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 September 30, 1996
[ ]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, 1996
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.
Outstanding at
Class September 30, 1996
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 -
December 31, 1995 and September 30, 1996
Consolidated Statements of Operations -
Quarters and Nine Months Ended September 30, 1995 and 1996
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. 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, 1996 and for the three-month
and nine-month periods ended September 30, 1996 and 1995. 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, 1995, 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 January 19, 1996, 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, 1995 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
October 30, 1996
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
December 31, September 30,
1995 1996
---- ----
ASSETS
Current Assets:
Cash and cash equivalents ............. $ 38,524 $ 52,561
Restricted short-term investments .... 383 --
Receivables (Note 2):
Accounts receivable ................ 39,753 10,311
Contracts in progress ............... 53,431 78,296
Inventories:
Goods held for sale ................. 7,409 10,339
Materials and supplies .............. 7,880 8,347
Deferred tax assets (Note 5) .......... 23,650 14,650
Prepaid expenses ...................... 2,563 3,080
------- -------
Total current assets ................ 173,593 177,584
------- -------
Property, Plant and Equipment:
Land .................................. 9,161 8,733
Construction in progress .............. 4,665 13,571
Buildings and improvements ............ 55,326 55,792
Machinery and equipment ............... 182,547 184,333
------- -------
Total ................................. 251,699 262,429
Less accumulated depreciation ......... (121,661) (129,146)
------- -------
Property, plant and equipment - net ... 130,038 133,283
Goodwill - net .......................... 8,637 8,214
Deferred tax assets (Note 5) ............ -- 9,007
Other assets ............................ 4,459 5,198
------- -------
Total assets ....................... $316,727 $333,286
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
December 31, September 30,
1995 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .... $ 5,062 $ 4,957
Accounts payable ..................... 65,517 61,338
Accrued employee compensation ........ 10,777 12,109
Other ............................... 11,249 10,814
------- -------
Total current liabilities .......... 92,605 89,218
Long-term debt ......................... 60,593 54,866
Other liabilities and deferred credits.. 12,471 13,506
------- -------
Total liabilities .................... 165,669 157,590
------- -------
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 1996 .................. 15,927 15,927
Additional paid-in capital ........... 373,911 373,911
Accumulated deficit .................. (226,924) (202,286)
------- -------
Total .............................. 162,914 187,552
Treasury stock (common: 1,463,016
shares in 1995 and 1996) at cost ... (11,856) (11,856)
------- -------
Total shareholders' equity ........... 151,058 175,696
------- -------
Total ................................ $316,727 $333,286
======= =======
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 1996 1995 1996
---- ---- ---- ----
Net sales .............. $ 148,785 $ 148,384 $ 435,148 $ 457,457
Cost of sales .......... 133,992 129,336 393,131 402,957
------- ------- ------- -------
Gross profit ........... 14,793 19,048 42,017 54,500
Selling, general
and administrative
expenses ............. 7,958 9,811 23,219 28,136
------- ------- ------- -------
Income from operations . 6,835 9,237 18,798 26,364
Interest expense ....... (1,119) (1,144) (3,676) (3,792)
Other - net ............ 638 719 1,469 2,066
------- ------- ------- -------
Income before
income taxes .......... 6,354 8,812 16,591 24,638
Income tax benefit
(provision)(Note 5) .. 5,700 (3,200) 7,000 --
------- ------- ------- -------
Net income ............. $ 12,054 $ 5,612 $ 23,591 $ 24,638
======= ======= ======= =======
Net income per share of
common stock ......... $ 0.83 $ 0.39 $ 1.63 $ 1.70
======= ======= ======= =======
Weighted average number
of shares outstanding. 14,464 14,464 14,464 14,464
======= ======= ======= =======
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 1996
(In thousands)
(UNAUDITED)
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................ $ 23,591 $ 24,638
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....... 7,207 8,063
Deferred income taxes ............... (7,000) --
Gain on sale of assets .............. (813) --
Changes in operating assets and
liabilities, net of dispositions:
Receivables ....................... (11,368) 4,577
Inventories ....................... (700) (3,397)
Prepaid expenses .................. 3,237 (517)
Accounts payable .................. 5,203 (4,179)
Accrued employee compensation ..... (239) 1,332
Other - net ....................... 3,548 (307)
------- -------
Net Cash Provided by Operating Activities 22,666 30,210
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................. (18,392) (11,179)
Change in restricted short-term
