SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1996
Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-16572
AVONDALE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Louisiana 39-1097012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 River Road, Avondale, Louisiana 70094
(Address of principal executive offices) (Zip Code)
(504) 436-2121
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value per share
(Title of Class)
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 such filing requirements for the past 90
days. Yes X No
---
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
---
The aggregate market value of the voting stock held by
non-affiliates (affiliates being directors, executive
officers and holders of more than 5% of the Company's common
stock) of the Registrant at December 31, 1996 was
approximately $156,308,419.
The number of shares of the Registrant's common stock,
$1.00 par value per share, outstanding at December 31, 1996
was 14,464,175.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its
1997 Annual Meeting have been incorporated by reference into
Part III of this Form 10-K.
PART I
Item 1. Business.
Overview
Avondale is one of the largest shipbuilders
in the United States, specializing in the design,
construction, conversion, repair and modernization
of various types of ocean-going vessels for the
military and commercial markets. A majority of
Avondale's contracts in recent years has been for
the construction of U.S. Navy surface ships,
although it secured a large commercial contract in
1995 for the construction and conversion of
double-hulled product carriers. Management
believes the Company's low cost structure,
experienced and skilled work force, technological
capabilities, sophisticated construction processes
and extensive experience gained in building
a variety of military and commercial vessels
position the Company as one of the most cost-
efficient and versatile shipbuilders in the
United States. At December 31, 1996, the
Company's shipbuilding backlog (the "firm
backlog") was approximately $1.8 billion
(including estimated contract escalation),
exclusive of unexercised options aggregating $1.1
billion held by the U.S. Navy for additional ship
orders (including estimated contract escalation).
In December 1996, an alliance led by the
Company was awarded a contract to construct the
first of an anticipated 12 vessels under the U.S.
Navy's LPD-17 program. The contract award
provides for options exercisable by the U.S. Navy
for two additional LPD vessels to be built by the
alliance. Management believes that by securing
the LPD-17 contract the Company has continued to
demonstrate its ability to compete successfully
for U.S. Navy contracts based on the high level of
its technical, engineering and production skills,
as well as its cost efficient production methods.
In addition, the backlog created from the LPD-17
contract is a strong foundation that will allow
the Company to compete aggressively for other
shipbuilding opportunities, particularly in the
commercial markets. Upon the announcement of the
award the unsuccessful bidder filed a protest
which is being reviewed by the GAO and the U.S.
Navy issued a stop-work order pending the
resolution of the protest. Management expects the
GAO decision by mid-April 1997 and anticipates
beginning design work immediately if a favorable
decision is received. For additional information
on the LPD-17 award, see "-U.S. Government."
Historical Information. Avondale is a
versatile shipyard that has been the successful
bidder for a variety of marine construction
projects. Organized in 1938, Avondale first began
building ocean-going ships in the 1950s. From 1959
to 1985, the Company was operated as a subsidiary
of Ogden Corporation, a diversified New York Stock
Exchange listed company headquartered in New York,
New York. Prior to the 1980s, Avondale built both
military and commercial vessels. In addition to
the construction of 27 destroyer escorts for the
U.S. Navy, Avondale successfully completed a
variety of construction projects during that
period, including general cargo and multi-product
carriers, such as LASH vessels, container vessels,
crude oil tankers and product carriers. In the
early 1980s, however, several measures were
implemented that changed the marine construction
industry significantly. The termination of the
U.S. construction-differential subsidy program in
1981 significantly curtailed the ability of U.S.
shipyards to compete successfully for
international commercial shipbuilding contracts
with foreign shipyards, many of which are heavily
subsidized by their governments. The effects of
the elimination of these subsidies were largely
offset, however, by the initiative to expand the
U.S. Navy fleet to 600 ships, thereby
significantly increasing the U.S. Navy
shipbuilding opportunities available to Avondale.
Initially, Avondale capitalized on the U.S.
Navy shipbuilding opportunities through its
construction of five AOs during the early 1980s.
Since AOs are essentially oil tankers modified to
meet certain military requirements, they were a
natural extension of the product carrier vessels
previously built by Avondale.
During the remainder of the 1980s and the
first part of this decade, Avondale steadily
expanded the range of vessels that it built for
the U.S. Navy. The Company principally focused on
those vessels that were related to, or natural
extensions of, predecessor vessels constructed by
Avondale, where Avondale could best capitalize on
its prior experience and proven capabilities.
Among the U.S. Navy vessels built or under
construction during this period were 16 T-AOs,
five LSDs, four LSD-CVs, five AOJs (which
constituted conversions of AOs previously built by
Avondale), one T-AGS 45, 15 LCACs, four MHCs and
three SL 7 conversions.
With the end of the Cold War, and the
pressure of domestic budget constraints, spending
for new vessel construction by the U.S. Navy has
been substantially reduced, with the rate of new
vessel construction reduced to approximately 50%
of that in the 1980s. Despite the contraction in
U.S. Navy shipbuilding activity, management
believes that Avondale's versatility has been a
significant factor in its successful efforts to
restore its backlog, which efforts have also been
bolstered by Avondale's experience in building
vessels comparable to those currently in demand.
U.S. Government. In addition to the contract
award by the U.S. Navy to build the first LPD-17
vessel, the alliance was awarded options,
exercisable by the U.S. Navy, for two additional
ships of the LPD-17 class. It is expected that a
total of 12 vessels will be built under the LPD-17
program. The members of the alliance, Bath,
Hughes and the Company submitted a joint bid with
the Company as the prime contractor. Under the
terms of an agreement between the alliance
members, the Company will build the vessel covered
by the December 1996 contract, and if the U.S.
Navy exercises the two options, the Company would
also construct the second and Bath would construct
the third of the three LPD-17 vessels. Hughes
will be responsible for total ship integration and
the alliance will use Intergraph technology for
the design and manufacture of the ship.
The first three vessels of the LPD-17 program
will be built pursuant to a cost-plus-award fee
contract, with the Company, Hughes and Bath being
entitled to reimbursement for their respective
allowable costs in performing the contracts as
such costs are incurred. The contract provides
for the payment of an award fee to the members of
the alliance, the amount of which is dependent
upon the results of periodic evaluations of
contract performance. The maximum award fee to be
earned is 10% of the bid cost for the LPD-17
contract, and it is anticipated that any award fee
granted will be paid incrementally upon completion
of each periodic evaluation. Pursuant to the
subcontracting agreements entered into between the
Company and each of Bath and Hughes, any award
fees earned by the alliance will be distributed to
the alliance members in proportion to each
member's performance and participation in the
construction of the vessel for which the award was
granted. Unlike the Company's other principal
shipbuilding contracts, where profits are
recognized under the percentage-of-completion
method of accounting, the Company will record
profit on the LPD-17 contract upon award of any
incremental fee. In addition, although the LPD-17
contract is on a cost-plus-award fee basis, the
ability of Avondale to realize any incremental
award fee is dependent not only upon its ability
to perform its contractual obligations but also
the satisfactory performance by other members of
the team.
In accordance with the U.S. Navy's
requirement of a streamlined contractual
relationship, the alliance's agreement provides
that the Company will act as the prime contractor
for all three vessels, and as such, the Company
will be responsible for billing not only its own
costs, but also any costs incurred by Bath and
Hughes. Accordingly, all such amounts will be
reflected in the Company's financial statements.
The Company's backlog at December 31, 1996
includes $641 million, which amount is the
aggregate of the estimated cost to complete the
first LPD-17 vessel and the maximum award fee that
would be payable to Avondale and the alliance.
However, a substantial portion of the reported
backlog for the first vessel is related to work to
be performed by other alliance members. To the
extent that the Company's revenues include costs
incurred by and award fees paid to the other
alliance members, the Company's profit margins
will be reduced.
If the U.S. Navy proceeds with its previously
announced intention to construct additional LPD
vessels beyond the first three, the Company
expects that the contracts for such vessels will
provide for a more traditional pricing
arrangement, such as a fixed-price incentive
contract or fixed-price contract.
The U.S. Navy has stated that the LPD-17
vessels will be important to its amphibious
operations over the next three decades, and will
replace a number of ships that will be
decommissioned as they reach the end of their
useful lives. In 1995, Congress appropriated
$974.0 million for the construction of the first
of an anticipated 12 ships under the LPD-17
program. The award to the Company-led alliance of
the contract to construct the initial LPD-17 ship
enhances the viability and competitiveness of the
alliance in its pursuit of the remaining LPD-17
ships. If the U.S. Navy awards contracts to
construct the 12 ships, the Company would
construct eight ships and Bath would construct
four ships.
Also included in the current firm backlog for
the military are contracts to construct five
Sealift ships with remaining contract billings of
$875.1 million (including estimated contract
escalation). The Sealift ships, which are designed
to assist in the rapid transportation and
deployment of military personnel, equipment and
supplies, are comparable to other vessels, such as
auxiliary and amphibious support ships, that have
been previously constructed by Avondale for the
military. In addition, the Navy holds an option to
require the Company to construct an additional
Sealift vessel for an additional $240 million
(including estimated contract escalation), which
option is expected to be exercised by the end of
1997. The first Sealift ship is scheduled for
delivery in 1998 with the final ship (assuming
exercise by the U.S. Navy of the remaining Sealift
option) scheduled for delivery in 2000.
Although no new major U.S. Navy shipbuilding
programs are anticipated before 2000, it is
expected that additional U.S. Navy shipbuilding
opportunities including a series of ADC(X)
vessels, a class of auxiliary vessels designed to
deliver fuel, ammunition and other supplies to the
U.S. Navy fleet with capabilities similar to the
T-AOs constructed by Avondale, and the SC-21,
which represents the next generation of surface
combatant vessels, will become available
thereafter.
Commercial Shipbuilding. Two legislative
enactments in the early 1990s have significantly
enhanced U.S. commercial shipbuilding
opportunities. The Oil Pollution Act of 1990,
which requires the phased-in transition of
single-hulled tankers and product carriers to
double-hulled vessels beginning January 1, 1995,
has created a demand (that is expected to continue
through the remainder of the decade) for the
retro-fitting of existing tankers and the
construction of new double-hulled tankers, as oil
and energy companies and other ship operators
upgrade their fleets to comply with the law.
Industry analysts believe that other countries may
pass laws comparable to the Oil Pollution Act of
1990, which would further increase worldwide
demand for double-hulled product carriers.
In late 1993, Congress amended the loan
guarantee program under Title XI of the Merchant
Marine Act, 1936, to permit the U.S. government to
guarantee loan obligations of foreign vessel
owners for foreign-flagged vessels that are built
in U.S. shipyards. Title XI authorizes MARAD to
guarantee debt with a term of up to 25 years in an
amount up to 87.5% of the vessel cost, thereby
enabling shipowners to obtain financing on more
favorable terms than those currently offered by
other countries having guarantee or subsidy
programs for foreign nationals similar to Title
XI. These 1993 amendments expanded Title XI in a
manner that has attracted foreign owners and
created foreign commercial shipbuilding
opportunities for U.S. shipyards.
Management believes these initiatives have
assisted Avondale in attracting recent commercial
shipbuilding opportunities. In May 1995, the
Company finalized a $143.9 million contract to
construct four double-hulled forebodies for
product carriers owned by a U.S. shipping company.
These double-hulled product carriers are the first
U.S.-flag product carriers built in the United
States in eight years. The contract is supported
by a Title XI guarantee by MARAD. The completed
vessels incorporating the first two forebodies
were delivered in October 1996 and January 1997,
respectively, with the remaining two forebodies
scheduled for completion by the third quarter of
1997. Avondale believes its receipt of this
contract was further assisted by its prior
experience in constructing three double-hulled
T-AOs on behalf of the U.S. Navy.
In November 1995, the Company signed a
contract for the construction of up to six (but
not less than four) double-hulled product
carriers. This contract is subject to the
customer's ability to qualify for and receive a
Title XI MARAD financing guarantee. The contract
originally called for delivery of the vessels by
the end of 1998. However, in April 1996 at the
request of the customer a modification of the
agreement was reached to extend the delivery from
1998 to the year 2000. These U.S.-flag vessels
will comply with all requirements of the Oil
Pollution Act of 1990 and will engage in
transportation of petroleum products between U.S.
ports under the Jones Act.
Prior to 1997, legislation was introduced in
the U.S. Congress that would eliminate the
competitive advantages afforded to U.S. shipyards
under the 1993 amendments to the Title XI
guarantee program. This legislation would
implement a December 1994 trade agreement among
the United States, the European Union, Finland,
Japan, Korea, Norway and Sweden (which
collectively control over 75% of the market share
for worldwide vessel construction) negotiated
under the auspices of the Organization for
Economic Cooperation and Development (the "OECD
Agreement"). The OECD Agreement and related
accords seek, among other things, to eliminate
government subsidies provided to commercial
shipbuilders and to adopt a uniform standard of
government credit assistance for foreign
nationals. Under these multilateral accords, each
participating nation agreed not to provide credit
assistance to foreign nationals in excess of 80%
of the vessel construction price, and to limit the
term of any credit assistance to not more than 12
years. During 1996, Congress adjourned without
adopting or ratifying the OECD Agreement.
Proponents of the OECD Agreement may seek to have
it reconsidered in 1997 and, if such legislation
were enacted by Congress in its current form, the
Title XI guarantee program would be modified to be
in accord with the uniform credit assistance
standards mandated under the OECD Agreement,
thereby eliminating the advantages available to
U.S. shipyards under the 1993 Title XI amendments.
Avondale is not able at this time to assess
whether legislation implementing the OECD
Agreement will be enacted by Congress or the
ultimate impact that any such legislation may
have. Although the OECD Agreement promotes the
goal of eliminating commercial shipbuilding
subsidies by signatory nations, there can be no
assurance that certain safeguards in the agreement
will not be circumvented or will be adequately
enforced, or that worldwide commercial
shipbuilding opportunities may continue to flow to
foreign shipyards located in signatory nations
(which may have developed structural competitive
advantages as a result of their long histories of
subsidization) or may be diverted to non-signatory
nations. If the competitive advantages of the
current Title XI guarantee program are eliminated
and the OECD Agreement fails to achieve its
objectives, Avondale's ability to compete for
international commercial shipbuilding contracts
will remain limited, notwithstanding the increased
opportunities that are expected to arise as
vessels of the worldwide tanker and product
carrier fleet approach the end of their useful
lives.
Legislative bills seeking to rescind or
substantially modify the provisions of the Jones
Act mandating the use of U.S.-built ships for
coastwise trade are introduced in Congress from
time to time, and are expected to be introduced in
the future. Although management believes it is
unlikely the Jones Act will be rescinded or
materially modified in the foreseeable future,
there can be no assurance to this effect with
respect to the Jones Act or any other law or
regulation benefitting U.S. shipbuilders.
The Company believes that significant
commercial shipbuilding opportunities will become
available during the next five years. Future
commercial opportunities include constructing
vessels with national defense features for the RRF
and the retrofitting of existing tankers or
product carriers and construction of new double-
hulled tankers or product carriers in response to
the Oil Pollution Act of 1990 which requires the
phase-in transition of single-hulled tankers and
product carriers to double-hulled vessels
beginning January 1, 1995. Although orders for
new vessels have not been placed at the rate
originally expected by the Company, management
believes a significant volume of such work will
begin to become available before 2000, with orders
being placed in the next two years.
