UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(No Fee Required)
For the quarterly period ended January 1, 1995
Commission File Number 1-5109
TODD SHIPYARDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1506719
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
1801- 16th AVENUE SW, SEATTLE, WASHINGTON 98134-1089
(Street address of principal executive offices - Zip Code)
Registrant's telephone number: (206) 623-1635
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
----- -----
There were 10,603,970 shares of the corporation's $.01 par value common
stock outstanding at January 30, 1995.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes X No
----- ----
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(In thousands of dollars, except per share data)
Quarter Ended Nine Months Ended
1/1/95 1/2/94 1/1/95 1/2/94
---------------- ----------------
Revenues $15,551 $20,870 $40,392 $48,838
Operating expenses:
Direct labor and benefits 7,025 10,944 18,765 25,987
Materials and other 2,363 6,828 8,078 19,385
Administrative expenses 5,851 6,002 16,654 17,900
Contract loss reserves (25) (4,905) (980) (8,715)
---------------- ----------------
Subtotal 15,214 18,869 42,517 54,557
Operating income (loss) 337 2,001 (2,125) (5,719)
Provision for environmental
cleanup - (6,500) - (6,500)
Closed facilities adjustment
Galveston - 3,131 - 3,131
Los Angeles - 2,522 - 2,522
Gain on sale of facility - 613 505 613
Investment and other income 913 608 2,974 3,476
---------------- ----------------
Income (loss) before income
taxes and cumulative effect of
change in accounting principle 1,250 2,375 1,354 (2,477)
Income tax provision (benefit) - 571 - (263)
---------------- ----------------
Income (loss) before cumulative
effect of change in accounting
principle 1,250 1,804 1,354 (2,214)
Cumulative effect to April 3,
1994 of accounting change,
net of tax - - 438 -
---------------- ----------------
Net income (loss) $ 1,250 $ 1,804 $ 1,792 $(2,214)
================ ================
Earnings per share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.12 $ 0.16 $ 0.13 $ (0.19)
Cumulative effect of change
in accounting principle - - 0.04 -
---------------- ----------------
Income (loss) per common share $ 0.12 $ 0.16 $ 0.17 $ (0.19)
================ ================
Pro forma amounts, assuming
the new accounting method is
applied retroactively:
Net income (loss) $ 1,250 $ 581 $ 1,792 $(3,021)
Earnings per share 0.12 0.05 0.17 (0.26)
Weighted average number of
shares 10,741 11,479 10,759 11,693
================ ================
Retained earnings at
beginning of period $29,754 $29,119 $29,788 $33,137
Income (loss) for the period 1,250 1,804 1,792 (2,214)
Unrealized loss on available-
for-sale securities (567) - (1,143) -
---------------- ----------------
Retained earnings at
end of period $30,437 $30,923 $30,437 $30,923
================ ================
The accompanying notes are an integral part of this statement.
<PAGE>
TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETS (in thousands of dollars, except share data)
1/1/95 4/3/94
--------------------
ASSETS: (Unaudited) (Audited)
Cash and cash equivalents $ 2,365 $ 3,787
Restricted cash 1,204 5,719
Marketable securities 45,519 48,480
Accounts receivable, less allowance for losses
of $549 at 1/1/95 and $653 at 4/3/94:
U.S. Government 3,941 3,364
Commercial and other 4,030 4,748
--------------------
7,971 8,112
Costs and estimated profits in excess of
billings on incomplete contracts 6,308 3,063
Inventories 1,007 932
Other current assets 790 985
--------------------
Total current assets 65,164 71,078
Property, plant and equipment, net 23,900 24,001
Deferred pension asset 14,792 13,937
Other assets 2,483 2,431
--------------------
Total assets $106,339 $111,447
====================
LIABILITIES:
Accounts payable and accruals $ 6,308 $ 7,266
Payrolls and vacations 3,905 3,552
Taxes other than income taxes 818 1,370
Other 265 334
Accrual for loss on contracts - 2,267
Income taxes 3,477 3,952
--------------------
Total current liabilities 14,773 18,741
Accrued postretirement health benefits 22,252 22,466
Environmental remediation reserves 6,441 6,500
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 19,500,000
shares authorized; 11,956,033 shares issued 120 120
Additional paid-in capital 38,181 38,181
Retained earnings 30,437 29,788
--------------------
68,738 68,089
Treasury stock, at cost (1,352,063 shares
at 1/1/95; 1,019,370 shares at 4/3/94) (5,865) (4,349)
--------------------
Total stockholders' equity 62,873 63,740
--------------------
Total liabilities & stockholders' equity $106,339 $111,447
====================
The accompanying notes are an integral part of this statement.