investments - net .................. (1,874) 383
Proceeds from sale of assets .......... 3,248 455
------- -------
Net Cash Used for Investing Activities. (17,018) (10,341)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings ....... (5,866) (5,832)
Proceeds from long-term borrowings .... 17,780 --
------- -------
Net Cash Provided by (Used for)
Financing Activities ................ 11,914 (5,832)
------- -------
Net increase in cash and cash equivalents 17,562 14,037
Cash and cash equivalents at
beginning of period ................. 15,414 38,524
------- -------
Cash and cash equivalents at end of period $ 32,976 $ 52,561
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest ................................ $ 3,532 $ 3,536
======= =======
Note issued in litigation settlement (Note 4) $ 2,000
=======
Income taxes ............................ $ 1,560
=======
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, 1995 audited
financial statements and related notes filed on Form 10-K for the
year ended December 31, 1995 (the "1995 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
December 31, 1995 and September 30, 1996 (in thousands):
1995 1996
---- ----
Long-term contracts:
U.S. Government:
Amounts billed ............. $ 30,151 $ 1,155
Unbilled costs and estimated
profits on contracts in
progress ................ 41,119 53,524
------- -------
Total ....................... 71,270 54,679
Commercial:
Amounts billed ............. 4,364 2,792
Unbilled costs and estimated
profits on contracts in
progress ................ 12,312 24,772
------- -------
Total from long-term contracts 87,946 82,243
Trade and other current
receivables ............. 5,238 6,364
------- -------
Total ............................ $ 93,184 $ 88,607
======= =======
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. As discussed in Note 2 of the
Company's Annual Report included in the 1995 Form 10-K, the
Company settled in December, 1995 its Request for Equitable
Adjustment ("Minehunter REA") filed with the U.S. Navy in
connection with the Company's contract to construct four MHC-51
Coastal Minehunters. As a result of this settlement, the Company
submitted to the U.S. Navy invoices totaling $30.7 million in
December 1995. These invoices were paid in full by the Navy
during the first quarter of 1996.
3. FINANCING ARRANGEMENTS
In the first quarter of 1996 the Company reached an agreement to
extend to May 1998 the terms of its revolving credit agreement
with various financial institutions. There have been no
borrowings in 1996 under the revolving credit agreement.
4. COMMITMENTS AND CONTINGENCIES
Litigation
As discussed in further detail in Note 10 of the Company's Annual
Report included in the 1995 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, 1996, clean-up costs totaled $17.7 million, of
which the Company has contributed $3.7 million. Additional work
scheduled for the site includes the completion of studies in
1996, and if required by the results of these studies, subsequent
remediation. Following completion of such 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 adverse 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 changed.
In 1995, the Federal District Court for the Western District of
Louisiana issued a bench ruling approving the Company's
settlement of a class action lawsuit involving alleged personal
injury and property damage arising from the Walker, La.
reclamation site. In the first quarter of 1996, the Federal
District Court issued the written order confirming its earlier
bench ruling. The period for filing appeals expired on April 7,
1996 and no appeals were filed. Under the terms of the
settlement, the Company paid $4.0 million into a settlement fund
in the third quarter of 1995, using cash from operations, and
issued a $2.0 million unsecured note to the plaintiff class. The
note bears interest at 8% per annum and is due on January 28,
1997. The Company had previously recorded an accrual sufficient
to provide for the $6.0 million settlement and has sufficient
liquidity to fund the note. The Company could also be responsible
for payment to the plaintiffs of up to an additional $6.0 million
(plus interest at 8% per annum) if the plaintiffs are
unsuccessful in collecting certain claims under Avondale's
insurance policies that have been assigned to the plaintiff class
under the settlement agreement. With respect to the potential
contingent liability of the Company to pay additional sums under
the settlement agreement, management believes that the eventual
resolution of this matter will not have a material adverse effect
on the Company's results of operations, financial position or
cash flows. Furthermore, the Company has initiated litigation
against its insurer for a declaration of coverage of the
liability, if any, that may arise in connection with the
remediation of the site referred to above. The court has ruled
that the insurer has the duty to defend the Company, but has not
yet ruled on whether the carrier has a duty to indemnify the
Company if any liability is ultimately assessed against it. After
consultation with counsel, the Company is unable to predict the
eventual outcome of this litigation or the degree to which such
potential liability would be indemnified by its insurance
carrier.