Technological Innovations. To assure that
its shipyard remains among the most modern in the
world, Avondale regularly reviews and assesses its
construction and production process. In this
regard, Avondale often consults with other highly
successful shipbuilding companies concerning
advances in shipbuilding technology. In the early
1980s, the Company was the first U.S. shipyard to
successfully implement modular construction
techniques that had previously been perfected by
Japanese shipbuilders. Management believes these
techniques were a major factor in Japan's
dominance of the commercial shipbuilding market
during the 1970s. Avondale obtained its modular
construction capabilities and "know-how" pursuant
to an agreement with Ishikawajima-Harima Heavy
Industries Co., Ltd. ("IHI"), one of Japan's
largest shipbuilders, which worked with Avondale
to change its manufacturing processes and to train
Avondale's employees. Modular construction
afforded Avondale significant production
efficiencies in the installation of ship systems,
largely due to the greater ease with which such
systems could be installed in open modules rather
than closed-in hulls. As a result of these
efforts, Avondale realized substantial increases
in labor productivity.
In addition, in 1994 the Company entered into
a technology sharing agreement with AESA of Spain,
regarded as an innovative and successful
world-class shipyard. After an on-site review of
Avondale's shipyard by AESA, as well as a review
by Avondale of current shipbuilding technology in
other countries, Avondale invested $20 million in
capital improvements designed to increase
efficiency by improving production flow. In
particular, the Company integrated certain
assembly-line techniques with its modular
construction processes. To that end, the Company
has built a covered facility that houses two
production lines dedicated to military vessels and
two lines for commercial vessels. Avondale
believes that sheltering the production process
and separating the unit lines will enhance
production efficiencies and lower unit production
costs.
Because the construction of commercial
vessels, particularly the product carriers that
Avondale has traditionally built, places an
emphasis on steel fabrication rather than the
complex technological outfitting involved in U.S.
naval construction, Avondale's ability to compete
effectively for additional commercial work should
be enhanced by the new assembly-line process.
An important element of the award to Avondale
of the LPD-17 contract was its utilization of
computer hardware and software provided by
Intergraph that will permit the Company to engage
in more advanced three-dimensional ship design and
modeling than previously used by the Company.
This technology also provides for sophisticated
data storage, management and retrieval for future
projects. Among its other features, the
technology permits engineering, production and
material procurement tasks to be performed
cooperatively in a teaming approach, thus
enhancing the efficiency of the design phase. In
connection with the LPD-17 program and future
shipbuilding contracts, the Company will implement
an IPDE which captures data in digital form at
creation and then organizes, integrates, maintains
and makes available such data to all program
participants.
Shipbuilding
The Company is predominantly engaged in the
design, construction, conversion, repair and
modernization of various types of military and
commercial vessels.
The main shipyard facility, which is located
on a 257-acre site on the Mississippi River near
New Orleans, includes multiple building ways, side
launching facilities, a 900-foot floating dry
dock/launch platform that permits construction of
vessels up to 1,000 feet in length and a 650-foot
floating dry dock principally used for ship
repair. The main shipyard is equipped to build
almost any type of vessel other than nuclear
submarines and certain surface vessels, such as
ultra-large crude carriers. Avondale also operates
several other facilities in the vicinity of the
main shipyard, including its Westwego shipyard,
which is used primarily for boat construction and
repair, and its Algiers shipyard, which is used
primarily for the repair and overhaul of
ocean-going vessels. In addition, the Company
operates a marine fabrication facility in
Gulfport, Mississippi, which currently is being
used to construct the river hopper barges.
The Company continues to be materially
dependent on the U.S. Navy's ship construction and
conversion programs. The following table sets
forth the distribution of marine construction and
repair activities during the last five years based
on contract billings. As the table indicates, a
majority of Avondale's work in the year ended
December 31, 1996 was comprised of new military
construction. Commercial new construction
increased in 1995 and 1996, principally due to the
construction of the four forebodies and the
construction of the river hopper barges discussed
in "-Other Operations - Boat Division."
Distribution of Marine Construction and Repair Work
Years Ended
December 31,
1992 1993 1994 1995 1996
U.S. MILITARY:
New construction 87% 88% 81% 80% 81%
Repair, overhaul
and conversion 6% 2% -- -- --
COMMERCIAL:
New construction 2% 6% 11% 16% 17%
Repair, overhaul
and conversion 5% 4% 8% 4% 2%
--- --- --- --- ---
TOTAL 100% 100% 100% 100% 100%
=== === === === ===
The percentage of new construction for the U.S.
Navy in 1996 was virtually unchanged since 1994.
Commercial repair, overhaul and conversion
decreased in 1995 as compared to 1994, as the
Company's work on several contracts with a
private contractor for the repair of Sealift
ships approached completion. See "-Other
Operations - Repair Operations."
Government Contracting. Avondale's principal
U.S. government business is currently being
performed under fixed-price and fixed-price
incentive contracts, although the recent LPD-17
contract is a cost-plus-award fee contract. Under
fixed-price contracts, the contractor retains all
cost savings on completed contracts but is also
liable for the full amount of all cost overruns
for which it is responsible. Fixed-price
incentive contracts, on the other hand, provide
for sharing between the government and the
contractor of cost savings and cost overruns
based primarily on a specified formula that
compares the contract target cost with actual
cost. In addition, such fixed-price incentive
contracts generally provide for payment of
escalation of costs based on published indices
relating to the shipbuilding industry. Although
all cost savings are shared under fixed-price
incentive contracts, cost overruns in excess of a
specified amount must be borne entirely by the
contractor. Recent contract awards for the
Sealift vessels, the fourth LSD-CV and the
Icebreaker are each fixed-price incentive
contracts. The LPD-17 contract provides for the
payment of all costs that are reimbursable under
government contracts. The award fee is payable
periodically after the Navy's evaluation of the
alliance's performance in executing the
contract's performance goals and objectives.
See "- Overview."
All contracts for the construction and
conversion of U.S. Navy vessels are subject to
competitive bidding. As a safeguard to
anti-competitive bidding practices, the U.S. Navy
has recently employed the concept of "cost
realism," which requires that each bidder submit
information on pricing, estimated costs of
completion and anticipated profit margins. The
U.S. Navy uses this and other data to determine
an estimated cost for each bidder. The U.S. Navy
may then re-evaluate a bid by using the higher of
the bidder's and the U.S. Navy's cost estimates.
Under government regulations, certain costs,
including certain financing costs, portions of
research and development costs and certain
marketing expenses, are not allowable costs under
fixed-price incentive and cost contracts. The
government also regulates the methods by which
overhead costs are allocated to government
contracts.
U.S. government contracts are subject to
termination by the government either for its
convenience or upon default by the contractor. If
the termination is for the government's
convenience, contracts provide for payment upon
termination for items delivered to and accepted
by the government, payment of the contractor's
costs incurred plus the costs of settling and
paying claims by terminated subcontractors, other
settlement expenses and a reasonable profit.
However, if a contract termination results from
the contractor's default, the contractor is paid
such amount as may be agreed upon for completed
and partially completed products and services
accepted by the government. The government is not
liable for the contractor's costs with respect to
unaccepted items and is entitled to repayment of
advance payments and progress payments, if any,
related to the terminated portions of the
contract. In addition, the contractor may be
liable for excess costs incurred by the
government in procuring undelivered items from
another source.
The continuation of any U.S. Navy
shipbuilding program is dependent upon the
continuing availability of Congressional
appropriations for that program. It is customary
for the U.S. Navy to award contracts to build one
or more vessels of a program to a contractor
together with options (exercisable by the U.S.
Navy) to purchase additional vessels in the
program. Generally, contracts to build vessels
are not awarded until funds to pay the full
contract have been appropriated. However, because
Congress usually appropriates funds on a fiscal
year basis, funds may never be appropriated to
permit the U.S. Navy to exercise options that
have been awarded. In addition, even if funds are
appropriated, the U.S. Navy is not required to
exercise the options.
Because its U.S. Navy contracts require the
Company to have access to classified information,
Avondale must maintain a security clearance for
its facility. Among other things, facilities with
such clearances must restrict the access of
non-U.S. citizens to classified information. If
in the future the percentage of foreign ownership
of the Company's Common Stock is increased to a
level that could result in foreign dominance or
control of its activities, the Company would be
required to implement additional measures to
insure that classified material would not be
compromised or risk the loss of its security
clearance.
Due to the complexity of government contracts
and applicable regulations, contract disputes
with the government may occur in the ordinary
course of the Company's business. Based upon
management's analysis of each such dispute and
advice of counsel, the Company records, if
appropriate, an estimate of the amount
recoverable upon resolution of such disputes.
There are currently no such amounts recorded.
Although management believes its estimates are
based upon a reasonable analysis of such
disputes, no assurance can be given that its
estimates will be accurate, and variances between
such estimates and actual results can be
material. The Company believes that adequate
provision has been made in its financial
statements for this and other normal
uncertainties incident to its government
business.
There is significant oversight of defense
contractors to prevent waste in the defense
procurement process. Areas of contract dispute
are reviewed by the government for evidence of
criminal misconduct such as mischarging, product
substitution and false certification of pricing
and other data. In the event the government
alleges a violation of its procurement
regulations, it may seek compensatory, treble or
punitive damages in substantial amounts and
indictments, fines, penalties and forfeitures. In
addition, the government has the right to suspend
or debar a contractor from government contracting
for significant violations of government
procurement regulations. Avondale has never been
subject to suspension or debarment.
Vessel Deliveries and Backlog. At December
31, 1996, the Company had a firm backlog of
shipbuilding contracts of approximately $1.8
billion (exclusive of unexercised options
aggregating $1.1 billion held by the U.S. Navy
for additional ship orders (including estimated
contract escalation)) compared with backlogs of
$1.4 billion each at December 31, 1995 and 1994.
The Company's firm backlog at December 31, 1996
primarily consisted of $186 million to complete
the Icebreaker, $875 million to complete the
remaining five Sealift ships and $641 million
related to the LPD-17 contract.
Vessel deliveries in 1995 and 1996 included
three T-AOs, two LSD-CVs, three MHCs, one gaming
vessel and one double-hulled forebody. The
Company plans to continue to actively pursue
other government construction and conversion
opportunities, as well as commercial
opportunities, when they become available.
The Company also has been actively pursuing
commercial shipbuilding opportunities, although
international commercial shipbuilding
opportunities remain limited because shipbuilders
in foreign countries are often subsidized by
their governments, which allows them to sell
their ships for prices below their construction
costs. Domestic shipbuilding opportunities that
are not affected by foreign subsidies offer
better possibilities for the Company. See
"-Overview - Commercial Shipbuilding."
In connection with the bids and proposals
that the Company has submitted or plans to submit
to various commercial and government customers,
no assurance can be given that the Company will
be the successful bidder or that the vessels bid
on will actually be built.
Other Operations
Overview. Although the Company has from time
to time, on a limited basis, pursued
opportunities to diversify its business,
management strongly believes that the Company's
resources are most profitably employed in marine
construction. As noted in "Management's
Discussion and Analysis of Financial Condition
and Results of Operations," in order to focus on
its core shipbuilding business and improve
liquidity, the Company sold or discontinued
certain of its non-core operations. The Company
will continue to evaluate suitable
diversification opportunities, principally those
that would not detract from Avondale's core
business and that would utilize the Company's
existing facilities. Among possible
diversification opportunities are: (i) the
construction of large industrial facilities
utilizing modular shipbuilding expertise and
project management experience; (ii) the repair
and overhaul of U.S. Navy and commercial vessels;
(iii) the construction of semi-submersible rigs,
tension-leg platforms or similar structures used
in the offshore oil and gas industry (which the
Company has constructed from time to time in the
past); and (iv) steel fabrication and other
operations.
Modular Construction. The Company has been
able to apply its modular construction methods to
a variety of non-marine industrial fabrication
projects, including a sulphur recovery plant that
was shipped to Saudi Arabia for on-site assembly
and installation, two cryogenic gas separation
systems, two waste disposal units, six turbine
compressors and turbine generators, six condenser
modules for inclusion in a nuclear power plant
and two sled and receiver modules for sub-sea
pipeline connections. The Company has also
fabricated steel bridges and a hydroelectric
power plant that was floated up the Mississippi
River and installed in Vidalia, Louisiana in
1990. In 1992, the Company delivered to the City
of New York an 800-bed floating detention
facility that is 625 feet long, 125 feet wide and
five stories high. Sales to unrelated third
parties for the years ended December 31, 1996,
1995 and 1994 were $8.5 million, $9.8 million and
$10.3 million, respectively.
Avondale's modular construction division has
not engaged in any significant projects since the
floating detention center was delivered in the
early 1990s. Although at present there is a
minimal level of production activity in this
division, Avondale will continue to pursue
non-shipbuilding marine and industrial-commercial
projects suitable for modular construction as
attractive opportunities arise.
Boat Division. The Company has a facility
equipped for boat construction at its Westwego,
Louisiana shipyard that is capable of building
vessels up to 450 feet in length, as well as a
facility in Gulfport, Mississippi. In 1994 and
1995, the Boat Division delivered three gaming
vessels ranging from 210 to 350 feet in length.
In 1996, the division was primarily engaged in
the construction of river hopper barges under a
contract signed in 1995 with the Ingram Ohio
Barge Company. The Boat Division is actively
pursuing other projects, including the
construction of additional gaming boats as well
as passenger vessels and ferries, towboats and
other vessels. The Boat Division's backlog at
December 31, 1996, 1995, 1994 was approximately
$11.9 million, $18.8 million and $18.3 million,
respectively. Sales to unrelated third parties
for the years ended December 31, 1996, 1995 and
1994 were $10.2 million, $29.4 million and $40.6
million, respectively.
Steel Operations. Through its Steel Sales
operation, Avondale sells steel plate and
structural steel to the marine and industrial
markets in the Gulf Coast region of the United
States. Net sales to other Avondale divisions are
not significant. Sales to unrelated third parties
for the years ended December 31, 1996, 1995 and
1994 were approximately $40.1 million, $28.2
million and $22.4 million, respectively.
Repair Operations. At its main shipyard and
the Algiers shipyard, Avondale engages in the
repair, overhaul and conversion of ocean-going
vessels. With the 900 and 650 foot drydocks
located at the Company's main shipyard, the
Company is capable of offering a complete range
of vessel repairs and overhaul services. The
Algiers shipyard is operated under a long-term
lease and is designed primarily for the topside
repair and overhaul of large ocean-going vessels.
Although historically Avondale has engaged in the
repair and overhaul of U.S. Navy vessels, these
opportunities have been curtailed by the U.S.
Navy's current policy of requiring such work to
be conducted at or near the vessels' home ports.
Sales to unrelated third parties for the years
ended December 31, 1996, 1995 and 1994 were $13.5
million, $27.3 million and $30.3 million,
respectively.
Competition
The shipbuilding industry is divided into two
distinct markets, U.S. government contracts,
which is dominated by contracts for the U.S.
Navy, and domestic and international shipbuilding
contracts for commercial customers. The reduced
level of shipbuilding activity by the U.S.
government during the past decade has intensified
competition significantly. With respect to the
market for U.S. military contracts, there are
principally five private U.S. shipyards,
including Avondale, that compete for contracts to
construct or convert surface vessels. Two of
these companies are subsidiaries of much larger
corporations that have substantially greater
resources than Avondale.
With respect to commercial vessels that must
be constructed by a U.S. shipyard under the Jones
Act, there are approximately 20 private U.S.
shipyards that can accommodate the construction
of vessels up to 400 feet in length, ten of which
Avondale considers to be its direct competitors
for commercial contracts. Because of the current
overcapacity at U.S. shipyards, the current small
volume of commercial work available and the fact
that most contracts are awarded on the basis of
competitive bidding, price competition is
particularly intense. With respect to the
international commercial shipbuilding market,
Avondale competes with numerous shipyards in
several countries, many of which are heavily
subsidized by their governments. See "-Overview -
Commercial Shipbuilding."
