FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ X ]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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For Quarter Ended June 30, 1997
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Commission File Number 0-16572
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AVONDALE INDUSTRIES, INC.
Louisiana 39-1097012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 50280, New Orleans, Louisiana 70150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 504/436-2121
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to file such filing requirements
for the past 90 days. YES X NO .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at June 30, 1997
Common stock, par value $1.00 per share 14,493,211 shares
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Independent Accountants' Report
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996
Consolidated Statements of Operations -
Quarters and Six Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Avondale Industries, Inc.
We have reviewed the condensed consolidated financial statements
of Avondale Industries, Inc. and subsidiaries, as listed in the
accompanying index, as of June 30, 1997 and for the three-month
and six-month periods ended June 30, 1997 and 1996. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Avondale
Industries, Inc. and subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 17, 1997, we expressed
an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1996
is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
July 29, 1997
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
June 30, December 31,
1997 1996
---- ----
ASSETS
Current Assets:
Cash and cash equivalents ............ $ 55,392 $ 48,944
Receivables (Note 2):
Accounts receivable ................. 9,936 14,133
Contracts in progress .............. 98,560 105,006
Inventories:
Goods held for sale ................. 15,098 13,184
Materials and supplies ............. 8,957 8,601
Deferred tax assets ................. 21,757 30,157
Prepaid expenses ..................... 2,833 2,465
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Total current assets ................ 212,533 222,490
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Property, Plant and Equipment:
Land .................................. 7,984 7,984
Construction in progress ............. 6,214 6,934
Buildings and improvements ............ 52,730 52,664
Machinery and equipment .............. 190,685 187,029
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Total ............................... 257,613 254,611
Less accumulated depreciation.......... (132,151) (127,009)
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Property, plant and equipment - net.. 125,462 127,602
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Goodwill - net .......................... 7,791 8,073
Other assets ............................ 4,037 4,707
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Total assets ........................$ 349,823 $ 362,872
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(UNAUDITED)
June 30, December 31,
1997 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......$ 3,047 $ 4,957
Accounts payable ...................... 46,989 73,589
Accrued employee compensation.......... 12,279 11,630
Other ................................. 16,736 12,839
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Total current liabilities............ 79,051 103,015
Long-term debt........................... 52,800 54,866
Deferred income taxes ................... 9,300 10,300
Other liabilities and deferred credits .. 13,857 12,838
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Total liabilities ..................... 155,008 181,019
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Commitments and contingencies (Note 4)
Shareholders' Equity (Note 5):
Common stock, $1.00 par value,
authorized 30,000,000 shares; issued -
15,956,227 shares in 1997 and
15,927,191 shares in 1996 ............. 15,956 15,927
Additional paid-in capital ............ 374,173 373,911
Accumulated deficit ................... (183,458) (196,129)
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Total ............................... 206,671 193,709
Treasury stock (common: 1,463,016
shares in 1997 and 1996) at cost....... (11,856) (11,856)
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Total shareholders' equity ........... 194,815 181,853
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Total .................................$ 349,823 $ 362,872
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
Quarters Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $145,792 $152,577 $285,305 $309,073
Cost of sales 126,291 134,411 247,171 273,621
------- ------- ------- -------
Gross profit 19,501 18,166 38,134 35,452
Selling, general and
administrative expenses 8,635 9,292 16,969 18,325
------- ------- ------- -------
Income from operations 10,866 8,874 21,165 17,127
Interest expense (1,195) (1,262) (2,412) (2,648)
Other - net 709 778 1,318 1,347
------- ------- ------- -------
Income before
income taxes 10,380 8,390 20,071 15,826
Income tax (provision)
benefit (Note 6) (4,000) 5,900 (7,400) 3,200
------- ------- ------- -------
Net income $ 6,380 $ 14,290 $ 12,671 $ 19,026
======= ======= ======= =======
Net income per share of
common stock (Note 7) $ 0.44 $ 0.99 $ 0.87 $ 1.32
======= ======= ======= =======
Weighted average number
of shares outstanding 14,493 14,464 14,493 14,464
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands)
(UNAUDITED)
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,671 $ 19,026
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,716 5,436
Deferred income taxes 7,400 (3,200)
Changes in operating assets and
liabilities:
Receivables 10,643 9,519
Inventories (2,270) 313
Prepaid expenses and other assets 302 375
Accounts payable (26,600) (3,660)
Accrued employee compensation and
other liabilities 5,565 3,562
Other - net 303 490
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Net Cash Provided by
Operating Activities 13,730 31,861
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,306) (7,523)
Other - net - 383
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Net Cash Used for Investing Activities (3,306) (7,140)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term borrowings (3,976) (4,851)
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Net Cash Used for Financing Activities (3,976) (4,851)
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Net increase in cash and cash equivalents 6,448 19,870
Cash and cash equivalents at
beginning of period 48,944 38,524
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Cash and cash equivalents at end of period $ 55,392 $ 58,394
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 2,666 $ 2,698
======= =======
Income taxes $ 700 $ 1,360
======= =======
See Notes to Consolidated Financial Statements.