In addition to the above, the Company is also named as a
defendant in 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 will not have a material adverse
effect on the Company's financial statements.
Letters of Credit
In the normal course of its business activities, the Company is
required to provide letters of credit to secure the payment of
workers' compensation obligations, other insurance obligations
and to provide a debt service reserve fund related to $36.3
million of Series 1994 industrial revenue bonds. Additionally,
under certain contracts the Company may be required to provide
letters of credit to secure certain performance obligations of
the Company thereunder. Outstanding letters of credit relating to
these business activities amounted to approximately $11.3
million and $25.4 million at September 30, 1996 and December 31,
1995, respectively.
5. INCOME TAXES
During 1995 and the first nine months of 1996, the Company
provided for income taxes based on the maximum statutory rate
for U.S. corporations. These provisions, however, were offset by
certain adjustments related to deferred income taxes. During
the second quarters of 1996 and 1995 and the third quarter of
1995, the deferred tax valuation allowance decreased by $9.0
million, $10.0 million, and $8.0 million, respectively, based on
current evaluations of the Company's expectations of the
likelihood of future taxable income that would permit the
utilization of its net operating loss carry forwards. The first
$5.0 million of the second quarter 1995 decrease was recorded as
a reduction in goodwill in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The
remaining $13.0 million for 1995 and the entire $9.0 million for
1996 were recorded as a reduction of income tax expense. Such
benefits in the current and prior year periods recognized for
financial reporting purposes the availability of net operating
loss carry forwards to offset estimated future earnings. At
September 30, 1996, the benefits related to substantially all of
the Company's net operating loss carry forwards have been
recognized for financial reporting purposes.
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, 1996 and 1995 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, 1995 (the "1995 Form 10-K").
Overview
The Company continued the trend of improvement in its operating
results by recording significant increases compared to the same
periods in the prior year. Income before income taxes increased by
39% for the third quarter of 1996 and by 49% for the first nine
months of 1996 compared to the same periods in the prior year.
Further, net income increased by approximately 4% on a year to date
basis over the same period in 1995. Net income in both the current
and prior year periods include the effects of deferred income tax
benefits as discussed below.
The Company's firm backlog at September 30, 1996 was approximately $1
billion ($1.5 billion including options). During the first nine
months of 1996, the Company delivered a double-hulled T-AO Oiler,
representing the last of 16 built by the Company, a third Landing
Ship Dock - Cargo Variant ("LSD-CV") and the second and third of four
MHC-51 Class Coastal Minehunters ("MHC") to the U.S. Navy. The
fourth MHC is scheduled for delivery in early 1997. Shortly after
the end of the second quarter the Company delivered the first of four
commercial product tankers that the Company is retrofitting with
double hulls in compliance with the Oil Pollution Act of 1990.
The Company continues to pursue the U.S. Navy's program for the LPD
17, the Navy's new class of amphibious transport dock vessel, through
its previously disclosed alliance formed with Bath Iron Works
Corporation, Hughes Aircraft Company and Intergraph Corporation. The
proposal was submitted on June 28, 1996. The award of the contract
for the design and construction of the first ship, in what is
anticipated to be a multi-ship project, is expected by the close of
1996. 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
total ship system integration while the team will utilize Intergraph
technology for the design and manufacture of the ship. 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.
With a substantial portion of Avondale's current firm backlog
scheduled for completion in 1998, it is important that Avondale be a
successful bidder for the LPD-17 vessels or other U.S. Navy or
commercial work if it is to maintain its current level of
shipbuilding activity beyond 1998. Other U.S. Navy programs that may
offer shipbuilding opportunities to Avondale include the possible
construction of two additional Sealift vessels; a class of
prepositioning vessels for the U.S. Marine Corps; up to six of the
U.S. Navy's planned Arsenal Ship (a new concept of warship which
could act as a floating remote-controlled missile launcher by
utilizing integrated communications and electronics) the first of
which is expected to be awarded in 1997; and up to 14 ADC(X) vessels
(a class of auxiliary vessels designed to deliver fuel, ammunition
and other supplies to the U.S. Navy Fleet with capabilities similar
to the T-AOs constructed at Avondale). Commercial opportunities
include constructing vessels with national defense features for the
Ready Reserve fleet and the retrofitting of existing tankers and
construction of new double-hulled tankers in response to the Oil
Pollution Act of 1990 which required the phase-in transition of
single-hulled tankers and product carriers to double-hulled vessels
beginning January 1, 1995. As noted above, the Company is currently
retrofitting four double-hulled forebodies to product carriers. In
addition, the Company announced in the fourth quarter of 1995 a
contract for the construction of four 42,000 DWT double-hulled
product carriers. The contract 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. In the second quarter
of 1996 the Company announced that, at the request of the customer,
the delivery date was extended from 1998 to the year 2000. This
contract is not included in the Company's backlog at September 30,
1996.