Substantially all military and commercial
contracts awarded to U.S. shipyards are
competitively bid. The Company believes that it
has been successful recently in securing
competitively bid contracts in large part because
the Company submitted the most cost-effective
bids for the available contracts. However, the
Company believes that its recent securing of the
LPD-17 award has continued to demonstrate
Avondale's ability to compete successfully for
U.S. Navy contracts based on the high level of
its technical, engineering and production skills
as well as its cost efficient production methods.
The Company believes that it will continue to be
competitive in bidding for selected U.S. Navy and
commercial shipbuilding contracts in the future.
However, no assurance can be given that the
Company will be the successful bidder on any
future contracts or that, if successful, it will
realize profits on such contracts.
Marketing
The Company's marketing effort is
decentralized and conducted separately by each
division. Generally, the Company and its
competitors are all aware of the shipbuilding,
repair and conversion plans of the U.S. Navy and
most prospective commercial customers, and are
invited to bid on all major projects.
The Company's boat building and repair
operations are marketed by the sales and business
development personnel of the appropriate
divisions primarily through direct, personal
sales calls. The services of the Steel Sales
operation are marketed through industry
advertising, personal sales calls and prior
business relationships.
Materials and Supplies
The principal materials used by Avondale in
its shipbuilding, conversion and repair business
are standard steel shapes, steel plate and paint.
Other materials used in large quantities include
aluminum, copper-nickel and steel pipe,
electrical cable and fittings. The Company also
purchases component parts such as propulsion
systems, boilers, generators and other equipment.
All of these materials and parts are currently
available in adequate supply from domestic and
foreign sources. Generally, for all its long-term
contracts, the Company obtains price quotations
for its materials requirements from multiple
suppliers to ensure competitive pricing. In
addition, through the cost escalation provisions
contained in its U.S. military contracts, the
Company is protected from increases in its
materials costs to the extent that the increases
in the Company's costs are in line with industry
indices.
In connection with its government contracts,
the Company is required to procure certain
materials and component parts from supply sources
approved by the U.S. Government. Although certain
components and sub-assemblies are manufactured by
subcontractors, the Company's reliance on
subcontractors has been and is expected by
management to continue to be limited. The Company
is not dependent upon any one supply source and
believes that its supply sources are adequate to
meet its future needs.
Insurance
The Company maintains insurance against
property damage caused by fire, explosion and
similar catastrophic events that may result in
physical damage or destruction to the Company's
premises and properties. The Company also
maintains general liability insurance in amounts
it deems appropriate for its business. The
Company is self-insured for workers' compensation
liability and employees' health insurance except
for losses in excess of $1.0 million per
occurrence, for which the Company maintains
insurance in amounts it deems appropriate.
Environmental and Safety Matters
General. Avondale is subject to federal,
state and local environmental laws and
regulations that impose limitations on the
discharge of pollutants into the environment and
establish standards for the treatment, storage
and disposal of toxic and hazardous wastes.
Stringent fines and penalties may be imposed for
non-compliance with these laws and regulations,
and certain environmental laws impose joint and
several "strict liability" for remediation of
spills and releases of oil and hazardous
substances rendering a person liable for
environmental damage, without regard to
negligence or fault on the part of such person.
Such laws and regulations may expose the Company
to liability for the conduct of or conditions
caused by others, or for acts of the Company
which are or were in compliance with all
applicable laws at the time such acts were
performed. The Company is covered under its
various insurance policies for some, but not all,
potential environmental liabilities. See Note 10
of the Notes to Consolidated Financial
Statements.
The Company is also subject to the federal
Occupational Safety and Health Act ("OSHA") and
similar state statutes. The Company has an
extensive health and safety program and employs a
staff of safety inspectors and industrial hygiene
technicians, whose primary functions are to
develop Company policies that meet or exceed the
safety standards set by OSHA, train supervisors
and make daily inspections of safety procedures
to insure their compliance with Company policies
on safety and industrial hygiene. All supervisors
are required to attend safety training meetings
at which the importance of full compliance with
safety procedures is emphasized.
Waste Disposal. Avondale's operations
produce a limited amount of industrial waste
products and certain hazardous materials. The
Company's industrial waste products, which
consist principally of residual petroleum, other
combustibles and blasting abrasives, are shipped
to third party disposal sites that are licensed
to handle such materials.
Employees
At December 31, 1996, Avondale had
approximately 5,200 employees, many of whom have
been employed by the Company for many years. In
February 1997 the National Labor Relations Board
("NLRB") confirmed the results of a 1993
election. The Company continues to believe that
it has substantive and meritorious bases for
overturning the decision of the NLRB and intends
to take steps to have the propriety of the
election reviewed in court. If the NLRB
certifies the union and that decision is upheld,
the Company will be required under the federal
labor laws to bargain in good faith with the
union on matters such as wages, hours and other
working conditions. Even though Avondale will
only agree to bargaining demands that can be
economically justified, union certification may
result in an increased risk that the union will
engage in potentially disruptive activities such
as strikes or picketing, or that the Company may
incur higher labor and operating costs.
The union has also filed numerous unfair
labor practice charges with the NLRB alleging
that Avondale has committed a variety of
violations of the National Labor Relations Act
principally involving claims that employees were
wrongfully disciplined or discharged. Although
the Company disputes these claims and is waging a
vigorous defense, if there is a finding against
the Company, depending on the facts of each case,
the employee would be entitled to back pay from
the time of his or her claim until the resolution
of the case. However, even if there is a finding
in favor of some of the claimants with respect to
one or more of the unfair labor practice claims,
management believes that any judgment would not
have a material impact on the Company's financial
condition, results of operations or cash flows.
GLOSSARY OF SELECTED INDUSTRY TERMS
ADC(X) A class of auxiliary vessels designed to
deliver a steady stream of fuel,
ammunition and stores to the U.S. Navy
fleet. It is currently envisioned that
these vessels will have "Refuel at Sea"
capabilities similar to the T-AOs
currently under construction at
Avondale.
AO An auxiliary oil tanker constructed for
the U.S. Navy and crewed by U.S. Navy
personnel. Avondale has built five AOs.
AOJ An AO which has been "jumboized" i.e.,
lengthened by the Company by inserting a 108
foot midbody. Avondale has converted five
AOJs.
Icebreaker WAGB-20 Polar Icebreaker, which has been
ordered by the U.S. Coast Guard for its
polar operations.
IPDE An Integrated Product Data Environment
which captures data in digital format at the
point of creation and then organizes,
integrates, maintains and makes the
information available to all program
participants.
Jones Act Merchant Marine Act of 1920, as amended.
LASH "Lighter aboard ship," a LASH vessel
carries its cargo in pre-loaded barges
(lighters). The Company constructed 21 such
vessels in the late 1960s and early 1970s for
five commercial customers.
LCAC "Landing craft air cushion," a surface
effect vessel that was constructed at the
Company's Gulfport facility. Avondale has
built 15 LCACs.
LPD-17 The next class of amphibious transport
ship for the U.S. Navy. Avondale was
awarded a contract, with two options,
for the design, construction and support
of the initial LPD-17 ships.
LSD "Landing ship dock," designed to carry
troops, materials and up to four LCACs.
Avondale has built five LSDs.
LSD-CV An LSD with a "cargo variant" design
allowing for carrying of more cargo and
only 2 LCACs. Avondale has built four
LSD-CVs.
MARAD United States Maritime Administration,
Department of Transportation.
MHC MHC-51 class fiberglass coastal
minehunter. Avondale has built four MHCs.
REAs Requests for Equitable Adjustments
submitted by a government contractor to the
U.S. government.
RRF Ready Reserve Fleet, an inactive reserve
of merchant ships and naval auxiliaries
maintained by MARAD which can be activated to
meet U.S. shipping requirements during
national emergencies.
SC-21 "Surface Combatant 21st Century,"
the next generation of surface combatant
to be built for the U.S. Navy. As
currently conceived, this vessel would
most closely resemble the Aegis class
destroyer.
SL7 A "Roll on Roll off" vessel operated by
the Military Sealift Command and crewed by a
civilian crew. Avondale has converted three
SL7s.
Sealift As used herein, TAKR 300 Class Sealift
vessels are transport vessels built for the
U.S. Navy. Avondale has contracts to build
five Sealift vessels with an option to build
an additional vessel.
TAGS-45 An oceanographic research vessel
constructed by Avondale and delivered to
the U.S. Navy in May 1993.
T-AO Same as an "AO" but operated by the
Military Sealift Command and crewed by a
civilian crew. Avondale has built sixteen T-
AOs.
Item 2. Properties
The Company's corporate headquarters and main
shipyard are located on the west bank of the
Mississippi River at Avondale, Louisiana,
approximately 15 miles from downtown New Orleans.
That facility includes approximately 226 acres of
Company-owned land with 174 buildings enclosing
approximately 2.0 million square feet of space,
approximately 31 acres of leased land, a 900-foot
floating dry dock/launch platform that permits
construction, conversion or repair of vessels up
to approximately 1,000 feet in length, and a 650-
foot floating dry dock principally used for ship
repair and multiple building ways and side
launching facilities. The main shipyard includes
approximately 6,500 feet of wharves, 1,200 feet of
launch ways and 2,900 feet of unimproved
waterfront along the Mississippi River. The
Company's shipyard facilities have the capacity to
build virtually any type of vessel other than
submarines and surface vessels of the largest
classes, such as ultra-large crude carriers.
The Company's 900-foot floating drydock was
constructed in 1975 and financed pursuant to Title
XI of the Merchant Marine Act, 1936, as amended.
The 900 foot drydock is currently subject to a
Title XI mortgage of approximately $3.1 million.
As discussed further in Note 4 of the Notes to the
Consolidated Financial Statements, these mortgage
bonds were refinanced in February 1995.
The Company's 650-foot floating drydock and
support facilities were constructed in 1982 and
financed with $36.25 million of industrial revenue
bonds (see Note 4 of the Notes to the Consolidated
Financial Statements).
As part of its program to significantly
improve its efficiency, in 1995 the Company
completed an approximate $20 million capital
expenditure program, financed principally through
$17.8 million of bonds issued in February 1995
utilizing a Title XI guarantee (see "Management's
Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital
Resources" and Note 4 of the Notes to Consolidated
Financial Statements). The modernization program
included construction of a covered facility, which
should provide productivity gains by eliminating
weather-related problems, and adoption of a more
automated process for building the various modules
which are assembled into a completed vessel.
The Company also operates several other
facilities in the vicinity of the main shipyard.
The Westwego Yard is located five miles down-river
from the main shipyard on 16.6 acres of leased
land and includes facilities for the construction
or repair of boats and vessels up to 450 feet in
length. The Algiers Yard is located 19 miles
down-river from the main shipyard on 22 acres of
leased land and includes construction facilities
used predominantly for the repair and overhaul of
large ocean-going vessels. The Steel Sales
operation is located on 4.4 acres of property
leased on a month-to-month basis in Harvey,
Louisiana, where a steel warehouse is located.
The location has direct access to the Mississippi
River via the Harvey Canal. The Modular
Construction operation, located in an
approximately 70,000 square foot facility on a 58
acre Company-owned site a few miles up-river from
the main shipyard, consists of a complete machine
shop with steel fabricating facilities.
The Avondale Gulfport Marine, Inc. ("AGM")
facility, which is located six miles northeast of
Gulfport, Mississippi on an industrial seaway, was
sold in December 1996.
The Avondale Enterprises, Inc. ("AEI")
facility is located on a Company-owned 121.5 acre
site near Gulfport, Mississippi on the same
industrial seaway as AGM. The facility includes a
263,447 square foot manufacturing facility and a
6,300 square foot administration building. This
facility was acquired in 1989 for construction of
the MHCs. AEI has pledged a portion of the
facility to secure a $3 million loan it entered
into in 1991 to finance a portion of its 1989
acquisition debt. Upon the transfer of the final
MHC hull to the main shipyard in December 1994,
this facility became idle. The Company is
currently utilizing a portion of the facility for
the construction of river hopper barges and barge
covers as part of the river hopper barge
construction contract discussed at "Business -
Other Operations - Boat Division."
The main facility of the Genco Industries
Group ("Genco") is located on a Company-owned 8.7
acre site 20 miles southeast of Beaumont, Texas.
The facility includes five buildings utilized for
manufacturing and administration comprising
approximately 66,800 square feet. Genco has a
smaller facility that is located on a Company-
owned 3.2 acre site approximately 80 miles
northwest of Beaumont. This facility consists of
three manufacturing-administration buildings
totaling approximately 26,500 square feet.
Genco's facilities became idle in 1994 after
completion of their contracts. The Company
currently has these facilities listed for sale and
is exploring alternative uses.
Except as otherwise noted above, the above-
described facility leases are for various terms
extending through at least 2000, including renewal
options.
The Company believes that its core marine
construction and repair facilities provide it with
sufficient capacity to handle any business it
reasonably expects to obtain in the foreseeable
future. In general, the Company's productive
capacity is limited less by physical facilities
than by the number of employees the Company can
effectively supervise. Management believes that
the Company would be operating at full capacity
with approximately 8,000 employees. The Company's
core business currently operates with more than
5,200 employees.
Item 3. Legal Proceedings
Environmental Proceedings. Various
governmental and private parties have from time to
time alleged that the Company is a potentially
responsible party with respect to certain
hazardous waste sites, including, among other
things, the site listed below.
In January 1986, the Louisiana Department of
Environmental Quality ("DEQ") advised the Company
that it could be a potentially responsible party
("PRP") with respect to an oil reclamation site
operated by an unaffiliated company in Walker,
Louisiana. The Company sold to the operator a
substantial portion of the waste oil that was
processed at the reclamation site during the
period 1978 through 1982. The Company's potential
liability, if any, for cleanup of this site will
be based on the Comprehensive Environmental
Response, Compensation and Liability Act of 1980
("CERCLA") or the Louisiana Environmental Affairs
Act. Under these statutes, such liability is
presumptively joint and several, but is typically
apportioned among the responsible parties based on
the volume of material sent by each to the waste
site. The Company has cooperated with other PRPs
to study the potential aggregate liability under
these statutes. Moreover, the Company believes it
has substantial defenses against liability and
defenses that could mitigate the portion of
liability, if any, that would otherwise be
attributable to it.
To date, the Company and certain of the other
PRPs (the "Funding Group") for the site have
funded the site's remediation expenses, PRP
identification expenses and related costs for the
participating parties. As of December 31, 1996
such costs totaled $18.8 million, of which the
Company has funded approximately $4.0 million.
Since 1988 the Funding Group filed petitions to
add a number of companies as third-party
defendants with regard to the remedial action.
The Funding Group has agreed to settle with the
majority of these companies. All funds collected
through these settlements are placed in escrow to
fund future expenses. At December 31, 1996, the
balance of the escrow was $6.2 million, which is
to be used to fund any ongoing remediation
expenses. The Company will not owe any future
assessments until the balance in escrow is
depleted. There are additional settlements being
negotiated which should add to the balance in
escrow.
Additional remedial work scheduled for the
site includes completion of studies and if
required by the results of these studies,
subsequent remediation. Following completion of
any such required additional remediation, it will
be necessary to obtain Environmental Protection
Agency approval to close the site, which consent
may require subsequent post-closure activities
such as groundwater monitoring and site
maintenance for many years. The Company is not
able to estimate the final costs for any such
additional remedial work or post-closure costs
that may be required; however, the Company
believes that its proportionate share of
expenditures for any additional work will not have
a material impact on the Company's financial
statements. In addition, the members of the
Funding Group have entered into a final cost
sharing agreement under which all parties have
agreed that there would be no re-allocation of
previous remediation costs, but that future
remediation costs would be established by a
formula. Under this agreement, the Company's
share of future costs is 17.5%.