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include the accounts of Avondale Industries, Inc. and its
wholly-owned subsidiaries ("Avondale" or the "Company"). In
the opinion of management of the Company, all adjustments
(such adjustments consisting only of a normal recurring
nature) necessary for a fair presentation of the operating
results for the interim periods presented have been included
in the interim financial statements. These interim financial
statements should be read in conjunction with the December 31,
1996 audited financial statements and related notes filed on
Form 10-K for the year ended December 31, 1996 (the "1996 Form
10-K").
The financial statements required by Rule 10-01 of Regulation
S-X have been reviewed by independent public accountants as
stated in their report included herein.
2.RECEIVABLES
The following information presents the elements of receivables
at June 30, 1997 and December 31, 1996 (in thousands):
1997 1996
---- ----
Long-term contracts:
U.S. Government:
Amounts billed $ 541 $ 859
Unbilled costs, including
retentions, and estimated
profits on contracts in
progress 83,272 90,325
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Total 83,813 91,184
Commercial:
Amounts billed 3,511 7,274
Unbilled costs, including
retentions, and estimated
profits on contracts in
progress 15,288 14,681
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Total from long-term contracts 102,612 113,139
Trade and other current receivables 5,884 6,000
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Total $108,496 $119,139
======= =======
Unbilled costs and estimated profits on contracts in progress were
not billable to customers at the balance sheet dates under terms of
the respective contracts.
3. FINANCING ARRANGEMENTS
The Company's $85 million revolving credit agreement provides
available liquidity for working capital purposes, capital
expenditures and letters of credit. At June 30, 1997, there were
approximately $11.3 million of letters of credit issued against the
agreement leaving approximately $73.7 million of liquidity available
to Avondale for operations and other purposes. There have been no
borrowings in 1997 under the agreement. Continuing access to the
agreement is conditioned upon the Company remaining in compliance
with the covenants which include certain financial ratios. The
Company is currently in compliance with the covenants contained
therein.
4. COMMITMENTS AND CONTINGENCIES
Litigation
As discussed in Note 10 of the Company's Annual Report in the 1996
Form 10-K, the Company was advised in 1986 that it was a potentially
responsible party ("PRP") with respect to an oil reclamation site
operated by an unaffiliated company in Walker, Louisiana. To date,
the Company and certain of the other PRPs (the "Funding Group") for
the site have funded the site's remediation expenses, PRP
identification expenses and related costs for the participating
parties. As of June 30, 1997 such costs totaled $18.8 million, of
which the Company has funded approximately $4.0 million. Since 1988,
the Funding Group has filed petitions to add a number of companies as
third-party defendants with regard to the remedial action and has
agreed to settle with the majority of these companies. All funds
collected through these settlements have been escrowed to fund future
expenses. At June 30, 1997, the balance of the escrow was $8.0
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. Additional settlements are being
negotiated which may 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 adverse impact on the
Company's consolidated 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%.
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.
As previously disclosed, during the first quarter of 1997, the
Company reached a tentative settlement with certain remaining parties
to litigation involving alleged personal injury and property damage
arising from the Walker, La. reclamation site. After a fairness
review held on April 18, 1997, the trial court issued an order on
June 4, 1997 which approved the tentative settlement and, as a
result, released the Company from its contingent liability.
In addition to the above, the Company is also named as a defendant in
numerous other lawsuits and proceedings arising in the ordinary
course of business, some of which involve substantial damage claims.