<PAGE>
TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Nine Month Period Ended
1/1/95 1/2/94
-------------------
Cash flows from operating activities:
Net Income (loss) $ 1,792 $ (2,214)
Adjustments to reconcile net income (loss) to
net cash provided used in activities:
Effect of change in accounting principle (438) -
Depreciation and amortization 2,279 2,338
Gain on sale of fixed assets (449) (608)
Galveston facility closure adjustment - (3,281)
Los Angeles facility closure adjustment - (2,561)
Utilization of contract loss reserves (980) (8,732)
Increase in costs and estimated profits in
excess of billing on incomplete contracts (4,094) (3,676)
Decrease in accounts payable and accruals (958) (1,337)
Increase in deferred pension asset (855) (900)
Decrease in taxes other than income taxes (552) (167)
Decrease in income taxes (475) (12)
Increase (decrease) in accrued payrolls 353 (875)
Increase (decrease) in retiree medical liability (214) 450
Decrease in other current assets 195 453
Decrease in accounts receivable 141 9,102
Increase (decrease) in environmental provision (59) 6,500
Other, net (226) 23
-----------------
Total adjustments (6,332) (3,283)
-----------------
Cash used in operating activities (4,540) (5,497)
Cash flows from investing activities:
Purchases of marketable securities (8,869) (31,395)
Maturities of marketable securities 10,219 12,417
Sales of marketable securities 467 7,857
Proceeds from the sale of fixed assets 653 691
Capital expenditures (2,351) (2,052)
-----------------
Net cash provided by (used in) investing
activities 119 (12,482)
Cash flows from financing activities:
Purchases of treasury stock (1,516) (2,035)
Decrease in cash restricted to secure bid
and performance bonds 4,515 1,253
-----------------
Net cash provided by (used in) financing
activities: 2,999 (782)
Net change in cash and cash equivalents (1,422) (18,761)
Cash and cash equivalents at beginning of period 3,787 24,673
-----------------
Cash and cash equivalents at end of period $ 2,365 $ 5,912
=================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1 $ 22
Income taxes 449 12
The accompanying notes are an integral part of this statement.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Todd Shipyards Corporation has filed its Consolidated Financial Statements
for the fiscal year ended April 3, 1994 with the Securities and Exchange
Commission as part of its Annual Report on Form 10-K. That report should be
read in connection with this Form 10-Q.
1. STATEMENTS NOT AUDITED
The accompanying Consolidated Financial Statements are unaudited but in the
opinion of management reflect all adjustments necessary for a fair
presentation of financial position and results of operations. The
consolidated financial statements include the accounts of Todd Shipyards
Corporation (the "Company") and its wholly-owned subsidiaries Todd Pacific
Shipyards Corporation ("Todd Pacific") and TSI Management, Inc. All
intercompany transactions have been eliminated. Certain amounts in the
fiscal 1994 financial statements have been reclassified to conform to the
fiscal 1995 presentation.
2. CHANGE IN CONTRACT ACCOUNTING METHOD
Effective the beginning of the quarter ended July 3, 1994 the Company
changed its method of accounting for general and administrative costs from
recognizing these expenses as contract costs to recognizing them as
incurred which reflects the change, over time, in the Company's business
from predominately longer term Department of Defense to predominately
shorter term commercial contracts. This change has been applied to general
and administrative costs of prior years and results in a cumulative effect
adjustment of $438, which is included in income of the first quarter of
fiscal year 1995. The effect of the change was to decrease income before
the cumulative effect of the accounting change by $1,480 ($.14 per share)
for the nine month period ended January 1, 1995. There was no income tax
effect as a result of the change.