In 1996, the Company settled a class action
lawsuit involving alleged personal injury and
property damage arising from the Walker, La.
reclamation site. Under the terms of the
settlement, the Company has paid approximately
$6.0 million into a settlement fund. The Company
also agreed to pay up to an additional $6.0
million (plus interest at 8% per annum) if the
plaintiffs are unsuccessful in collecting certain
claims under Avondale's insurance policies that
have been assigned to the plaintiff class under
the settlement agreement. During the first quarter
of 1997, certain remaining parties to the
litigation, including Avondale's insurers, reached
a tentative settlement, pursuant to which
Avondale's insurers agreed to pay the plaintiffs
an amount in excess of the $6.0 million (plus
interest) for which Avondale was responsible in
full and final satisfaction of the plaintiff's
claims against Avondale and Avondale would be
released from liability. The tentative settlement
agreement is subject to a fairness review by the
trial court. With respect to the potential
contingent liability of the Company to pay
additional sums if the tentative settlement is not
approved by the court, management believes that
the eventual resolution of this matter will not
have a material adverse effect on the Company's
results of operations, financial position or cash
flows.
Furthermore, the Company has initiated
litigation against its insurer for a declaration
of coverage of the liability, if any, that may
arise in connection with the remediation of the
site referred to above. The court has ruled that
the insurer has the duty to defend the Company,
but has not yet ruled on whether the carrier has a
duty to indemnify the Company if any liability is
ultimately assessed against it. After consultation
with counsel, the Company is unable to predict the
eventual outcome of this litigation or the degree
to which such potential liability would be
indemnified by its insurance carrier.
In addition to the above, the Company is also
named as a defendant in other lawsuits and
proceedings arising in the ordinary course of
business, some of which involve substantial
claims.
The Company has established accruals as
appropriate for certain of the matters discussed
above. While the ultimate outcome of lawsuits and
proceedings against the Company cannot be
predicted with certainty, management believes,
based on current facts and circumstances and after
review with counsel, that, the eventual resolution
of these matters is not expected to have a
material adverse effect on the Company's financial
statements.
Item 4. Submission of Matters to a Vote of
Security Holders.
The Company did not submit any matters to a
vote of security holders during the fourth quarter
of its fiscal year ended December 31, 1996.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
The Company's common stock trades on the
Nasdaq National Market tier of the Nasdaq Stock
Market under the symbol AVDL. The following table
sets forth the range of high and low per share
sales prices, as reported by the Nasdaq National
Market, for the periods indicated.
Fiscal Year Ended December 31, High Low
---- ---
1995
First Quarter $ 8 1/8 $ 7 1/8
Second Quarter $ 9 1/4 $ 7
Third Quarter $ 15 7/8 $ 8 1/8
Fourth Quarter $ 16 3/8 $ 12 3/4
1996
First Quarter $ 18 1/8 $ 14
Second Quarter $ 20 1/8 $ 16 7/8
Third Quarter $ 19 1/8 $ 13 7/8
Fourth Quarter $ 22 $ 16 1/4
At December 31, 1996, there were 760 holders
of record of the Company's Common Stock.
The Company does not currently pay dividends
on its Common Stock and no dividends were
paid on the Company's Common Stock during the
two years ended December 31, 1996. As
discussed in Note 4 of the Notes to
Consolidated Financial Statements, the terms
of the Company's revolving credit agreement
limit or restrict, without bank approval, the
payment of cash dividends.
Item 6.Selected Consolidated Financial Data.
The following table contains selected consolidated
financial data for the Company and its subsidiaries for
each of the fiscal years in the five-year period ended
December 31, 1996. The data for each of the fiscal
years in the five-year period ended December 31, 1996
are derived from the consolidated financial statements
of the Company and its subsidiaries. The consolidated
financial statements as of December 31, 1995 and 1996,
and for each of the years in the three-year period
ended December 31, 1996, and the report of Deloitte &
Touche LLP thereon, have been included in this Form 10-K.
Years Ended December 31,
---------------------------------------------------
(in thousands, except per share data)
1992 1993 1994(2) 1995(2) 1996(2)
------- ------- ------- ------- ------
INCOME STATEMENT DATA:(1)
Continuing operations:
Net sales $576,384 $456,724 $475,810 $576,308 $624,929
Gross profit 37,796 33,180 47,485 58,671 81,827
Income from operations 7,281 3,400 16,949 26,548 36,790
Net ESOP contribution(3) 8,141 --- --- --- ---
Income (loss) from
continuing operations (11,321) (5,233) 13,075 28,180 30,795
Income (loss) from
discontinued operations 104 (3,561) (4,552) --- ---
Net income (loss)(4) (11,217) (8,794) 8,523 28,180 30,795
Income (loss) per share of
Common Stock:
Continuing operations (0.78) (0.36) 0.90 1.95 2.13
Discontinued operations NM (0.25) (0.31) --- ---
Total (0.78) (0.61) 0.59 1.95 2.13
BALANCE SHEET DATA:
Working capital $63,158 $24,565 $34,836 $80,988 $119,475
Total assets 346,196 302,139 273,503 316,727 362,872
Long-term debt 90,469 43,848 45,875 60,593 54,866
Shareholders' equity 123,149 114,355 122,878 151,058 181,853
OTHER FINANCIAL DATA:
EBITDA(5) $19,599 $15,210 $28,501 $36,367 $ 47,599
OPERATIONAL DATA:
Firm backlog $678,000 $1,268,000 $1,424,000 $1,413,000 $1,766,000
____________________
NM Not Meaningful
(1) Income statement data for the years ended December 31, 1992
and 1993 have been restated to present Avondale's service
contracting subsidiary as discontinued operations (see Note
5 of the Notes to Consolidated Financial Statements).
(2) See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Notes to
Consolidated Financial Statements relating to, among other
things, (i) proceeds received by the Company from the
settlements of REAs in December 1995 and (ii) the impact of
revisions of estimated profit on a previously completed
shipbuilding contract in 1994, 1995 and 1996.
(3) The amounts reflected as Net ESOP contributions for 1992
reflect contributions made by the Company to the ESOP, all
of which were returned to the Company as repayments of
indebtedness owed by the ESOP to the Company incurred in
connection with the purchase by the ESOP of the Common Stock
of the Company in 1985. Although these contributions were
charged against income, they had no effect on shareholders'
equity.
(4) Net income for the years ended December 31, 1995 and 1996
include deferred income tax benefits of $13.0 million ($.90
per share) and $9.0 million ($.62 per share), respectively,
attributable to certain net operating loss carry forwards
available to offset estimated future taxable earnings. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(5) As used herein, EBITDA is income (loss) from operations plus
depreciation and amortization. EBITDA is frequently used by
securities analysts and is presented here to provide
additional information about the Company's operations.
EBITDA is not a calculation under generally accepted
accounting principles and should not be considered as an
alternative to net income as a measure of the Company's
operating performance or as an alternative to cash flows as
a measure of the Company's liquidity.
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in
conjunction with Avondale Industries, Inc.'s (the
"Company" or "Avondale") Consolidated Financial
Statements and Notes thereto included elsewhere in
this Form 10-K.
Overview
The improvement in the Company's operating
results continued during fiscal 1996 with the
Company reporting record financial results for
1996. Net sales were 8% above the prior year's
level, income from continuing operations before
income taxes increased 45% and net income
increased by 9% compared to fiscal 1995.
The Company's firm backlog at December 31,
1996 was approximately $1.8 billion (including
estimated contract escalation) exclusive of
unexercised options aggregating $1.1 billion held
by the U.S. Navy (the "Navy") for additional ship
orders (including estimated contract escalation).
Firm backlog includes two Navy contracts awarded
in 1996, the first of which was the exercise of a
previously awarded option to construct an
additional Sealift ship for approximately $211.1
million (or more than $240 million after
considering certain additional components and
reimbursable escalation). The exercise of this
option represents the fifth ship which the Company
has been awarded in the Sealift program. The Navy
holds an option for an additional Sealift ship
which is exercisable in 1997.
In December 1996, the U.S. Navy awarded a
contract to build the first ship of its new class
of LPD-17 vessels to an alliance led by the
Company. In addition, the alliance was awarded
options, exercisable by the U.S. Navy, for two
additional ships of the LPD-17 class. It is
expected that a total of 12 vessels will be built
under the LPD-17 program. The members of the
alliance, Bath, Hughes and the Company submitted a
joint bid with the Company as the prime
contractor. Under the terms of an agreement
between the alliance members, the Company will
build the vessel covered by the December 1996
contract, and if the U.S. Navy exercises the two
options, the Company would also construct the
second and Bath would construct the third of the
three LPD-17 vessels. Hughes will be responsible
for total ship integration and the alliance will
use Intergraph technology for the design and
manufacture of the ship. In order to fairly
represent its role as the prime contractor under
the LPD-17 contract, the Company is required to
report in its financial statements the entire
contract amount for each vessel in the LPD-17
program constructed by the alliance as revenue.
Under the subcontracting agreements entered into
between the Company and each of Bath and Hughes,
the award fees that can be earned under the LPD-17
contract are distributable among the alliance
members in proportion to each member's performance
and participation in the construction of the
vessel for which the award was granted. To the
extent that the Company's revenues include costs
incurred by and award fees paid to the other
alliance members, the Company's profit margins
will be reduced. For additional information on
the terms of the LPD-17 contract award, the
relationship between the members of the alliance
and certain accounting considerations, see
"Business - Overview."
Vessel deliveries in fiscal 1996 included the
third of three LSD-CVs and a double-hulled T-AO
representing the 16th vessel built by the Company
since the program's inception in 1982. These
deliveries represent the completion of
construction on two multi-ship programs which
provided a significant portion of the Company's
workload over the past several years.
Additionally, the Company delivered the third of
four MHC-51 vessels in 1996, and in January 1997,
the Company delivered the fourth and final vessel
under the contract.
The Company's operating results projected for
1997 are expected to be related principally to the
LSD-CV 52, the Sealift ship contracts and the
Icebreaker, while results projected for 1998 are
expected to reflect primarily the Sealift and
Icebreaker contracts. Except for the LPD-17
contract, the Company records profits under the
percentage-of-completion method of accounting
based on direct labor charges. See "Business -
Overview." Although the Company generally does
not begin to record profits on its contracts until
contract performance is sufficient to estimate
final results with reasonable accuracy, actual
profits taken with respect to such contracts may
be affected if the Company is required in the
future to revise its estimate of the cost to
complete one or more of such contracts.
As previously disclosed, certain of the
Company's operations closed in 1994 with the
completion of their respective contracts. One of
these facilities was sold in December 1996, and
the other is currently offered for sale. With
respect to the remaining property, the Company
currently is not aware of any material
environmental liabilities to be incurred for site
restoration, post closure monitoring commitments
or other exit costs.
Results of Operations
1996 vs. 1995. The Company recorded net
income of $30.8 million, or $2.13 per share, for
1996 compared to $28.2 million, or $1.95 per
share, for 1995 representing an increase of 9% in
net income over the prior year. Net income for
1996 and 1995 include income tax benefits of $9.0
million, or $0.62 per share, and $13.0 million, or
$0.90 per share, respectively, as discussed below.
Also included in 1996 and 1995 net income are $4.4
million, or $0.30 per share, and $4.5 million, or
$0.31 per share, respectively, reductions of a
previously recognized loss which was recorded in
prior years on the contract to construct three
LSD-CVs. The reductions were due primarily to
revisions of the total estimated contract cost as
it neared completion.
In addition to the improvements on the three
LSD-CV contract, the increases in the Company's
operating results in 1996 reflect improved
operating profits recognized on the seven T-AO
contract, which was completed in 1996, and the
LSD-CV 52 contract. In addition, the Company
began profit recognition on the contract to
construct five Strategic Sealift vessels for the
Navy. Also contributing to the increase in
operating results for 1996 were operating profits
of $8.2 million recorded by the Company's marine
repair, modular construction and wholesale steel
operations.
These profits were offset, in part, by losses
recorded on two commercial marine construction
contracts. The Company recognized an $8.5 million
loss on the contract to construct river hopper
barges, primarily representing costs incurred in
connection with the Company's entry into this
competitive market. In addition, the Company
recorded a $20 million loss with respect to the
contract to retrofit four single-hull commercial
tankers with new double hulls. This loss resulted
from several factors, the most important of which
related to certain modifications to the hull
design that were required in order to comply with
American Bureau of Shipbuilding standards after
construction had been commenced by the Company in
order to respond to a significantly compressed
construction schedule caused by the customer's
delay in obtaining financing. In addition, this
project was commenced prior to the time that the
Company's new automated production facility had
become fully operational, and therefore did not
benefit from the efficiencies which would have
been realized from the completed factory.
Finally, the pre-delivery testing of the first
vessel revealed a condition which required certain
modifications causing the Company to incur
incremental costs.
The impact of these losses was mitigated by
the fact that these contracts absorbed a
substantial amount of operating expenses that
would otherwise have been allocated to other
contracts. In addition, these contracts have been
important in the Company's reemergence in the
competitive commercial tanker and barge markets.
The tanker contract has also enabled the Company
to construct four forebodies which are patterned
after the forebody of Avondale's standard tanker,
providing experience in constructing this portion
of the vessel, enabling the Company to refine the
design and production techniques, and furthering
the Company's progress toward achieving its stated
goal of a more balanced mix of military and
commercial work. The first double-hull tanker was
delivered on October 3, 1996 while the second hull
was delivered January 16, 1997. The remaining
vessels are scheduled to be delivered in May and
September 1997.
The Company's net sales in 1996 increased
$48.6 million, or 8%, as compared to the prior
year. The increase in 1996 net sales was due
primarily to increases in sales revenues
recognized on the contracts to construct the first
five Sealift ships, the Icebreaker and the
forebodies for four double-hulled product tankers,
which collectively accounted for 63% of the
Company's 1996 net sales revenue. The increase in
net sales was partially offset by reductions in
sales revenues recognized on the contracts to
construct the three LSD-CVs (the last of which was
delivered in March 1996), LSD-CV 52 (scheduled for
completion in November 1997), the seven T-AOs (the
last of which was delivered in May 1996) and four
MHCs (the third of which was delivered in July
1996 and the last of which was delivered in
January 1997). The increase in 1996 net sales was
also partially offset by reduced net sales
recorded on paddle-wheeled gaming vessels (the
last of which was delivered in 1995). The
contracts to construct the three LSD-CVs, the LSD-
CV 52, the seven T-AOs and four MHCs collectively
accounted for 24% of the Company's 1996 net sales
revenue.
Gross profit for 1996 increased $23.2
million, or 39%, compared to 1995. The increase in
1996 gross profit was due primarily to profits
recognized on the contract to construct the LSD-CV
52 and the seven T-AOs. Also contributing to the
increase in gross profit was the start of profit
recognition on the contract to construct the
Strategic Sealift vessels. The increase in gross
profit was partially offset by the losses recorded
on the barge and forebodies contracts discussed
above.
Selling, general and administrative ("SG&A")
expenses increased $12.9 million, or 40%, for 1996
compared to 1995. The overall increase in SG&A
expenses was due primarily to increased labor
costs, professional fees and computer equipment
rental costs associated with the Company's
successful LPD-17 proposal. These increases
represent 76% of the increase in 1996 SG&A
expenses.