The Company has established accruals as appropriate for certain of
the matters discussed above. While the ultimate outcome of lawsuits
and proceedings against the Company cannot be predicted with
certainty, management believes, based on current facts and
circumstances and after review with counsel, that the eventual
resolution of these matters will not have a material adverse effect
on the Company's consolidated financial statements.
Letters of Credit
In the normal course of its business activities, the Company is
required to provide letters of credit to secure the payment of
workers' compensation obligations, other insurance obligations and to
provide a debt service reserve fund related to $36.3 million of
Series 1994 industrial revenue bonds. Additionally, under certain
contracts the Company may be required to provide letters of credit to
secure certain performance obligations of the Company thereunder.
Outstanding letters of credit relating to these business activities
amounted to approximately $11.3 million at June 30, 1997 and December
31, 1996.
Guarantee
Pursuant to agreements related to the UNO/Avondale Maritime
Technology Center of Excellence, the Company has agreed to guarantee
an estimated $40 million of indebtedness expected to be incurred for
construction of the facility and the acquisition of technology.
5. SHAREHOLDERS' EQUITY
On May 23, 1997, the shareholders approved adoption of the Avondale
Industries, Inc. 1997 Stock Incentive Plan (the "Plan"). The Plan
provides for the award of various incentives to directors, officers
and key employees. Incentives granted under the Plan may be granted
in any one or a combination of the following forms: (a) incentive
stock options and non-qualified stock options; (b) stock appreciation
rights; (c) restricted stock; and (d) performance shares. The Plan
is administered by the compensation committee of the Board of
Directors which has the authority to award incentives under the Plan,
to interpret the Plan and to establish any rules and regulations
relating to the Plan. A total of 1,430,000 shares of common stock of
the Company are reserved for issuance under the Plan.
6. INCOME TAXES
The Company provides for income taxes based on the maximum statutory
rate for U.S. corporations. The provision in 1996, however, was
offset by certain adjustments related to deferred income taxes.
During the second quarter of 1996, the deferred tax valuation
allowance decreased by $9.0 million based on current evaluations of
the Company's expectations of the likelihood of future taxable income
that would permit the utilization of its net operating loss carry
forwards. The $9.0 million for 1996 was recorded as a reduction of
income tax expense. Such benefit in the prior year recognized for
financial reporting purposes the availability of net operating loss
carry forwards to offset estimated future earnings. During 1997, no
such benefit was recorded.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards Number 128
"Earnings per Share" ("SFAS 128") which changes the method of
calculating earnings per share ("EPS"). SFAS 128 requires the
presentation of "basic" EPS and "diluted" EPS on the face of the
statement of operations. Basic EPS is computed by dividing the net
income available to common shareholders by the weighted average
shares of outstanding common stock. The calculation of diluted EPS
is similar to basic EPS except that the denominator includes dilutive
common stock equivalents such as stock options and warrants. The
statement is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt SFAS 128 in the
fourth quarter of 1997, as early adoption is not permitted. The
Company's current EPS calculation significantly conforms to basic
EPS. Diluted EPS is not expected to be materially different from
basic EPS since potential common shares in the form of common stock
options are not estimated to be materially dilutive.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires
that an entity display an amount representing total comprehensive
income for the period in that financial statement. SFAS 130 requires
that an entity classify items of other comprehensive income by their
nature in a financial statement. For example, other comprehensive
income may include foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments
in debt and equity securities. In addition, the accumulated balance
of other comprehensive income must be displayed separately from
retained earnings and additional paid-in capital in the equity
section of a statement of financial position. Reclassification of
financial statements for earlier periods, provided for comparative
purposes, is required. The Company has not determined the impact
that the adoption of this new accounting standard will have on its
consolidated financial statements. The Company will adopt this
accounting standard January 1, 1998, as required.
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the
Company's unaudited consolidated financial statements for the periods
ended June 30, 1997 and 1996 and Management's Discussion and Analysis
of Financial Condition and Results of Operations included under Item
7 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K").
Overview
The Company continued its trend of improvement in its operating
results compared to the same periods in the prior year. Income from
operations increased by 22% for the second quarter of 1997 and by 24%
for the first six months of 1997 compared to the same periods in the
prior year. Further, income before income taxes increased 24% for
the second quarter of 1997 and 27% for the first six months of 1997
over the same periods in 1996.