3. FINANCING ARRANGEMENTS
On December 28, 1994 Todd Pacific entered into an agreement with a surety
pursuant to which the surety will provide a contract bond for the
Washington State Ferry System (the "Ferry System") Jumbo Mark II
construction contract (the "Jumbo Contract"). The contract bond is secured
by the Todd Pacific's machinery, equipment, inventory and trade accounts
receivable on certain bonded jobs.
Todd Pacific is finalizing an annually renewable, $3 million revolving
credit facility which will be secured by a first lien on certain trade
receivables. Outstanding borrowings under the credit facility may not
exceed certain percentages of Todd Pacific's trade receivables.
4. INCOME TAXES
During the quarter and the nine month period ended January 1, 1995, the
Company's income tax provision was offset by a reduction in the deferred
tax valuation reserve.
5. ENVIRONMENTAL MATTERS
The Company faces significant potential liabilities in connection with the
alleged presence of hazardous waste materials at certain of its closed
shipyards, at its Seattle Shipyard and at several sites used by the Company
for disposal of alleged hazardous waste. The Company continues to analyze
environmental matters and associated liabilities for which it may be
responsible. No assurance can be given as to the existence or extent of any
significant environmental liabilities until such analysis is complete. In
fiscal year 1994, the Company provided aggregate reserves of $6,500 for
contingent environmental remediation liabilities for the sites that had
progressed to the degree that it was possible to estimate remediation
costs. The actual costs will depend upon numerous factors, including the
number of parties found liable at each environmental site, the method of
remediation, outcome of negotiations with regulatory authorities, outcome
of litigation, technological developments and changes in environmental laws
and regulations. The Company is negotiating with its insurance carriers
and certain prior landowners and operators for past and future remediation
costs. The Company has not included any insurance recovery in determining
its remediation provision. No assurance can be given that the $6,500
reserve is adequate to cover all potential remediation costs the Company
could incur. The Company's involvement in each of these sites is detailed
in its previously filed Form 10-K and in PART II, ITEM 1 of this Form 10-Q.
6. OTHER CONTINGENCIES
The Company is subject to various risks and is involved in various claims
and legal proceedings arising out of the ordinary course of its business.
These include complex matters of contract performance specifications,
environmental protection and Government procurement regulations. Only a
portion of these risks and legal proceedings involving the Company are
covered by insurance.
7. SHARE REPURCHASE
Beginning in fiscal year 1994, the Company has from time to time re-
acquired shares of the Company's stock in a number of open market
transactions. As of January 30, 1995 the Company had repurchased 1,204,405
shares of the Company's common stock for a total cost of $5,099 bringing
total treasury shares to 1,352,063. The Company is funding these purchases
out of working capital.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Notes to Consolidated Financial Statements are an integral part of
Management's Discussion and Analysis of Financial Condition and Results of
Operations and should be read in conjunction herewith.
OPERATING RESULTS
All comparisons within the following discussion are with the corresponding
periods in the previous year, unless otherwise stated.
Revenue - Revenue in the third quarter of fiscal year 1995 decreased 25% to
$15.6 million compared with $20.9 million in the prior year. Decreases in
commercial work were partially offset by phased maintenance efforts on a
Navy supply ship (the "AOE Program"). Commercial revenue decreased as
prior year amounts included performance on a contract to convert two
vessels to an open-cargo configuration (the "Conversion Project") and a
contract to overhaul a Washington State ferry (the "Overhaul Project").
Revenue for the third quarter was as follows:
FY % of FY % of Change
Contract Source 1995 Revenue 1994 Revenue Amount Percent
- --------------- ---- ------- ----- ------- ------ -------
U.S. Government $ 8.9 57% $ 8.2 39% $ 0.7 9%
Commercial 6.7 43% 12.7 61% (6.0) (47%)
- --------------- ---- ------- ----- ------- ------ -----
Total revenue $15.6 100% $20.9 100% $(5.3) (25%)
==== ==== ==== ==== ==== ====
For the nine month period revenue decreased 17% to $40.4 million from $48.8
million as increases in government business (primarily the AOE Program)
were exceeded by decreases in commercial programs (primarily the Conversion
Project).
