlog at September 30, 1995 was $1.2 billion
(excluding options). The Company announced on August 8, 1995
that it signed a contract for the construction of seven 42,000
DWT product carriers. The contract is not yet included in the
backlog as it is subject to the receipt of a Title XI financing
guarantee from the U.S. Maritime Administration and to the
satisfaction of certain other conditions.
The Company announced on August 30, 1995 that it has formed an
alliance with Bath Iron Works and Hughes Aircraft to jointly
pursue the U.S. Navy's program for the LPD 17 (formerly LX), the
Navy's new class of amphibious transport dock vessel. The LPD 17
construction program, the most significant new surface ship
construction program planned by the Navy for the next five years,
is anticipated to be a multi-ship project with the first
construction contract award forecasted for 1996. The current
U.S. Navy requirement is for 12 LPD 17 ships that are intended to
replace over 30 amphibious vessels that are scheduled for
decommissioning. If the alliance is successful in securing the
contract, Avondale would be the prime contractor, with ships
constructed in both the Avondale and Bath yards. Hughes Aircraft
will be responsible for the total ship system integration. The
alliance will be further strengthened by the technical staff of
the Electric Boat Division of General Dynamics Corporation which
recently acquired Bath Iron Works.
Thus far in 1995 the Company has delivered one T-AO Oiler ("T-
AO"), which was the first double-hulled ship built in the United
States, one Landing Ship Dock - Cargo Variant ("LSD-CV"), the
first of the four MHC-51 Class Coastal Minehunters ("MHC") and
the last of three paddle-wheel gaming vessels. Scheduled
deliveries for the remainder of 1995 include one T-AO and a
substantial portion of the series of river hopper barges.
As disclosed 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, the first of which was delivered in August 1995 with
the remaining three currently being built by the Company. The
Company, in consultation with outside counsel, reviewed the
Minehunter REA and determined a minimum estimate of its probable
recoverable amount. During the second quarter of 1995, the
Company evaluated the underlying facts and circumstances, and as
a result, the cost to complete estimates and minimum probable
amount of recovery were revised upward. Based on its review of
the Minehunter REA and supported by the view of outside counsel
that they had no reason to believe that the use of $23 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. In addition, the
effects of the cost increase have been partially offset by
certain contractual cost sharing and cost escalation provisions
which obligate the U.S. Navy to bear a portion of the additional
costs. To the extent that any portion of the $23 million
recognized is not recovered, then losses in addition to those
previously recorded will have to be recognized. The Minehunter
REA currently is being evaluated by the U.S. Navy.
As detailed in Note 12 of the Company's Annual Report included in
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 was informed in 1986 that it was a
potentially responsible party ("PRP") in connection with an oil
reclamation site operated by an unaffiliated company. The
Company, along with other PRPs, has fully funded its share of the
clean-up costs incurred to date under a preliminary agreement to
fund the site's remediation. Additional work scheduled for the
site includes completion of 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, as to which no estimate is currently available.
The Company believes that its proportionate share of expenditures
for any additional remedial work will not have a material effect
on the Company's financial statements. In addition, the Company
believes that its proportionate responsibility for the clean-up
costs will not be materially increased.
On July 28, 1995 the Federal District Court for the Middle
District of Louisiana approved the Company's settlement of a
class action lawsuit, filed against the Company and numerous
other defendants, that had asserted various toxic tort claims
arising out of the alleged contamination at the oil reclamation
site. Under the terms of the settlement, in the third quarter of
1995 the Company paid $4.0 million, using cash from operations,
into a settlement fund and issued a $2.0 million unsecured note
to the plaintiff class. The note bears interest at 8% per annum
and is due on January 28, 1997. The Company had previously
recorded an accrual sufficient to provide for the $6 million
settlement and has sufficient cash, available from operations or
under its credit facility, to fund the note. Avondale could also
be responsible for payment to the plaintiffs of an additional sum
of up to $6 million in the event that the plaintiffs are
unsuccessful in collecting certain amounts with respect to rights
that have been assigned to them under the settlement agreement.
With respect to the potential contingent liability of the Company
to pay additional sums under the settlement agreement, management
believes that the eventual resolution of this matter will not
have a material effect on the Company's financial statements.