The Company's firm backlog at June 30, 1997 was approximately $1.9
billion (including estimated contract escalation) exclusive of
unexercised options aggregating $1.9 billion for additional ship
orders. During the first six months of 1997, the Company delivered a
MHC-51 Class Coastal Minehunter to the Navy representing the fourth
and final Minehunter constructed by the Company. The Company also
delivered the second and third of four commercial tankers which are
being retrofitted with double-hulled forebodies. Other contracts
scheduled to be completed during 1997 include the LSD-CV 52, the last
of four LSD-CVs constructed under two contracts, and the fourth
commercial tanker.
As previously disclosed, in December 1996 a Company-led alliance,
which includes Bath Iron Works ("Bath") and Hughes Aircraft Company,
was awarded a $641 million contract to design and construct the first
of an anticipated 12 ships under the Navy's LPD-17 program. The
contract award provides for options exercisable by the Navy for two
additional LPD-17 ships to be built by the alliance. Under the terms
of an agreement between the alliance members, the Company will build
the ship covered under the December 1996 contract, and if the Navy
exercises the two options, the Company would construct the second
while Bath would construct the third of the three LPD-17 ships to be
built under the initial contract. Upon the announcement of the
award, the unsuccessful bidder filed a protest at which time the U.S.
Navy issued a stop-work order pending a review of the protest by the
General Accounting Office ("GAO"). On April 7, 1997, the GAO denied
the protest by the unsuccessful bidder. The Navy followed the GAO
decision by canceling the stop-work order. As a result, the Company
immediately resumed design work under the contract.
In June 1997, the Company announced that it signed a $332 million
contract with ARCO Marine, Inc. of Long Beach, California for the
construction of two 125,000 DWT crude oil carriers for the Jones Act
trade to be built with double hulls in compliance with the Oil
Pollution Act of 1990. The contract also provides options
exercisable by ARCO for three additional ships. Detail design of the
ships has begun with construction scheduled to start in December of
1997. Delivery of the first ship is scheduled for the first quarter
of 2000.
Results of Operations
The Company recorded net income of $6.4 million, or $0.44 per share,
for the second quarter of 1997 compared to $14.3 million, or $0.99
per share, for the second quarter of 1996. For the first six months
of 1997, the Company recorded net income of $12.7 million, or $0.87
per share, compared to $19.0 million, or $1.32 per share for the same
period in 1996. Net income for the second quarter and first six
months of 1996 included an income tax benefit of $9.0 million, or
$0.62 per share, which recognized, for financial reporting purposes,
the benefit of certain net operating loss carry forwards available to
offset estimated future earnings. No similar benefit was recorded in
1997.
Income from operations for the quarter and six months ended June 30,
1997 increased by $2.0 million, or 22%, and $4.0 million, or 24%,
respectively, compared to the prior year periods. The increase in
the Company's operating results in the second quarter and first six
months of 1997 primarily reflect operating profits recognized on the
contract to construct five Strategic Sealift vessels and the
Icebreaker contract. Profit recognition on these two contracts was
not reflected in the operating results of the same periods in 1996 as
contract progress was not sufficient to begin profit recognition.
Also contributing to the 1997 operating results were profits recorded
by the Company's marine repair, wholesale steel and modular steel
construction operations.
These profits were offset, in part, by a $2.5 million loss recorded
in the first quarter of 1997 on the contract to retrofit four single-
hulled commercial tankers with new double hulls. This loss resulted
primarily from an increase in the estimated labor needed to complete
the two remaining double hulls.
Net sales for the second quarter of 1997 decreased $6.8 million, or
4%, to $145.8 million compared to $152.6 million for the second
quarter of 1996 while net sales for the first six months of 1997
reflected a decrease of $23.8 million, or 8%, compared to the same
period in the prior year. The decrease in net sales in the current
periods is primarily due to a reduction in material costs associated
with the timing of material commitments on contracts currently in
progress as well as a reduction in material costs on contracts that
are near completion. In the second quarter and six months ended June
30, 1997, the Company recorded decreased net sales on the contracts
to construct the seven T-AOs (the last of which was delivered in May
1996), the four MHCs (the last of which was delivered in January
1997), the LSD-CV 52 (expected to be delivered in November 1997) and
the three LSD-CVs (the last of which was delivered in March 1996).