The Company's 1996 and 1995 operating results
include income tax benefits of $9.0 million, or
$0.62 per share, and $13.0 million, or $0.90 per
share, respectively. As further discussed in Note
7 of the Notes to Consolidated Financial
Statements, these amounts were principally the
result of recognizing, for financial reporting
purposes, income tax benefits from certain net
operating loss carry forwards available to offset
estimated future taxable earnings. In 1996 and
1995, the $9.0 million and $13.0 million
respective tax benefits were offset by income tax
provisions of $12.7 million and $8.6 million
related to 1996 and 1995 operating results,
respectively. As of December 31, 1996,
substantially all of the Company's net operating
loss carry forwards have been recognized for
financial reporting purposes.
Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") encourages, but does
not require, companies to record compensation cost
for stock-based employee compensation plans at
fair value. The Company has chosen to continue to
account for stock-based compensation using the
intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related
interpretations and has adopted the disclosure-
only provisions of SFAS 123. Implementation of
the provisions of SFAS 123 had no material effect
on the financial statements.
1995 vs. 1994. The Company recorded net
income of $28.2 million, or $1.95 per share, for
1995 compared to $8.5 million, or $0.59 per share,
for 1994 representing a threefold increase in net
income over the prior year. The 1995 net income
includes a $4.4 million, or $0.30 per share, net
income tax benefit (discussed below). Also
included in 1995 net income is $4.5 million, or
$0.31 per share, which is a reduction of a
previously recognized loss which was recorded in
prior years on the contract to construct three
LSD-CVs. The reduction was due primarily to a
revision of the total estimated contract cost as
it nears completion. Included in net income for
1994 are a $3.5 million, or $0.24 per share, net
gain related to revisions of estimated contract
profits on several previously completed
shipbuilding contracts and a loss from
discontinued operations of $4.6 million, or $0.31
per share, reflecting the Company's decision in
1994 to discontinue its service contracting
business.
The significant increases in the Company's
operating results in 1995 primarily reflect
increased operating profits recognized on the
LSD-CV 52 contract, as well as the reversal of
part of a previously recognized loss on the
contract to construct three LSD-CVs, and the
recognition of operating profit on the T-AO
contract. Also contributing to the increase in
operating results for 1995 were profits recorded
by the Company's marine repair and wholesale steel
operations and an increase in interest income
primarily resulting from an increase in the
Company's invested cash balances.
The Company's net sales in 1995 increased
$100.5 million, or 21%, as compared to the prior
year. The increase in 1995 net sales was due
primarily to increases in sales revenues
recognized on the contracts to construct the first
three Sealift ships, the forebodies for four
double-hulled product tankers, the LSD-CV 52 and
the Icebreaker, which collectively accounted for
54% of the Company's 1995 net sales revenue. The
increase in net sales was partially offset by
reductions in sales revenues recognized on the
contracts to construct the seven T-AOs (the fifth
and sixth of which were delivered in 1995), three
LSD-CVs (the second of which was delivered in
1995) and four MHCs (the first of which was
delivered in 1995), as these contracts approach
completion. The contracts to construct the T-AOs,
three LSD-CVs, and four MHCs collectively
accounted for 28% of the Company's 1995 net sales
revenue.
Gross profit for 1995 increased $11.2
million, or 24%, compared to 1994. The increase in
1995 gross profit was primarily due to profits
recognized on the contract to construct the LSD-CV
52 as the percentage of completion was sufficient
to begin profit recognition in 1995.
Selling, general and administrative ("SG&A")
expenses increased $1.6 million, or 5%, for 1995
compared to 1994. The overall increase in SG&A
expenses primarily reflected increased operating
activity at the Company's main shipyard and, in
part, an increase in indirect labor and associated
costs resulting from a wage increase given in
January 1995 to all employees. These increases in
SG&A expenses were partially offset by a decrease
in SG&A expenses resulting from the closing of
certain subsidiary operations.
Interest expense increased by $457,000, or
10%, in 1995 as compared to 1994. The increase was
due principally to interest expense associated
with the $17.8 million Title XI financing
completed in February 1995 (as discussed below),
$36.3 million of Series 1994 industrial revenue
bonds (see Note 4 of the Notes to Consolidated
Financial Statements) and a note issued as part of
a litigation settlement (discussed in Note 10 of
the Notes to Consolidated Financial Statements).
These increases were partially offset by an
increase in interest capitalized on assets under
construction relating primarily to the
modernization project.
The Company's 1995 operating results include
a net income tax benefit of $4.4 million, or $0.30
per share. As further discussed in Note 7 of the
Notes to Consolidated Financial Statements, the
net income tax benefit is principally the result
of recognizing, for financial reporting purposes,
a $13.0 million income tax benefit from certain
net operating loss carry forwards available to
offset estimated future taxable earnings. The
$13.0 million tax benefit was partially offset by
an income tax provision of $8.6 million related to
1995 operating results. There was a minor
provision for income taxes in the same period in
1994 as an income tax benefit related to available
net operating loss carry forwards was recognized
only to the extent of then current operating
results.
Liquidity and Capital Resources
The Company's cash and cash equivalents
totaled $48.9 million at December 31, 1996 as
compared to $38.5 million at December 31, 1995.
Contributing to the improved cash balance at
December 31, 1996 were amounts collected as a
result of the settlement of the Company's Request
for Equitable Adjustment ("Minehunter REA") filed
with the U.S. Navy related to the four MHCs
currently under contract (as discussed in further
detail in Note 2 of the Notes to Consolidated
Financial Statements). The Company's operating
activities represented a significant source of
cash in 1996, generating approximately $26.7
million. The Company's primary uses of cash in
the current year consisted of capital expenditures
of $13.8 million and principal payments on long-
term borrowings of $5.8 million.
The Company's $42.5 million revolving credit
agreement ("the agreement") provides available
liquidity for working capital purposes, capital
expenditures and letters of credit. At December
31, 1996, there were approximately $11.3 million
of letters of credit issued against the agreement
leaving approximately $31.2 million of liquidity
available to Avondale for operations and other
purposes. Continuing access to the agreement is
conditioned upon the Company remaining in
compliance with the covenants which include
certain financial ratios. At December 31, 1996
the Company was in compliance with the covenants
contained therein. The Company believes that its
capital resources will be sufficient to finance
current and projected operations.
In order to comply with the terms of the LPD-
17 contract, the Company will make significant
capital expenditures, particularly to enhance its
computer-aided design and product modeling
capabilities. The Company currently has
sufficient cash and available lines of credit to
fund these capital expenditures. Nevertheless,
the Company and its banks agreed to increase the
size of its revolving credit agreement from $42.5
million to $85 million conditioned upon the
favorable resolution of the protest of the LPD-17
contract (which resolution is anticipated in early
April 1997). The increase in the size of the
agreement is sufficient to allow the Company to
fund the expenditures on an interim basis with
borrowings under the agreement while preserving
the current level of available liquidity. The
amended agreement provides that the available
credit under the agreement will be reduced to
approximately $50 million once a long-term
financing for the LPD-17 expenditures is in place
(as discussed below) and, at the same time, the
banks have agreed to eliminate all collateral
except their second mortgage on the Company's 900-
foot floating drydock. In addition, the amended
agreement would extend the expiration date until
April 2000.
Under planned long-term financing for the
LPD-17 expenditures, the Company, in conjunction
with the University of New Orleans (the
"University"), and the University of New Orleans
Research and Technology Foundation (the
"Foundation"), intends to construct a 200,000
square foot building on property owned by the
Company adjacent to the Company's main shipyard.
In addition, the plan includes the purchase of the
hardware and software required to comply with the
LPD-17 contract terms related to the
implementation of the extensive three-dimensional
ship design and IPDE teaming technology. The
initial investment in this new facility, which
will be known as the "UNO/Avondale Maritime
Technology Center of Excellence," is estimated at
$40 million, and will be financed by the
Foundation using third-party debt or lease
financing to be repaid through annual
appropriations from the state and guaranteed by
the Company. The Company will enter into a long-
term lease for the Center requiring only a nominal
lease payment. The Company will guarantee the
debt and provide access to the technology and a
portion of the Center to the University for their
use in research and the development of educational
curricula. The Company and the University are in
the process of securing the required approvals.
Development of the Center and the requisite state
support are contingent on the successful
resolution of the LPD-17 protest.
The Company's estimated net operating loss
carry forward for income tax purposes was $29
million at December 31, 1996. This amount, plus
available income tax credits from prior years of
$5.4 million, and $2.7 million of alternative
minimum tax credits will be used to reduce the
income tax liabilities for 1997 and later years.
The $1.76 million cash paid in 1996 for income
taxes reflects payments for alternative minimum
tax. The net operating loss carry forwards expire
in years 2006 through 2008 and the tax credit
carry forwards expire in years 2000 through 2011.
The alternative minimum tax credits may be carried
forward indefinitely. The Company expects that
a "change of control" of the Company for tax
purposes is likely to occur in 1997 which may
limit the timing of the Company's use of its net
operating loss carry forwards in 1997 and later
years.
Item 8: Financial Statements and Supplementary Data.
See next consecutive numbered page.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Avondale Industries, Inc.:
We have audited the accompanying consolidated
balance sheets of Avondale Industries, Inc. and
subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations,
shareholders' equity, and cash flows for each of
the three years in the period ended December 31,
1996. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about whether
the financial statements are free of material
misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit
also includes assessing the accounting principles
used and significant estimates made by management,
as well as evaluating the overall financial
statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material
respects, the financial position of Avondale
Industries, Inc. and subsidiaries at December 31,
1995 and 1996, and the results of their operations
and their cash flows for each of the three years
in the period ended December 31, 1996 in
conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 17, 1997
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
------------------
ASSETS 1995 1996
-------- -------
Current Assets:
Cash and cash equivalents $ 38,524 $ 48,944
Receivables (Note 2) 93,184 119,139
Inventories (Note 3) 15,289 21,785
Deferred tax assets (Note 7) 23,650 30,157
Prepaid expenses and other current assets 2,946 2,465
------- -------
Total current assets 173,593 222,490
------- -------
Property, Plant and Equipment (Note 4):
Land 9,161 7,984
Buildings and improvements 59,991 59,598
Machinery and equipment 182,547 187,029
------- -------
Total 251,699 254,611
Less accumulated depreciation (121,661) (127,009)
------- -------
Property, plant and equipment - net 130,038 127,602
------- -------
Goodwill - net 8,637 8,073
Other assets 4,459 4,707
------- -------
TOTAL ASSETS $316,727 $362,872
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of
long-term debt (Note 4) $ 5,062 $ 4,957
Accounts payable 65,517 73,589
Accrued employee compensation 10,777 11,630
Other 11,249 12,839
------- -------
Total current liabilities 92,605 103,015
Long-term debt (Note 4) 60,593 54,866
Deferred income taxes (Note 7) 850 10,300
Other liabilities and deferred credits 11,621 12,838
------- -------
Total liabilities 165,669 181,019
------- -------
Commitments and Contingencies (Notes 6 and 10)
SHAREHOLDERS' EQUITY (Note 9):
Common stock, $1.00 par value;
authorized - 30,000,000 shares;
issued - 5,927,191 shares in 1995
and 1996 15,927 15,927
Additional paid-in capital 373,911 373,911
Accumulated deficit (226,924) (196,129)
------- -------
Total 162,914 193,709
Treasury stock (1,463,016 shares in 1995
and 1996) at cost (11,856) (11,856)
------- -------
Total shareholders' equity 151,058 181,853
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $316,727 $362,872
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31,
--------------------------------
1994 1995 1996
------- ------- -------
Continuing operations:
Net sales (Note 2) $475,810 $576,308 $624,929
Cost of sales 428,325 517,637 543,102
------- ------- -------
Gross profit 47,485 58,671 81,827
Selling, general and administrative
expenses 30,536 32,123 45,037
------- ------- -------
Income from operations 16,949 26,548 36,790
Interest expense (4,385) (4,842) (4,986)
Other - net 811 2,074 2,691
------- ------- -------
Income from continuing operations
before income taxes 13,375 23,780 34,495
Income taxes (Note 7) 300 (4,400) 3,700
------- ------- -------
Income from continuing operations 13,075 28,180 30,795
------- ------- -------
Discontinued operations (Note 5):
Loss from discontinued operations (1,909) -- --
Disposal costs (2,643) -- --
------- ------- -------
Loss from discontinued operations (4,552) -- --
------- ------- -------
NET INCOME $ 8,523 $ 28,180 $ 30,795
======= ======= =======
Income (Loss) per share of
common stock (Note 9):
Continuing operations $ 0.90 $ 1.95 $ 2.13
Discontinued operations (0.31) -- --
------- ------- -------
INCOME PER SHARE OF COMMON STOCK $ 0.59 $ 1.95 $ 2.13
======= ======= =======
Weighted average number of
shares outstanding 14,464 14,464 14,464
======= ======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994, 1995 and 1996
(in thousands)
Additional Total
Common Paid-In Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
--------------------------------------------------------------
BALANCE, JANUARY 1, 1994 $ 15,927 $373,911 $(263,627) $(11,856) $114,355
Net income 8,523 8,523
--------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 15,927 373,911 (255,104) (11,856) 122,878
Net income 28,180 28,180
--------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 15,927 373,911 (226,924) (11,856) 151,058
Net Income 30,795 30,795
--------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ 15,927 $373,911 $(196,129) $(11,856) $181,853
==============================================================
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
----------------------------
1994 1995 1996
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,523 $28,180 $30,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,552 9,819 10,809
Deferred income taxes -- (5,900) 3,700
(Gain) loss on sale of assets -- (813) 3,135
Change in operating assets and liabilities,
net of dispositions:
Receivables 45,542 (9,674) (25,955)
Inventories (2,500) 296 (6,496)
Prepaid expenses and other current assets (1,251) 3,429 98
Accounts payable 4,120 4,600 8,072
Accrued employee compensation 596 (2,171) 853
Other - net 2,546 229 1,690
------- ------- -------
Net cash provided by operating activities 69,128 27,995 26,701
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,120) (21,290) (13,830)
Proceeds from sale of assets -- 3,248 2,998
Change in restricted short-term investments - net (1,811) 1,243 383
Payment to former corporate parent (5,000) -- --
------- ------- -------
Net cash used for investing activities (11,931) (16,799) (10,449)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings (81,228) (5,866) (5,832)
Proceeds from issuance of
long-term borrowings (Note 4) 36,250 17,780 --
------- ------- -------
Net cash (used for) provided by
financing activities (44,978) 11,914 (5,832)
------- ------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 12,219 23,110 10,420
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,195 15,414 38,524
------- ------- -------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $15,414 $38,524 $48,944
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 4,537 $ 5,255 $ 5,207
======= ======= =======
Income taxes paid $ 945 $ 1,760
======= =======
Noncash investing and financing activities:
Note issued in litigation settlement $ 2,000
=======
Note issued to former corporate parent $ 8,000
=======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of Avondale Industries, Inc. and its wholly-owned subsidiaries
("Avondale" or the "Company") which are primarily engaged in
marine construction and repair. All significant intercompany
transactions have been eliminated.
Revenue Recognition
Profits on long-term contracts are recorded on the basis of
the Company's estimates of the percentage of completion of
individual contracts, commencing when progress reaches a point
where contract performance is sufficient to estimate final
results with reasonable accuracy. Estimates of the percentage
of completion are based on direct labor charges. Revisions in
cost and profit estimates during the course of the work are
reflected in the accounting period in which the facts requiring
the revisions become known. Amounts in excess of agreed upon
contract price for customer caused delays, disruptions,
unapproved change orders or other causes of additional contract
costs are recognized in contract value if it is probable that
the claim for such amounts will result in additional revenue
and the amount can be reasonably estimated (see Note 2).