As previously disclosed, certain of the Company's operations were
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.
Shortly after the close of the third quarter, the Company executed a
purchase agreement with respect to one of the two sites. The
agreement is subject to the purchaser's completing its due
diligence, but the terms of the purchase agreement call for a closing
to occur before year end. It is envisioned that the Company will not
incur any significant additional gain or loss on the disposition of
these assets.
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 $5.6 million, or $0.39 per share,
for the third quarter of 1996 compared to $12.1 million, or $0.83 per
share, for the third quarter of 1995. The results for the third
quarter of 1995 include an $8.0 million, or $0.55 per share, income
tax benefit as discussed in Note 5 of the Notes to Consolidated
Financial Statements contained elsewhere in this Form 10Q. For the
first nine months of 1996, the Company recorded net income of $24.6
million, or $1.70 per share, compared to $23.6 million, or $1.63 per
share, for the same period in 1995. Such 1996 and 1995 results
include a $9.0 million, or $0.62 per share, and a $13.0 million, or
$0.90 per share, respectively, income tax benefit as discussed in
Note 5.
The increases in the Company's operating results in the current
quarter and first nine months of 1996 primarily reflect increased
operating profits recognized on certain multi-vessel contracts with
the U.S. Navy. These profits were made possible by improvements in
production efficiencies resulting in significant cost savings
during the latter stages of completion of these contracts. In
addition, the Company began profit recognition on the contract to
construct four Strategic Sealift vessels for the U.S. Navy. Also
contributing to the 1996 operating results were profits recorded by
the Company's marine repair, wholesale steel and modular steel
construction operations.
These profits were offset, in part, by losses recorded on two
commercial marine construction contracts. A $4.5 million loss on
the contract to construct river hopper barges, representing costs
incurred in connection with the Company's entry into this competitive
market, was recognized in the first three months of 1996 as the
Company experienced a higher than expected level of cost at the
inception of this contract. In addition, in the third quarter of
1996, Avondale recorded a $10 million loss with respect to the
contract to retrofit four single-hull commercial tankers with new
double hulls. This loss resulted from several factors, the most
important of which was a significantly compressed construction
schedule because the customer's financing was delayed significantly
without a corresponding extension of the delivery schedules. In
addition, as the first project through the Company's new automated
production facility, these forebodies were negatively impacted as
this new facility was in the start-up phase and did not benefit from
the efficiencies which would have been realized from the completed
factory. Finally, the pre-delivery testing of the first vessel
revealed a condition which required certain modifications which
resulted in the Company incurring incremental costs.
The impact of these losses was mitigated by the fact that these
contracts absorbed a substantial amount of overhead expenses which,
in the absence of these contracts, would have been allocated to other
contracts. In addition, these contracts have been important in the
Company's reemergence in the competitive commercial tanker and barge
markets. The tanker contract has also enabled the Company to
construct four forebodies which are patterned after the forebody of
Avondale's standard tanker, providing experience in constructing
this portion of the vessel, enabling the Company to refine the design
and construction techniques, and furthering the Company's progress
toward achieving its stated goal of a more balanced mix of military
and commercial work. The first double hull tanker was delivered on
October 3, 1996, and the remaining vessels are scheduled to be
delivered in 1997. The loss recorded includes some anticipated
savings due to production efficiencies to be realized on later
vessels.
Net sales for the third quarter of 1996 were consistent with the
third quarter of 1995 while net sales for the first nine months of
1996 reflected an increase of $22.3 million, or approximately 5%.