The Company will continue to consult with its counsel and
establish a reserve against such exposure in an appropriate
amount if and when circumstances warrant.
As discussed in the 1994 Form 10-K, certain of the Company's
operations closed in 1994 upon 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 $12.1 million, or $0.83 per
share, for the third quarter of 1995 compared to $2.1 million, or
$0.14 per share, for the third quarter of 1994, representing
almost a sixfold increase in net income over the third quarter of
1994. The 1995 third quarter net income includes a $5.7 million,
or $0.39 per share, net income tax benefit that is discussed
below. In the third quarter of 1994 the Company recorded a $3.5
million, or $0.24 per share, net gain related to revisions of
estimated contract profits on several previously completed
shipbuilding contracts and a loss from discontinued operations,
as discussed below, of $4.3 million, or $0.30 per share.
For the first nine months of 1995 the Company recorded net income
of $23.6 million, or $1.63 per share, compared to $6.2 million,
or $0.43 per share, for the same period in 1994, or more than
triple the level for the first nine months of 1994. The 1995
year-to-date net income includes a net income tax benefit of $7.0
million, or $0.48 per share. Included in net income for the
first nine months of 1994 noted above is a loss from discontinued
operations (discussed below) of $4.6 million, or $0.31 per share.
The significant increases in the Company's operating results in
the current periods primarily reflect operating profits
recognized on the LSD-CV 52 and seven T-AO contracts. As
previously disclosed in Item 7 of the 1994 Form 10-K, the Company
noted that the operating profit projected to be recognized in
1995 would be related principally to these two contracts. The
Company also recorded a partial reversal of a previously
recognized loss which was recorded in prior years on the contract
to construct three LSD-CVs. Also contributing to the 1995 income
from operations were profits recognized on the third gaming
vessel (delivered in June of 1995) and profits recorded by the
Company's marine repair and wholesale steel operations.
In the third quarter of 1994 the Company decided to discontinue
its service contracting business. The 1994 third quarter and
nine month results reflect losses from discontinued operations of
$4.3 million, or $0.30 per share, and approximately $4.6 million,
or $0.31 per share, respectively.
Net sales for the current quarter and first nine months of 1995
reflect increases of $23.3 million, or 19%, and $89.9 million, or
26%, respectively, as compared to the same periods in the prior
year. The increases in net sales are primarily due to increased
net sales revenues recorded on the contracts to construct the
Strategic Sealift ships, the LSD-CV 52, the Icebreaker and the
contract to construct forebodies for the four product carriers.
These increases were partially offset by reduced net sales
revenues recorded on the contracts to construct seven T-AOs and
three LSD-CVs as these contracts are in the latter stages of
completion.
Gross profit for the first nine months of 1995 increased $6.3
million, or 18%, compared to the same period in 1994. The
increase in year-to-date gross profit is primarily due to
increases in profits recognized on contracts to construct the
LSD-CV 52, seven T-AOs and a partial reversal of a previously
recognized loss on three LSD-CVs (as discussed above).
Gross profit for the third quarter of 1995 decreased $150,000, or
1%, compared to the same period in 1994. After removing the
effects of the $3.5 million net gain recorded in the third
quarter of 1994 gross profit for the third quarter of 1995
increased $3.35 million, or 29%.
Selling, general and administrative ("SG&A") expenses increased
$192,000, or 2.5%, for the third quarter and $843,000, or 3.8%,
for the first nine months of 1995 compared to the same periods in
the prior year. These increases are due primarily to an overall
increase in operating activity as noted above and in part to an
increase in indirect labor and associated costs resulting from an
across-the-board wage increase effective January 1, 1995.
Interest expense increased $36,000, or 3.3%, for the third
quarter of 1995 and $436,000, or 13.5%, for the first nine months
of 1995 as compared to the same periods in the prior year. These
increases are due principally to interest costs associated with
the $17.8 million Title XI financing completed in February 1995.
Also contributing to the increase in interest expense for the
first nine months of 1995 was interest on the note issued in June
1994 to the Company's former corporate parent (as discussed in
Note 12 of the Company's 1994 Annual Report on Form 10-K). These
increases were partially offset by an increase in interest
capitalized on assets under construction relating primarily to
the modernization project.