Provisions for estimated losses, if any, on uncompleted
contracts are made in the period in which such losses are
determined.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Fair Value Disclosures
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments",
requires the disclosure of the fair value of all significant
financial instruments. The estimated fair value amounts have
been developed by the Company based on available market
information and appropriate valuation methodologies. However,
considerable judgment is required in developing the estimates
of fair value. Therefore, such estimates are not necessarily
indicative of the amounts that could be realized in a current
market exchange. After such analysis, management believes that
the carrying values of the Company's significant financial
instruments (consisting of cash and cash equivalents,
short-term investments, receivables, payables, accrued
liabilities and long-term debt) approximate fair values.
Inventories
Inventories are recorded principally at the lower of cost
(average or first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is computed in
the financial statements on the straight-line method based on
estimates of useful lives as follows:
Type Period
---- ------
Machinery and equipment 3-20 years
Buildings and improvements 15-40 years
Accelerated depreciation methods are generally used for
income tax purposes. Maintenance and repairs are
charged directly to expense as incurred. Additions,
improvements and major renewals are capitalized.
Interest costs for the construction of certain
long-term assets are capitalized as part of the cost of
property, plant and equipment and amortized over the
related assets' useful lives. Interest costs
capitalized in fiscal 1994 were not material. Interest
costs capitalized in fiscal 1995 and 1996 approximated
$1.2 million and $759,000, respectively.
Goodwill
Goodwill represents the excess of the purchase price over
the underlying fair value of the net assets of acquired
businesses and is being amortized on a straight-line
basis over its estimated useful life of twenty years.
Management evaluates the continuing value and future
benefits of goodwill, including the appropriateness of
related amortization periods, on a current basis.
The recoverability of goodwill is assessed by determining
whether the unamortized balance can be recovered
through projected cash flows and operating results over
its remaining life. Any impairment of the asset is
recognized when it is probable that such future
undiscounted cash flows will be less than the carrying
value of the asset.
Accumulated amortization at December 31, 1995 and 1996
amounted to $74.5 million and $75.0 million,
respectively.
Income Taxes
The Company and its subsidiaries file a consolidated Federal
income tax return. Deferred income taxes are provided
in the financial statements, where necessary, to
account for the tax effect of temporary differences
resulting from reporting revenues and expenses for
income tax purposes in periods different from those
used for financial reporting purposes. The temporary
differences result principally from the use of
different methods of accounting for depreciation,
long-term contracts and certain employee benefits.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123")
encourages, but does not require, companies to record
compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to
continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations and
has adopted the disclosure-only provisions of SFAS 123.
Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the
stock. See Note 9.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications of prior year amounts have been
made to conform to the current year presentation. These
reclassifications were made for comparative purposes
only and have no effect on net income as previously
reported.
2. Receivables
Receivables consisted of the following at December 31,
1995 and 1996 (in thousands):
1995 1996
------- -------
Long-term contracts:
U.S. Government:
Amounts billed $ 30,151 $ 859
Unbilled costs, including retentions,
and estimated profits on contracts
in progress 41,119 90,325
------- -------
Total 71,270 91,184
Commercial:
Amounts billed 4,364 7,274
Unbilled costs, including retentions,
and estimated profits on contracts
in progress 12,312 14,681
------- -------
Total from long-term contracts 87,946 113,139
Trade and other current receivables 5,238 6,000
------- -------
Total $ 93,184 $119,139
======= =======
Unbilled costs, including retentions, and estimated profits
on contracts in progress were not billable to customers at
the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated profits,
approximately $36.3 million is expected to be collected in
1997 with the balance to be collected in subsequent years as
contract deliveries are made and warranty periods expire.
Net sales to the United States Government in 1994, 1995, and
1996 account for approximately 77%, 74% and 77% of the net
sales, respectively.
In December 1995, the Company settled the Minehunter Request
for Equitable Adjustment ("Minehunter REA") for $23 million,
which approximated the previously recorded estimate of the
amount recoverable. In connection with the settlement of the
Minehunter REA in December 1995, the Company submitted
invoices totaling $30.7 million to the U.S. Navy, which
included certain contractual cost sharing and cost
escalation provisions which obligate the U.S. Navy to bear a
portion of the additional costs. The Company collected these
amounts in full during the first quarter of 1996.
Costs and estimated profits (losses) on contracts in
progress at December 31, 1995 and 1996 were as follows (in
thousands):
1995 1996
--------- ---------
Costs incurred on contracts in progress $ 2,668,388 $ 3,026,965
Estimated profits recognized 49,287 92,080
Reserve for anticipated contract losses (34,500) (58,600)
--------- ---------
Total 2,683,175 3,060,445
Less billings to date (2,643,912) (2,956,710)
--------- ---------
Net value of contracts in progress $ 39,263 $ 103,735
========= =========
Net value of contracts in progress was comprised of the
following amounts (in thousands):
1995 1996
------- -------
Unbilled costs and estimated
profits on contracts in progress
(included in receivables) $ 53,431 $105,006
Billings in excess of costs and estimated
profits on contracts in progress
(included in accounts payable) (14,168) (1,271)
------- -------
Total $ 39,263 $103,735
======= =======
The reserve for anticipated contract losses of $34.5 million
and $58.6 million included in the net value of contracts in
progress at December 31, 1995 and 1996, respectively, is
related to certain contracts which are presently scheduled for
delivery through September 1997. In 1995 and 1996 the Company
recorded reductions of $4.5 million and $4.4 million,
respectively, of a previously recognized loss due primarily to
a revision of the total estimated contract cost as it nears
completion. Additionally, during 1996 the Company recorded a
$28.5 million increase in the reserve related to the contracts
to construct the four double-hulled forebodies and a series of
river hopper barges.
3. Inventories
Inventories consisted of the following at December 31, 1995
and 1996 (in thousands):
1995 1996
------ ------
Goods held for sale $ 7,409 $13,184
Materials and supplies 7,880 8,601
------ ------
Total $15,289 $21,785
====== ======
4. Financing Arrangements
Revolving Credit Agreement
The Company has available a two-year revolving credit
agreement ("the agreement") with various financial
institutions. The agreement provides for an available line of
credit equal to the lesser of $42.5 million or a specified
borrowing base with a term which in 1996 was extended to May
1998. A commitment fee based on the average daily amount of
the unused line of credit is payable on a quarterly basis.
Borrowings under the agreement bear interest at fluctuating
rates. The agreement is collateralized by substantially all of
the Company's working capital assets and its 900-foot floating
drydock and, among other things, (1) requires the Company to
meet certain financial covenants (relating to net worth, debt
coverage, interest coverage and backlog), (2) imposes
limitations and restrictions related to annual capital
expenditures, the incurrence of new indebtedness and the
payment of dividends and (3) requires compliance with the
terms and conditions of all other debt agreements. The
agreement also provides the Company with the right to require
the bank group to post letters of credit on the Company's
behalf in support of its operations which letters of credit
reduce the remaining available credit (see Note 10). There
were no borrowings in 1995 and 1996 under the revolving credit
agreement.
As a result of the award of the LPD-17 contract the Company
will be required to make significant capital expenditures.
The Company and its banks agreed to increase the size of the
revolving credit agreement up to $85 million upon the
favorable resolution of a protest filed by the unsuccessful
bidder for the LPD-17 contract. The amended agreement
provides that the available credit will be reduced to
approximately $50 million once a long-term financing for the
LPD-17 expenditures is in place. The banks have also agreed
to eliminate all collateral except the second mortgage on the
900-foot floating drydock and to extend the agreement's
expiration until April 2000.
Long-Term Debt
Long-term debt consisted of the following at December 31, 1995
and 1996 (in thousands):
1995 1996
------ ------
Industrial revenue bonds $36,250 $36,250
Mortgage bonds, interest at 8.16%,
payable in semi-annual principal
installments to 2010 17,780 16,594
Mortgage bonds, payable in semi-annual
principal installments to 2000 3,880 3,104
General obligation industrial bonds,
interest at 7%, payable in annual
installments to 2008 2,745 1,875
Other long-term debt 5,000 2,000
------ ------
Total 65,655 59,823
Less current maturities of long-term debt (5,062) (4,957)
------ ------
Long-term debt $60,593 $54,866
====== ======
The $36.3 million of industrial revenue bonds represent
Series 1994 bonds which consist of (1) $6 million bearing
interest at 8.25% and payable in annual principal installments
ranging from $550,000 in 1997 to final payment of $985,000 in
2004 and (2) $30.3 million bearing interest at 8.50% and
payable in annual principal installments ranging from $340,000
in 1997 to final payment of $3.8 million in 2014. The Series
1994 bonds are secured by certain property and equipment which
had a net book value of approximately $21.2 million at
December 31, 1996. Among other things, the terms and
conditions of the Series 1994 bonds (1) require the Company to
meet certain financial covenants (relating to net worth, debt
and debt service coverage and liquidity), (2) impose
limitations and restrictions related to the incurrence of new
indebtedness and the payment of dividends, and (3) require
compliance with the terms and conditions of other specified
debt agreements.
The $16.6 million of mortgage bonds represent the remaining
balance of $17.8 million of bonds issued in February 1995 as
part of the financing of the Company's approximately $20
million plant modernization effort. The bonds were issued
utilizing a U.S. Government guarantee under Title XI of the
Merchant Marine Act, 1936, as amended ("Title XI"), bear
interest at the annual rate of 8.16% and are payable in equal
semi-annual principal payments of $593,000 over a 15 year
period beginning in 1996. The terms of the financing include
various restrictive covenants including provisions relating to
the maintenance of working capital, incurrence of additional
indebtedness, and the maintenance of a minimum net worth. The
plant modernization assets having a net book value of
approximately $20.7 million at December 31, 1996 have been
pledged as collateral for these mortgage bonds.
The $3.1 million of mortgage bonds at December 31, 1996
represent the balance of an earlier mortgage bond issue which
also utilized a Title XI guarantee. The Company refinanced
these mortgage bonds in February 1995 (approximately $4.3
million) which reduced the annual interest rate from 9.30% to
7.86%. The refinancing agreement contains various restrictive
covenants similar to those for the $17.8 million of Title XI
mortgage bonds discussed above. These bonds are payable in
equal semi-annual principal payments of $388,000 and mature in
the year 2000. Property, plant and equipment having a net book
value of approximately $12.9 million at December 31, 1996 has
been pledged as collateral for these mortgage bonds.
Other long-term debt at December 31, 1996 represents a $2
million unsecured note issued as part of the settlement of
certain claims against the Company (as further discussed in
Note 10). The note bears interest at 8% per annum and is due
in January 1997.
Annual maturities of long-term debt for each of the next five
years and in total thereafter follow (in thousands):
1997 $ 4,957
1998 3,047
1999 3,137
2000 3,237
2001 2,571
Thereafter 42,874
------
Total $59,823
======
5. Discontinued Operations
During the third quarter of 1994 the Company decided to
discontinue operation of its service
contracting subsidiary formed in 1990 to
pursue large-scale service contracts with
government and commercial operations. The
Company concluded that managerial and
financial resources could be more productively
invested in the Company's core marine
construction operations.
The operating results for 1994 are reported as discontinued
operations. Summarized results are as follows (in thousands):
Net sales $13,520
Costs and expenses 15,429
------
Loss from discontinued operations (1,909)
Loss on disposal of discontinued operations (2,643)
------
Loss from discontinued operations $(4,552)
======
6. Leases
The Company leases equipment and real property in the normal
course of business under various operating leases, including
non-cancelable and month-to-month agreements. Certain of the
leases provide for renewal privileges with escalation of the
lease payments based on changes in selected economic indices.
Rental expense for operating leases was $5.8 million, $6.3
million and $9.0 million in 1994, 1995 and 1996, respectively.
Minimum rental commitments under leases having an initial or
remaining noncancelable term in excess of twelve months follow
(in thousands):
1997 $2,811
1998 2,268
1999 1,240
2000 929
2001 92
------
Total $7,340
======
7. Income Taxes
Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109") which requires the
use of the asset and liability approach for
financial accounting and reporting for income
taxes.
The Company has provided for Federal income taxes as follows
(in thousands):
1994 1995 1996
------- ------- -------
Current provision $ 600 $ 1,500 $ 1,100
Deferred provision (benefit) (300) 7,100 11,600
Deferred benefit attributable to the
realization of net operating loss
carry forwards -- (13,000) (9,000)
------ ------- -------
Provision (benefit) for income taxes $ 300 $ (4,400) $ 3,700
====== ======= =======
The provision (benefit) for income taxes varied from the
Federal statutory income tax rate due to the following (dollars in
thousands):
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
----------- ----------- -----------
Amount % Amount % Amount %
------ -- ------ -- ------ --
Taxes at Federal statutory rate $ 3,088 35 $ 8,323 35 $12,409 35
Amortization of goodwill
not deductible 511 6 246 1 197 1
Net operating loss
carry forwards utilized -- -- (13,000) (55) (9,000) (25)
Settlement of prior year
tax examinations (3,200) (36) -- -- -- --
Other (99) ( 1) 31 -- 94 --
------- --- ------- --- ------- ---
Total $ 300 4 $ (4,400) (19) $ 3,700 11
======= === ======= === ======= ===
At December 31, 1996 the Company has available for Federal
income tax purposes net operating loss carry forwards and tax
credit carry forwards of $29.0 million and $5.4 million,
respectively. The net operating loss carry forwards expire in
years 2006 through 2008 and the tax credit carry forwards
expire in the years 2000 through 2011. Additionally, the
Company has $2.7 million of minimum tax credits which may be
carried forward indefinitely.
Deferred income taxes represent the net tax effects of (a)
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their tax
bases, and (b) operating loss and tax credit carry forwards. The
tax effects of significant items comprising the Company's net
deferred tax balances at December 31, 1995 and 1996 are as
follows (in thousands):
1995 1996
------- -------
Deferred Tax Liabilities:
Differences between book
and tax basis of property, plant and equipment $26,266 $24,753
Other 759 976
------- -------
Total 27,025 25,729
------- -------
Deferred Tax Assets:
Reserves not currently deductible 5,174 4,417
Long-term contracts 18,557 18,844
Other temporary differences 4,263 4,761
Operating loss carry forwards 24,334 10,211
Tax credit carry forwards 7,200 8,036
------- -------
59,528 46,269
Valuation Allowance (9,703) (683)
------- -------
Total 49,825 45,586
------- -------
Net deferred tax assets $22,800 $19,857
======= =======
The net deferred tax assets are included in the following
balance sheet captions (in thousands):
1995 1996
------- -------
Current deferred tax assets $23,650 $30,157
Non-current deferred income tax liabilities (850) (10,300)
------- -------
Net deferred tax assets $22,800 $19,857
======= =======
During 1996, the deferred tax valuation allowance
decreased approximately $9.0 million as a result of the Company's
current year operating results and a re-evaluation of its
expectations of the likelihood of future operating income related
to its existing backlog.
8. Retirement Plans
ESOP
In 1985, the Company established the Avondale Industries,
Inc. Employee Stock Ownership Plan (the "ESOP"). The ESOP is a
qualified, defined contribution plan designed primarily to invest
in equity securities of the Company and is specifically
authorized to leverage its acquisition of these securities. The
ESOP is intended to cover all employees of the Company upon
completion of one year of service, except certain employees who
are covered by collective bargaining agreements, unless, by the
terms of such agreements, the employees are to participate in the
ESOP. The ESOP owned approximately 6,822,000 and 2,980,000 shares
of the Company's Common Stock at December 31, 1995 and 1996,
respectively. In February 1996 the ESOP sold 3,581,100 shares of
the Company's common stock. The Company did not receive any of
the proceeds from this public offering.