The Company also recorded reduced net sales on the contract to
construct the forebodies for the four double-hulled product carriers
as two of the vessels were delivered in 1996. The decreases noted
above were partially offset by increased net sales recorded on the
contracts to construct the Icebreaker and the five Strategic Sealift
ships.
Gross profit for the second quarter and first six months of 1997
increased $1.3 million, or 7%, and $2.7 million, or 8%,
respectively, compared to the same periods in 1996. The increase is
due primarily to profits recognized on the contracts to construct the
five Strategic Sealift ships and the Icebreaker. These incremental
profits were offset, in part, by the loss discussed above.
Selling, general and administrative ("SG&A") expenses decreased
$657,000, or 7%, in the second quarter of 1997 and $1.4 million, or
7%, for the first six months of 1997 compared to the same periods in
the prior year. The decrease in SG&A expenses was due primarily to a
decrease in proposal preparation costs recorded in 1996 in connection
with the preparation of the successful LPD-17 proposal.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards Number 128
"Earnings per Share" ("SFAS 128") which changes the method of
calculating earnings per share ("EPS"). SFAS 128 requires the
presentation of "basic" EPS and "diluted" EPS on the face of the
statement of operations. Basic EPS is computed by dividing the net
income available to common shareholders by the weighted average
shares of outstanding common stock. The calculation of diluted EPS
is similar to basic EPS except that the denominator includes dilutive
common stock equivalents such as stock options and warrants. The
statement is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt SFAS 128 in the
fourth quarter of 1997, as early adoption is not permitted. The
Company's current EPS calculation significantly conforms to basic
EPS. Diluted EPS is not expected to be materially different from
basic EPS since potential common shares in the form of common stock
options are not estimated to be materially dilutive.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
The Company has not determined the impact that the adoption of this
new accounting standard will have on its consolidated financial
statements. The Company will adopt this accounting standard January
1, 1998, as required. Refer to Note 7 of the Notes to Consolidated
Financial Statements, contained elsewhere in this Form 10-Q, for a
discussion of SFAS 130.
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled $55.4 million at June
30, 1997 as compared to $48.9 million at December 31, 1996. The
Company's operations generated approximately $13.7 million of cash
through June 30, 1997. The Company's primary uses of cash in the
current period consisted of capital expenditures of $3.3 million and
payments on long-term borrowings of $4.0 million.
As discussed below, the Company amended its revolving credit
agreement ("the agreement") effective April 30, 1997. The $85
million agreement provides available liquidity for working capital
purposes, capital expenditures and letters of credit. At June 30,
1997, there were approximately $11.3 million of letters of credit
issued against the agreement leaving approximately $73.7 million of
liquidity available to Avondale for operations and other purposes.
There have been no borrowings under the agreement since its inception
in 1994. Continuing access to the agreement is conditioned upon the
Company remaining in compliance with the covenants which include
certain financial ratios. The Company is currently 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
is required to 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 to $85 million on April 30, 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 will eliminate all collateral
except their second mortgage on the Company's 900-foot floating
drydock. In addition, the amended agreement has extended the
expiration date until April 2000.
In order to fund the expenditures required to comply with the LPD-17
contract, the Company teamed with the University of New Orleans (the
"University"), the University of New Orleans Research and Technology
Foundation (the "Foundation"), and the State of Louisiana in a
cooperative effort. Pursuant to the terms of various agreements, the
Foundation is purchasing hardware and software required to implement
the extensive three-dimensional ship design and Integrated Product
Data Environment teaming technology and constructing a 200,000 square
foot building on property, donated to the Foundation by the Company,
adjacent to the Company's main shipyard. The initial investment in
this new technology and facility, which will be known as the
"UNO/Avondale Maritime Technology Center of Excellence" (the
"Center"), is estimated at $40 million, and will be financed by the
Foundation using third-party debt or lease financing guaranteed by
the Company. The Company has entered into a long-term lease for the
Center requiring a nominal annual lease payment. The Company will
provide access to the technology and a portion of the Center to the
University for its use in research and the development of educational
curricula related to naval architecture and marine engineering.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the shareholders of Avondale
Industries, Inc. held on May 23, 1997, 12,158,485 shares of
the 14,493,211 shares outstanding were present in person or
by proxy at the meeting. The voting tabulation follows:
(a) The election of the following to the Board of Directors:
Albert L. Bossier, Jr., 11,028,015 votes for, 1,130,470
votes withheld and Hugh A. Thompson, 11,041,457 votes
for, 1,117,028 votes withheld.