The third quarter and first nine months of 1995 included net
income tax benefits of $5.7 million, or $0.39 per share, and $7.0
million, or $0.48 per share, respectively. As further discussed
in Note 5 of the notes to the consolidated financial statements
contained elsewhere in this Form 10-Q, the net income tax benefit
is principally the result of recognizing, for financial reporting
purposes, a $13 million income tax benefit from certain net
operating loss carry forwards available to offset estimated
future taxable earnings. The $13 million tax benefit was offset
by a year-to-date non-cash income tax provision of $6.0 million
related to current period operating results. Of the $13 million
year-to-date income tax benefit, the Company recorded an $8.0
million tax benefit in the third quarter of 1995 which was offset
by a non-cash tax provision of $2.3 million related to current
period operating results. There was no provision for income taxes
in the same periods in 1994 as an income tax benefit related to
available net operating loss carry forwards was recognized only
to the extent of then current operating results. The recognition
of any additional available tax benefit (approximately $9.5
million) will depend on future assessments of estimated taxable
income.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $33 million at
September 30, 1995 as compared to $15.4 million at December 31,
1994. The Company's sources of cash in 1995 consisted of $22.7
million of funds provided by operations, proceeds from the sale
of assets of $3.2 million and proceeds from long-term borrowings
of $17.8 million (both of which are discussed below). The
Company's primary uses of cash in the current year consisted of
capital expenditures of $18.4 million and payment of long term
borrowings of $5.9 million. As further discussed below, a
portion of the cash used for capital expenditures represents
interim funding of the plant modernization project until such
time as the Company is reimbursed from proceeds of the permanent
financing.
In February 1995 the Company completed financing of its
approximately $20 million plant modernization effort by issuing
$17.8 million of 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
bond proceeds to be held in escrow and released to the Company as
allowable project costs are incurred by the Company and approved
by the U.S. Department of Transportation, Maritime
Administration. At September 30, 1995 $14.3 million of these bond
proceeds have been released to the Company. The Company
estimates, based on costs incurred, that it is currently entitled
to $1.6 million of the remaining escrow and accordingly has
included this amount as a current asset in Restricted Short-term
Investments. The balance of the escrow, $1.9 million at
September 30, 1995, is recorded as Funds Held for Construction.
The Company has recorded project costs to date of approximately
$18.3 million of which approximately $15.5 million were incurred
in 1995. Outstanding purchase commitments at September 30, 1995
were approximately $1.0 million.
Additionally, in the second quarter of 1995 the Company obtained
additional liquidity as its improved financial condition enabled
it to amend its revolving credit agreement. The amendment, among
other things, increased the amount available under the credit
agreement to $42.5 million and extended its term to May 1997.
Further, the amendment permitted the issuance of the mortgage
bonds and revised the level of permitted capital expenditures and
certain coverage ratios to take into consideration the plant
modernization project. While there have been no borrowings in
1995 under the revolving credit agreement, there are $25.1
million of letters of credit outstanding under the facility at
September 30, 1995. The Company believes that its capital
resources will be sufficient to finance current and projected
operations.
As previously disclosed in the Company's first quarter 1995 Form
10-Q filing, on May 12, 1995 the Company sold substantially all
of the operating assets used in its foundry operations. The sale
generated $3.2 million of cash proceeds and did not significantly
affect the Company's results of operations.
PART II - OTHER INFORMATION
Item 1.Legal Proceedings
Not applicable.
Item 2.Changes in Securities
Not applicable.
Item 3.Defaults Upon Senior Securities
Not applicable.
Item 4.Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5.Other Information
Not applicable.
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
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, 1995.
(b) Reports on Form 8-K:
Not applicable.
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: November 13, 1995 By:/s/ALBERT L. BOSSIER, JR.
-------------------------
Albert L. Bossier, Jr.
Chairman, President &
Chief Executive Officer
Date: November 13, 1995 By:/s/THOMAS M. KITCHEN
--------------------
Thomas M. Kitchen
Vice President &
Chief Financial Officer
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,
1995.