Pension Plan
The Company also sponsors a defined benefit pension plan,
which is coordinated with the benefits payable to participating
employees in the ESOP. At retirement, a person's benefit is based
upon the greater of (i) the market value of the shares of common
stock allocated to the participant's ESOP account or (ii) the
benefit calculated under the pension plan formula. The pension
plan formula benefits are based on a defined dollar amount
multiplied by a fraction related to a participant's credited
service.
The net periodic pension cost for the years ended December
31, 1994, 1995 and 1996 included the following components (in
thousands):
1994 1995 1996
------- ------- -------
Service costs of the current period $ 3,400 $ 3,300 $ 3,700
Interest cost on the projected benefit obligation 3,800 4,200 3,700
Actual return on plan assets (2,700) (3,600) (4,600)
Net amortization of transition liability and
deferred investment (loss) gain (200) 300 (400)
------- ------- -------
Net periodic pension cost $ 4,300 $ 4,200 $ 2,400
======= ======= =======
The following table sets forth the pension plan's estimated
funded status as of December 31, 1995 and 1996 (in thousands):
1995 1996
------- -------
Projected benefit obligation:
Vested benefits $49,100 $38,800
Nonvested benefits 400 400
------- -------
Accumulated benefit obligation 49,500 39,200
Effect of projected future compensation levels 12,700 2,600
------- -------
Projected benefit obligation 62,200 41,800
Plan assets at market value 50,400 58,800
------- -------
Plan assets (less than) in excess of
projected benefit obligation (11,800) 17,000
Unrecognized net transition obligation 100 100
Unrecognized prior service costs (2,500) (2,100)
Unrecognized net loss (gain) 12,600 (14,500)
------- -------
(Pension liability) Prepaid pension costs $(1,600) $ 500
======= =======
The Company's funding policy is to contribute each year an
amount equal to the minimum required contribution under the
Employee Retirement Income Security Act of 1974. However, the
contribution for any year will not be greater than the maximum tax
deductible contribution. Plan assets consist primarily of United
States Government and Agency securities, corporate stocks and
corporate bonds and notes. The weighted-average discount rate
used in determining the actuarial present value of the projected
benefit obligation was 7.25% for 1995 and 7.75% for 1996. The
rate of increase in future compensation levels used was 4.0% for
1995 and 1996 and thereafter. The expected long-term rate of
return on the assets was 9.0% for 1995 and 1996.
401(k) Savings Plan
Beginning in 1996 the Company sponsored a 401(k) Savings
Plan. Participation in this defined contribution plan is
available to substantially all employees of the Company. The
Company may elect to make contributions to the Plan; however,
the timing and amount of such contributions is at the
discretion of the Company's Board of Directors. There were no
contributions made in 1996.
9. Shareholders' Equity
Preferred Stock
The Company is authorized to issue 5,000,000 shares of
preferred stock, $1.00 par value, none of which was outstanding
at December 31, 1995 and 1996.
Income (Loss) Per Share
The weighted average number of shares used in the
computation of income (loss) per share was 14,464,000, for each
of the years ended December 31, 1994, 1995 and 1996,
respectively. The assumed exercise of stock options would not
result in dilution in any of such periods.
Stock-Based Compensation Plans
The Company's Performance Share Plan provided for the award
of shares of Common Stock to senior executives of the Company,
as designated by a committee of the Board of Directors, which
were earned upon the attainment of specified performance
objectives. These performance objectives have been attained
and therefore no further awards will be made.
A summary of the status of the Performance Share Plan as of
December 31, 1994, 1995 and 1996 and changes during the three
years ended December 31, 1996 are presented below:
1994 1995 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
Options outstanding
and exercisble
January 1 303,159 $15.975 279,155 $15.885 240,971 $17.463
Forfeited/expired 23,834 17.122 2,280 15.965 1,360 19.000
Exercised 170 4.150 35,904 5.285 13,207 12.940
------- ------- -------
Options outstanding
and exercisable,
December 31 279,155 $15.885 240,971 $17.463 226,404 $17.718
======= ======= =======
The range of exercise prices for options outstanding at
December 31, 1996 (the majority of which contain a stock
appreciation right feature) was $3.875 to $19.00 and the
weighted-average remaining contractual life for such options was
2.6 years.
The Company provided a Stock Appreciation Plan for key
management employees which contains a stock appreciation right
feature. This plan has expired, no further award will be made.
There were no transactions relating to this plan for the
year ended December 31, 1996. A summary of changes in the Stock
Appreciation Plan during the years ended December 31, 1994 and
1995 are presented below:
1994 1995
----------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
Options outstanding, January 1 50,000 $12.675 40,000 $11.250
Forfeited/expired (10,000) $18.375 (40,000) $11.250
------- -------
Options outstanding, December 31 40,000 $11.250 -- $ --
======= =======
There were no options exercisable at December 31, 1994, 1995
and 1996. Shares available for grant under the plan at December
31, 1994 and 1995 totaled 397,000, 437,000 shares, respectively,
and no shares were available for grant at December 31, 1996.
Options were outstanding at $11.25 per share at December 31,
1994. Under the terms of the plan, options expired on March 31,
1995.
Compensation expense for the years ended December 31, 1994,
1995 and 1996 was not material.
The Company applies Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Accordingly, no
compensation expense is recognized for its stock-based
compensation plans other than for performance-based awards.
Since no options were granted under the Company's stock-based
compensation plans during 1995 and 1996, there would have been no
effect on net income and income per common share had compensation
cost for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation."
10. Commitments and Contingencies
Litigation
In January 1986, the Louisiana Department of Environmental
Quality ("DEQ") advised the Company that it could be a
potentially responsible party ("PRP") with respect to an oil
reclamation site operated by an unaffiliated company in Walker,
Louisiana. The Company sold to the operator a substantial portion
of the waste oil that was processed at the reclamation site
during the period 1978 through 1982. The Company's potential
liability, if any, for cleanup of this site will be based on the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") or the Louisiana Environmental Affairs
Act. Under these statutes, such liability is presumptively joint
and several, but is typically apportioned among the responsible
parties based on the volume of material sent by each to the waste
site. The Company has cooperated with other PRPs to study the
potential aggregate liability under these statutes. Moreover, the
Company believes it has substantial defenses against liability
and defenses that could mitigate the portion of liability, if
any, that would otherwise be attributable to it.
To date, the Company and certain of the other PRPs (the
"Funding Group") for the site have funded the site's remediation
expenses, PRP identification expenses and related costs for the
participating parties. As of December 31, 1996 such costs
totaled $18.8 million, of which the Company has funded
approximately $4.0 million. Since 1988 the Funding Group filed
petitions to add a number of companies as third-party defendants
with regard to the remedial action. The Funding Group has agreed
to settle with the majority of these companies. All funds
collected through these settlements are placed in escrow to fund
future expenses. At December 31, 1996, the balance of the escrow
was $6.2 million, which is to be used to fund any ongoing
remediation expenses. The Company will not owe any future
assessments until the balance in escrow is depleted. There are
additional settlements being negotiated which should add to the
balance in escrow.
Additional remedial work scheduled for the site includes
completion of studies and if required by the results of these
studies, subsequent remediation. Following completion of any
such required additional remediation, it will be necessary to
obtain Environmental Protection Agency approval to close the
site, which consent may require subsequent post-closure
activities such as groundwater monitoring and site maintenance
for many years. The Company is not able to estimate the final
costs for any such additional remedial work or post-closure costs
that may be required; however, the Company believes that its
proportionate share of expenditures for any additional work will
not have a material impact on the Company's financial statements.
In addition, the members of the Funding Group have entered into a
final cost sharing agreement under which all parties have agreed
that there would be no re-allocation of previous remediation
costs, but that future remediation costs would be established by
a formula. Under this agreement, the Company's share of future
costs is 17.5%.
In 1996, the Company settled a class action lawsuit
involving alleged personal injury and property damage arising
from the Walker, La. reclamation site. Under the terms of the
settlement, the Company has paid approximately $6.0 million into
a settlement fund. The Company also agreed to pay up to an
additional $6.0 million (plus interest at 8% per annum) if the
plaintiffs are unsuccessful in collecting certain claims under
Avondale's insurance policies that have been assigned to the
plaintiff class under the settlement agreement. During the first
quarter of 1997, certain remaining parties to the litigation,
including Avondale's insurers, reached a tentative settlement,
pursuant to which Avondale's insurers agreed to pay the
plaintiffs an amount in excess of the $6.0 million (plus
interest) for which Avondale was responsible in full and final
satisfaction of the plaintiff's claims against Avondale and
Avondale would be released from liability. The tentative
settlement agreement is subject to a fairness review by the trial
court. With respect to the potential contingent liability of the
Company to pay additional sums if the tentative settlement is not
approved by the court, management believes that the eventual
resolution of this matter will not have a material adverse effect
on the Company's results of operations, financial position or
cash flows.
Furthermore, the Company has initiated litigation against
its insurer for a declaration of coverage of the liability, if
any, that may arise in connection with the remediation of the
site referred to above. The court has ruled that the insurer has
the duty to defend the Company, but has not yet ruled on whether
the carrier has a duty to indemnify the Company if any liability
is ultimately assessed against it. After consultation with
counsel, the Company is unable to predict the eventual outcome of
this litigation or the degree to which such potential liability
would be indemnified by its insurance carrier.
In addition to the above, the Company is also named as a
defendant in other lawsuits and proceedings arising in the
ordinary course of business, some of which involve substantial
claims.
The Company has established accruals as appropriate for
certain of the matters discussed above. While the ultimate
outcome of lawsuits and proceedings against the Company cannot be
predicted with certainty, management believes, based on current
facts and circumstances and after review with counsel, that, the
eventual resolution of these matters is not expected to have a
material adverse effect on the Company's financial statements.
Letters of Credit
In the normal course of its business activities, the Company
is required to provide letters of credit to secure the payment of
workers' compensation obligations, other insurance obligations
and to provide a debt service reserve fund related to $36.3
million of Series 1994 industrial revenue bonds. Additionally,
under certain contracts the Company may be required to provide
letters of credit to secure certain performance obligations of
the Company thereunder. Outstanding letters of credit relating to
these business activities amounted to approximately $25.4 million
at December 31, 1995 and $11.3 million at December 31, 1996.
11. Quarterly Results (Unaudited)
Consolidated operating results for the four quarters of 1995 and
1996 were as follows (in thousands, except per share data):
1995 1996
-------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $133,575 $152,788 $148,785 $141,160 $156,496 $152,577 $148,384 $167,472
Gross Profit 13,404 13,820 14,793 16,654 17,286 18,166 19,048 27,327
Income from
Operations 5,741 6,222 6,835 7,750 8,253 8,874 9,237 10,426
Net Income 3,044 8,493 12,054 4,589 4,736 14,290 5,612 6,157
Net Income
per Share $ 0.21 $ 0.59 $ 0.83 $ 0.32 $ 0.33 $ 0.99 $ 0.39 $ 0.43
====== ====== ====== ====== ====== ====== ====== ======
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10.Directors and Executive Officers of the Registrant.
Information concerning the Company's directors and officers called for
by this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 1997 Annual Meeting of shareholders and is
incorporated herein by reference.
Item 11. Executive Compensation.
Information concerning the executive compensation called for by this
item will be included in the Company's definitive Proxy Statement prepared
in connection with the 1997 Annual Meeting of shareholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning security ownership of certain beneficial owners
and management called for by this item will be included in the Company's
definitive Proxy Statement prepared in connection with the 1997 Annual
Meeting of shareholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1997 Annual Meeting of
shareholders and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
Not applicable
(a)(3) Exhibits
3.1 Articles of Incorporation of the Company.(1)
3.2 By-laws of the Company.(2)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 Specimen of Common Stock Certificate.(3)
4.3 Instruments Relating to Title XI Vessel Financing
(a) Trust Indenture dated October 21, 1975, by and between
the Company and Manufacturers Hanover Trust Company, as
Indenture Trustee, relating to $19,012,000 of United
States Government Guaranteed Ship Financing Bonds, as
amended by an Assumption Agreement and Supplemental
Indenture dated September 16, 1985(4), as further
amended by a Master Assumption Agreement, Supplemental
Indenture No. 2 and Amendment to Title XI Finance
Agreements dated March 13, 1991 (the "Master Assumption
Agreement"),(5) which has been further amended by a
Third Supplemental Indenture dated February 9, 1995.(6)
(b) Title XI Reserve Fund and Financial Agreement dated
October 21, 1975, by and between the Company and the
United States of America, as amended by Amendments Nos.
1 and 2(4), as further amended by the Master Assumption
Agreement (filed as Exhibit 4.3(a) hereto). The
Reserve Fund and Financial Agreement has been further
amended by Amendment No. 5 dated February 9, 1995(6)
and Amendment No. 6 dated August 22, 1996.
(c) Form of 8.80% Sinking Fund Bond, Series A (included in
Exhibit 4.3(a)).
(d) Form of 9.30% Sinking Fund Bond, Series B (included in
Exhibit 4.3(a)).
(e) Form of 7.86% Sinking Fund Bond, 2000 Series.(6)
4.4 Instruments relating to AEI's and the Company's obligations
arising in connection with the issuance of General Obligation
Bonds by Harrison County, Mississippi.
(a) Loan Agreement dated April 1, 1991 between Harrison
County, Mississippi and AEI, pursuant to which AEI is
obligated to repay $3 million in order to fund the
County's bond payment obligations.(3)
(b) Guaranty Agreement dated April 1, 1991 between the
Company, Harrison County, Mississippi and the State of
Mississippi.(3)
4.5 Instruments relating to the Company's $36.25 million
Industrial Revenue Refunding Bond Series 1994 Financing.
(a) Refunding Agreement dated April 1, 1994 between the
Company and the Board of Commissioners of the Port of
New Orleans, Exhibit A and First Preferred Vessel
Mortgage thereto.(7)
(b) Trust Indenture dated April 1, 1994 between the Board
of Commissioners of the Port of New Orleans and First
National Bank of Commerce.(7)
(c) Form of Industrial Revenue Refunding Bond Series
1994.(7)
4.6 Instruments Relating to February 1995 Title XI Vessel
Financing.
(a) Trust Indenture dated February 9, 1995 by and between
the Company and Chemical Bank, as Indenture Trustee,
relating to $17,780,000.00 of United States Government
Guaranteed Ship Financing Bonds.(6)
(b) Title XI Reserve Fund and Financial Agreement dated
February 9, 1995, by and between the Company and the
United States of America,(6) as amended by Amendment
No. 1 dated August 22, 1996.
(c) Form of 8.16% Sinking Fund Bond, 2010 Series.(6)
10.1 Contracts With The United States Navy
(a) Agreement dated June 28, 1985, by and between the
Company and the United States of America (Contract No.
N00024-85-C-2131) for the construction of T-AO 187
Class Oiler Ships and various modifications thereto(4)
including modification P00005 thereto entered into on
June 16, 1988, and the related Acknowledgment of
Transfer and Transfer Agreement relating to the
Company's agreement to assume certain of the rights and
obligations to build two such vessels under an
Agreement dated May 6, 1985, by and between
Pennsylvania Shipbuilding Co. and the United States of
America.(8)
(b) Agreement dated June 20, 1988, by and between the
Company and the United States of America (Contract No.
N00024-88-C-2050) for the construction of T-AO 187
Class Oiler Ships and various modifications thereto(8)
and modification P00036 thereto.(5)
(c) Agreement dated November 21, 1983, by and between the
Company and the United States of America (Contract No.