The following is a list of each other director whose
term of office as a director continued after the
meeting:
Anthony J. Correro, III, Francis R. Donovan, Kenneth B.
Dupont, William A. Harmeyer and Thomas M. Kitchen.
(b) A proposal to approve the Avondale Industries, Inc. 1997
Stock Incentive Plan: 9,396,427 for, 1,410,636 against,
177,639 abstained and 1,173,783 broker nonvotes.
(c) A proposal to urge the Board of Directors to redeem the
rights issued under the Shareholder Protection Rights
Plan: 5,508,143 against, 5,401,258 for, 75,301 abstained
and 1,173,783 broker nonvotes.
(d) A proposal to urge the Board of Directors to implement
confidential voting by shareholders: 5,470,364 against,
5,446,739 for, 67,599 abstained and 1,173,783 broker
nonvotes.
(e) A proposal related to declassification of the Board of
Directors: 5,860,661 against, 5,039,350 for, 84,591
abstained and 1,173,883 broker nonvotes.
The directors were elected by plurality vote, proposals (d)
and (e) required the affirmative vote of 80% of the total
outstanding Common Stock and proposals (b) and (c) required
the approval of a majority of the shares of Common Stock
present or represented at the Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company(1).
3.2 Bylaws of the Company(2).
10.3(l) Avondale Industries, Inc. 1997 Stock Incentive Plan
adopted May 23, 1997.
10.7(e) Sub-lease agreement dated May 16, 1997, by and
between the Company and the University of New
Orleans Research and Technology Foundation, Inc.
(without exhibits).
10.8(g) Cooperative Endeavor Agreement dated May 16, 1997,
by and among the Company, the State of Louisiana,
Board of Supervisors of Louisiana State University
and Agricultural and Mechanical College acting on
behalf of the University of New Orleans, and the
University of New Orleans Research and Technology
Foundation, Inc.
10.10 Amended and Restated Revolving Credit Agreement
dated January 29, 1997, effective April 30, 1997,
among Avondale Industries, Inc., various financial
institutions signatory thereto (the "Banks") and
Bank of America National Trust and Savings
Association as the Agent for the Banks (without
exhibits and schedules).
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule
(b) Reports on Form 8-K:
Not applicable.
_______________
(1) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30,
1993.
(2) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AVONDALE INDUSTRIES, INC.
Date: August 14, 1997 By:/s/ ALBERT L. BOSSIER, JR.
--------------- --------------------------
Albert L. Bossier, Jr.
Chairman, President &
Chief Executive Officer
Date: August 14, 1997 By:/s/ THOMAS M. KITCHEN
--------------- ---------------------
Thomas M. Kitchen
Vice President &
Chief Financial Officer
EXHIBIT INDEX
Number Description
3.1 Articles of Incorporation of the Company(1).
3.2 Bylaws of the Company(2).
10.3(l) Avondale Industries, Inc. 1997 Stock Incentive Plan adopted
May 23, 1997.
10.7(e) Sub-lease agreement dated May 16, 1997, by and between the
Company and the University of New Orleans Research and
Technology Foundation, Inc. (without exhibits).
10.8(g) Cooperative Endeavor Agreement dated May 16, 1997, by and
among the Company, the State of Louisiana, Board of
Supervisors of Louisiana State University and Agricultural
and Mechanical College acting on behalf of the University of
New Orleans, and the University of New Orleans Research and
Technology Foundation, Inc.
10.10 Amended and Restated Revolving Credit Agreement dated January
29, 1997, effective April 30, 1997, among Avondale
Industries, Inc., various financial institutions signatory
thereto (the "Banks") and Bank of America National Trust and
Savings Association as the Agent for the Banks (without
exhibits and schedules).
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule
_______________
(1) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1993.
(2) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1995.