The increase in the first nine months of 1996 was primarily due to
increased net sales recorded on the contracts to construct the
Strategic Sealift ships, the forebodies for the four product
carriers, the Coast Guard Icebreaker ship and the contract to
construct the river hopper barges. These increases were partially
offset by reduced net sales recorded on the contracts to construct
the LSD-CV 52, three LSD-CVs, seven T-AOs and four MHCs as these
contracts are near completion, and by reduced net sales recorded on
paddle-wheeled gaming vessels (the last of which was delivered in the
second quarter of 1995).
Gross profit for the third quarter and first nine months of 1996
increased $4.3 million, or 29%, and $12.5 million, or 30%,
respectively, compared to the same periods in 1995. The increase is
due primarily to profits recognized on the contract to construct the
seven T-AOs and the commencement of profit recognition on the
contract to construct four Strategic Sealift vessels for the U.S.
Navy. These incremental profits were offset, in part, by the losses
recorded on the Company's commercial contracts as discussed above.
Selling, general and administrative ("SG&A") expenses increased $1.9
million, or 23%, in the third quarter of 1996 and $4.9 million, or
21%, for the first nine months of 1996 compared to the same periods
in the prior year. The increases in SG&A expenses were due primarily
to expenses incurred in association with the preparation of the LPD-
17 proposal including the engagement of outside consultants.
Net income for the first nine months of 1996 included a deferred
income tax benefit of $9.0 million which was recorded in the second
quarter of 1996. Similar deferred income tax benefits of $5.0 million
and $8.0 million were previously recorded in the second and third
quarters of 1995, respectively. These deferred income tax benefits
recognize for financial reporting purposes the availability of net
operating loss carry forwards to offset estimated future earnings.
At September 30, 1996, the benefits related to substantially all of
the Company's net operating loss carry forwards have been recognized
for financial reporting purposes.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $52.6 million at
September 30, 1996 as compared to $38.5 million at December 31, 1995.
Included in the cash balance at September 30, 1996 are amounts
collected as a result of the settlement of the Company's Request for
Equitable Adjustment ("Minehunter REA") filed with the U.S. Navy
related to the four MHCs currently under contract (as discussed in
further detail in Note 2 of the Company's Annual Report included in
the 1995 Form 10-K). The Company's operations represented a
significant source of cash thus far in 1996 generating approximately
$30.2 million. The Company's primary uses of cash in the current
year consisted of capital expenditures of $11.2 million and principal
payments on long term borrowings of $5.8 million.
In the first quarter of 1996, the term of the Company's $42.5 million
revolving credit agreement was extended to May 1998, and the Company
recently executed an amendment to the revolving credit facility which
increased the annual limitation on capital expenditures. At
September 30, 1996, there were approximately $11.3 million of
letters of credit issued against the revolving credit facility
leaving approximately $31.3 million of liquidity available to
Avondale for operations and other purposes. Continuing access to the
revolving credit facility is conditioned upon the Company remaining
in compliance with the covenants which include certain financial
ratios. At September 30, 1996 the Company was in compliance with the
covenants contained therein. The Company believes that its capital
resources will be sufficient to finance current and projected
operations.
If Avondale is successful in its efforts to acquire the LPD-17
contract, the Company will be required to spend a significant amount
on capital improvements, particularly, to enhance its 3-D design and
product modeling capabilities. The Company currently has sufficient
cash and available lines of credit to fund these capital
expenditures. Nevertheless, the Company is in discussions with its
banks in order to increase the size of the revolving credit facility
by an amount sufficient to allow the Company to fund the expenditures
on an interim basis with borrowings under the line while preserving
the current level of available liquidity. The banks have been
receptive to these discussions and have indicated, on a preliminary
basis, their willingness to support this increase on terms which are
no more restrictive than the current terms. The Company is also
exploring numerous other options to finance these expenditures on a
long-term basis.
The Company's estimated net operating loss carry forward for income
tax reporting purposes was approximately $81.8 million at December
31, 1995. This amount, plus available income tax credits from prior
years of $5.3 million, and $1.5 million of alternative minimum tax
credits will be used to reduce the income tax liabilities for 1996
and later years. The $1.5 million cash paid to date for income
taxes reflects payments for alternative minimum tax.
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:
Not applicable.
_______________
(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 September
30, 1995.
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 14, 1996 By:/s/ ALBERT L. BOSSIER, JR.
--------------------------
Albert L. Bossier, Jr.
Chairman, President &
Chief Executive Officer
Date: November 14, 1996 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 September 30, 1995.