N00024-84-C-2027) for the construction of LSD-41 Class
Landing Ship Dock vessels and various modifications
thereto.(4)
(d) Agreement dated June 17, 1988, by and between the
Company and the United States of America (Contract No.
N00024-88-C-2048) for the construction of LSD-41 Class
Landing Ship Dock vessels and modification nos. P00001
and P00002(8), modification nos. P00008 and P00013
thereto(3) and modification P00029 thereto.(5)
(e) Agreement dated July 15, 1988, by and between the
Company and the United States of America (Contract No.
N00024-88-C-2221) for the conversion of AO-177 Class
Oilers to AO-177 Jumbo Class and various modifications
thereto.(8)
(f) Agreement dated December 13, 1988, by and between AGM
and the United States of America (Contract No. N00024-
89-C-2110) for the construction of three LCACs.(8)
(g) Agreement dated July 1, 1987, by and between Lockheed
Shipbuilding Company and the United States of America
(Contract No. N00024-87-C-2089) for the construction of
seven LCACs (assumed by AGM in 1988).(8)
(h) Agreement dated October 3, 1989, by and between the
Company and the United States of America (Contract No.
N00024-89-C-2162) for the construction of one MHC Class
51 ship and various modifications thereto(9),
modification no. P00020(5) and modification no. P00027
thereto(10).
(i) Agreement dated August 2, 1990, by and between the
Company and the United States of America (Contract
N00024-90-C-2304) for the construction of one MHC Class
51 ship,(3) and modification nos. P00002(5),
P00013(5)and modification no. P00020 thereto(10).
(j) Agreement dated November 30, 1990, by and between the
Company and the United States of America (Contract No.
N00024-90-C-2307) for the construction of one T-AGS 45
ship and various modifications thereto.(3)
(k) Agreement dated July 15, 1993, by and between the
Company and the United States of America (Contract No.
N00024-93-C-2300) for the construction of one WAGB 20
Coast Guard Polar Icebreaker ship, amendment 0001 and
modification nos. P0001 and P00013 thereto.(1)
(l) Agreement dated September 3, 1993, by and between the
Company and the United States of America (Contract No.
N00024-93-C-2205) for the construction of one T-AKR 300
Class Strategic Sealift ship, various amendments and
modifications nos. P00001, P00003 and P00004(5),
P00007(7) and modification P00019 thereto.
(m) Agreement dated October 12, 1993, by and between the
Company and the United States of America (Contract No.
N00024-94-C-2200) for the construction of one LSD 41
Class Landing Ship Dock.(5)
(n) Agreement dated December 17, 1996 by and between the
Company and the UnitedStates of America (Contract No.
N00024-97-C-2202) for the design and construction of
one LPD-17 ship.
10.2 Other Operating Contracts
(a) Agreement dated July 10, 1991 by and between Crawford
Technical Services, Inc. and the Dallas Area Rapid
Transit Authority, and the supplement thereto, relating
to providing operational and maintenance services for
paratransit van services for the Dallas, Texas
metropolitan area.(5)
(b) Agreement dated January 28, 1991, by and between
Crawford Technical Services, Inc. and the United States
of America and various modifications thereto (Contract
No. FO3602-91-C0007) relating to providing maintenance
services with respect to family housing units located
in a Little Rock, Arkansas air force base.(5)
(c) Agreement dated January 12, 1994 by and between the
Company and Belle of Orleans, L.L.C. for the
construction of a 350-foot-long paddlewheel gaming
vessel, various exhibits and Amendment nos. 1, 2 and 3
thereto.(7)
(d) Agreement dated May 12, 1995 by and between the Company
and American Heavy Lift Shipping Company for the
construction of one ocean-going product tanker, S/S
King.(2)
(e) Agreement dated May 12, 1995 by and between the Company
and American Heavy Lift Shipping Company for the
construction of one ocean-going product tanker, S/S
Knight.(2)
(f) Agreement dated May 12, 1995 by and between the Company
and American Heavy Lift Shipping Company for the
construction of one ocean-going product tanker, S/S
Solar.(2)
(g) Agreement dated May 12, 1995 by and between the Company
and American Heavy Lift Shipping Company for the
construction of one ocean-going product tanker, S/S
Spray.(2)
10.3 Employee Benefit Plans
(a) The Company's Amended and Restated Performance Share
Plan dated April 24, 1989(11), as amended by Amendment
No. 1 adopted December 5, 1994.(7)
(b) The Company's Amended and Restated Stock Appreciation
Plan and attachments thereto dated April 24, 1989(11),
as amended by Amendment No. 1 adopted December 5,
1994.(7)
(c) The Company's Amended and Restated Employee Stock
Ownership Plan(7) and the related Amended and Restated
Trust Agreement(12) as further amended by: Amendment
No. 1 adopted April 5, 1995(6), Amendment No. 2 adopted
June 16, 1995(2), Amendment No. 3 adopted February 5,
1996(12) and Amendment No. 4 adopted December 31, 1996.
(d) The Company's Pension Plan as Amended and Restated(7)
as further amended by: Amendment No. 1 adopted June 16,
1995(2), Amendment No. 2 adopted April 19, 1996(13) and
Amendment No. 3 adopted December 31, 1996.
(e) The Company's Amended and Restated Supplemental Pension
Plan(4), as amended by Amendment Nos. 1 and 2
thereto(3).
(f) The Company's Excess Retirement Plan.(3)
(g) Executive Group Insurance Benefits Plan specifying the
excess insurance benefits provided to the Company's
executive officers and certain other key personnel, and
a summary description of health, accidental death and
dismemberment, disability and life insurance benefits
made available to employees of Avondale Services
Corporation(3), as amended on March 25, 1994.(7)
(h) The Company's Directors' Deferred Compensation Plan.(3)
(i) Avondale Industries, Inc. Management Incentive Plan.(6)
(j) The Company's 401(k) Plan as restated effective
September 20, 1996, as amended by Amendment No. 1 dated
December 31, 1996.
(k) The Company's Executive Retirement Plan(12).
10.4 Employment Agreements
(a) Employment Agreement dated September 27, 1985, by and
between the Company and Albert L. Bossier, Jr.(4) the
term of which has been extended such that its current
term extends through December 31, 1999.(7)
(b) Employment Agreement dated June 18, 1987, by and
between the Company and Thomas M. Kitchen(4) the term
of which has been extended such that its current term
extends through December 31, 1999.(7)
(c) Employment Agreement dated June 18, 1987, by and
between the Company and Kenneth B. Dupont(4) the term
of which has been extended such that its current term
extends through December 31, 1999.(7)
(d) Amended and Restated Change of Control Agreement dated
January 19, 1996 by and between the Company and
Albert L. Bossier, Jr(12).
(e) Amended and Restated Change of Control Agreement dated
January 19, 1996 by and between the Company and
Thomas M. Kitchen(12).
(f) Amended and Restated Change of Control Agreement dated
January 19, 1996 by and between the Company and
Kenneth B. Dupont(12).
(g) The Company's Severance Pay Plan and Summary Plan
Description adopted March 1, 1996(12).
10.5 Avondale/Ogden Letter Agreement.(14)
10.6 Acquisition and Disposition Agreements
(a) Asset Purchase Agreement dated January 27, 1987 by and
between the Company and Connell Industries, L.P.(4)
(b) Purchase Agreement dated June 22, 1988, by and between
AGM, Lockheed Shipbuilding Company and Lockheed
Corporation.(8)
(c) Stock Purchase Agreement dated February 15, 1991, by
and between Avondale Technical Services, Inc. and
Oliver R. Crawford relating to the purchase of Crawford
Technical Services, Inc.(3)
(d) Asset Purchase Agreement dated November 20, 1992
between the Company and Bollinger Machine Shop &
Shipyard, Inc., a Louisiana corporation (without
exhibits).(5)
10.7 Lease Agreements
(a) Lease Agreement dated June 24, 1988, by and between the
Company and the Board of Commissioners of the Port of
New Orleans.(8)
(b) Lease Agreement dated June 4, 1979, by and between the
Company and Marrero Land and Improvement Association,
Ltd.(8)
(c) Adoption Agreement dated July 22, 1988, by and between
the Company and Missouri Pacific Railroad Company, as
supplemented on the date thereof.(8)
(d) Lease of Commercial Property dated July 1, 1970 by and
between the Company and Metal Building Products Co.,
Inc.(3)
10.8 Other Material Agreements
(a) Registration Rights Agreement between the Company and
the ESOP as Annex I of the Common Stock Purchase
Agreement dated as of September 27, 1985, by and
between Ogden American Corporation and the trustees of
the Avondale Industries, Inc., Employee Stock Ownership
Trust.(4)
(b) Registration Rights Agreement between the Company and
the participants in the Amended and Restated
Performance Share Plan (included in Exhibit 10.3(a)).
(c) License dated October 13, 1989 by and between the
Company and Intermarine S.p.A. relating to the license
of molded, glass-reinforced polyester hull construction
technology.(3)
(d) Stockholder Protection Rights Agreement dated as of
September 26, 1994 between Avondale Industries, Inc.
and Boatmen's Trust Company, as Rights Agent.(15)
(e) Agreement by and between the Company and Bath Iron
Works Corporation, Subcontract for LPD-17 Class Work
dated June 23, 1996 (without attachments).
(f) Agreement by and between the Company and Hughes
Aircraft Co., Subcontract for LPD-17 Class Work dated
June 23, 1996 (without attachments).
10.9 Revolving Credit Agreement dated as of May 10, 1994 among
Avondale Industries, Inc., various financial institutions
signatory thereto (the "Banks") and Continental Bank N.A. as
the Agent for the Banks, and Amendment Nos. 1 and 2
thereto.(7)
(a) Third Amendment, Waiver and Consent to Revolving Credit
Agreement, dated May 10, 1995(10).
(b) Fourth Amendment and Consent to Revolving Credit
Agreement, dated September 1, 1995(10).
(c) Fifth Amendment to Revolving Credit Agreement, dated
November 17, 1995(10).
(d) Sixth Amendment to Revolving Credit Agreement, dated
October 22, 1996.
21 List of subsidiaries of the Company
23 Consent of Deloitte & Touche LLP
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.
(3) Incorporated by reference from the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1991, as amended by Form 10-
K/A.
(4) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 33-20145) filed with the Commission on
February 16, 1988.
(5) Incorporated by reference from the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.
(6) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1995.
(7) Incorporated by reference from the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1994.
(8) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 33-27342) filed with the Commission on
March 6, 1989.
(9) Incorporated by reference from the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1990.
(10) Incorporated by reference from the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1995.
(11) Incorporated by reference from the Company's Registration Statement on
Form S-8 and Form S-3 (Registration No. 33-31984) filed with the
Commission on November 8, 1989.
(12) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1996.
(13) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1996.
(14) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1994.
(15) Incorporated by reference from the Company's Current Report on Form 8-
K filed with the Commission on September 30, 1994.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three month period
ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 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, on March
14, 1997.
AVONDALE INDUSTRIES, INC.
By: /s/ Albert L. Bossier, Jr.
--------------------------
Albert L. Bossier, Jr.
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and on the dates indicated.
Signature Title Date
---------------------------------------------------------------------
/s/ Albert L. Bossier, Jr. Chairman of the Board, March 14, 1997
-------------------------- President and Chief
Albert L. Bossier, Jr. Executive Officer
/s/ Thomas M. Kitchen Vice President, Chief March 14, 1997
--------------------- Financial Officer,
Thomas M. Kitchen Corporate Secretary and
a Director
/s/ Kenneth B. Dupont Vice President and a March 14, 1997
--------------------- Director
Kenneth B. Dupont
/s/ Anthony J. Correro, III Director March 14, 1997
---------------------------
Anthony J. Correro, III
/s/ Francis R. Donovan Director March 14, 1997
----------------------
Francis R. Donovan
/s/ William A. Harmeyer Director March 14, 1997
-----------------------
William A. Harmeyer
/s/ Hugh A. Thompson Director March 14, 1997
--------------------
Hugh A. Thompson
/s/ Bruce L. Hicks Vice President & March 14, 1997
------------------ Controller
Bruce L. Hicks
EXHIBIT INDEX
Number Description
4.3 Instruments Relating to Title XI Vessel Financing 10.1
(b) Title XI Reserve Fund and Financial Agreement
dated October 21, 1975, by and between the Company
and the United States of America, as amended by
Amendments Nos. 1 and 2(4), as further amended by
the Master Assumption Agreement (filed as Exhibit
4.3(a) hereto). The Reserve Fund and Financial
Agreement has been further amended by Amendment
No. 5 dated February 9, 1995(6) and Amendment No.
6 dated August 22, 1996.
4.6 Instruments Relating to February 1995 Title XI Vessel
Financing.
(b) Title XI Reserve Fund and Financial Agreement
dated February 9, 1995, by and between the Company
and the United States of America,(6) as amended by
Amendment No. 1 dated August 22, 1996.
10.1 Contracts With The United States Navy
(l) Agreement dated September 3, 1993, by and between
the Company and the United States of America
(Contract No. N00024-93-C-2205) for the
construction of one T-AKR 300 Class Strategic
Sealift ship, various amendments and modifications
nos. P00001, P00003 and P00004(5), P00007(7) and
modification P00019 thereto.
(n) Agreement dated December 17, 1996 by and between
the Company and theUnited States of America (Contract
No. N00024-97-C-2202) for the designand construction of
one LPD-17 ship.
10.3 Employee Benefit Plans
(c) The Company's Amended and Restated Employee Stock
Ownership Plan(7) and the related Amended and
Restated Trust Agreement(12) as further amended
by: Amendment No. 1 adopted April 5, 1995(6),
Amendment No. 2 adopted June 16, 1995(2),
Amendment No. 3 adopted February 5, 1996(12) and
Amendment No. 4 adopted December 31, 1996.
(d) The Company's Pension Plan as Amended and
Restated(7) as further amended by: Amendment No. 1
adopted June 16, 1995(2), Amendment No. 2 adopted
April 19, 1996(13) and Amendment No. 3 adopted
December 31, 1996.
(j) The Company's 401(k) Plan as restated effective
September 20, 1996, as amended by Amendment No. 1
dated December 31, 1996.
10.8 Other Material Agreements
(e) Agreement by and between the Company and Bath Iron
Works Corporation, Subcontract for LPD-17 Class
Work dated June 23, 1996 (without attachments).
(f) Agreement by and between the Company and Hughes
Aircraft Co., Subcontract for LPD-17 Class Work
dated June 23, 1996 (without attachments).
10.9 Revolving Credit Agreement dated as of May 10, 1994
among Avondale Industries,Inc., various financial
institutions signatory thereto (the "Banks") and Continental
Bank N.A. as the Agent for the Banks, and Amendment Nos. 1
and 2 thereto.(7)
(d) Sixth Amendment to Revolving Credit Agreement,
dated October 22, 1996.
21 List of subsidiaries of the Company
23 Consent of Deloitte & Touche LLP
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.
(3) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991, as
amended by Form 10-K/A.
(4) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-20145) filed with
the Commission on February 16, 1988.
(5) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
(6) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1995.
(7) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(8) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-27342) filed with
the Commission on March 6, 1989.
(9) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990.
(10) Incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscalyear ended December 31, 1995.
(11) Incorporated by reference from the Company's Registration
Statement on Form S-8 and Form S-3 (Registration No. 33-
31984) filed with the Commission on November 8, 1989.
(12) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for thefiscal quarter ended March 31, 1996.
(13) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for thefiscal quarter ended June 30, 1996.
(14) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1994.
(15) Incorporated by reference from the Company's Current Report
on Form 8-K filed with the Commission on September 30, 1994.