Revenue for the nine month period was as follows:
FY % of FY % of Change
Contract Source 1995 Revenue 1994 Revenue Amount Percent
- --------------- ---- ------- ----- ------- ------ -------
U.S. Government $21.1 52% $13.2 27% $ 7.9 60%
Commercial 19.3 48% 35.6 73% (16.3) (46%)
- --------------- ---- ------- ----- ------- ------ -----
Total revenue $40.4 100% $48.8 100% $ (8.4) (17%)
==== ==== ==== ==== ==== ====
Operating expenses - Direct costs during the third quarter and nine months
ending January 1, 1995 were 60% and 66% of revenue respectively, reflecting
difficulties experienced on a Navy carrier repair contract during the first
half of the year and third quarter improvements from AOE Program progress.
Direct costs during the third quarter and nine months ending January 2,
1994 were 85% and 93% of revenue. This performance was primarily due to
the difficulties experienced on the Conversion Project.
Operating expenses for the nine month period of fiscal year 1995 were
reduced by $1.0 million for utilization of contract loss reserves
established for the Carrier Project and the Overhaul Project. Operating
expenses for the third quarter of the prior year were reduced by $4.9
million for utilization of contract loss reserves on the Conversion Project
and the Overhaul Project. For the nine month period of the prior year
operating expenses were reduced by $8.7 million reflecting $17.0 million in
loss reserve utilization offset by $8.3 million in increased contract loss
provisions.
Provision for environmental clean-up - During the third quarter of fiscal
year 1994 the Company recorded provisions totaling $6.5 million for sites
where it was possible to make reasonable estimates of the Company's
environmental liability.
Adjustments for closed facilities
Galveston - Upon the December 1993 disposition of the Galveston facility,
the Company reversed the $3.1 million deferred credit for estimated
Galveston facility closure costs.
Los Angeles - During the third quarter of fiscal year 1994, the Company
reduced the Los Angeles facility closure provision by $2.5 million to
reflect adequate funding of the Los Angeles Pension Fund.
Gain on sale of facility - During the second quarter of fiscal year 1995,
the State of California released its interest in the Company's Alameda,
California property, allowing the Company to sell its property to the U.S.
Government for $.6 million. The Company recognized a net gain on the sale
of $.5 million in the second quarter of fiscal year 1995. The Company sold
its Galveston shipyard facilities in December 1993 to Galveston Wharves for
$6 million, consisting of $.6 million cash with the balance financed with
special revenue bonds issued to the Company. The Company is recognizing
the gain on the sale as the bond payments are received. The Company
received initial proceeds from the Galveston facility and equipment sale in
December 1993 and recognized a net gain of $.6 million.
Investment and other income - Investment and other income for the third
quarter increased $.3 million reflecting a Galveston revenue bond interest
payment and better investment returns. Nine month investment and other
income decreased $.5 million as the benefit from unclaimed bankruptcy
distributions, Galveston revenue bond payments and increased investment
interest were offset by a $1.8 million insurance settlement received in the
prior year.
Income taxes - The Company recognized no income tax expense in fiscal year
1995 as the expense was offset by a reduction in the deferred tax valuation
reserve. For the third quarter of fiscal year 1994, the Company recognized
a $.6 million income tax provision, reflecting the lack of assurance that
previously recognized deferred benefits would be realized. The income tax
benefit reflected for the fiscal year 1994 nine month period reflects an
overpayment of fiscal year 1993 income taxes.
Liquidity
Working capital - During the third quarter of fiscal year 1995, working
capital decreased by $.5 million to $50.4 million. The decrease in working
capital during the quarter is attributable to fixed asset additions and
common stock repurchases. For the nine month period, working capital
decreased $2.0 million primarily due to common stock repurchases. Working
capital includes restricted and unrestricted cash, cash equivalents and
marketable securities of $49.1 million.
Unbilled receivables - As of January 1, 1995 unbilled items on completed
contracts of $1.2 million were included in accounts receivable, compared
with $.9 million at April 3, 1994.
Restricted Cash - As of January 1, 1995 the Company's restricted cash
balance was $1.2 million compared with $5.7 million at April 3, 1994. The
restricted cash balance consists of escrow accounts established to secure
contract warranty provisions and lease payments.
Pledged Assets - On December 28, 1994 Todd Pacific entered into an
agreement with a surety pursuant to which the surety will provide a
contract bond for the Jumbo Contract. The contract bond is secured by Todd
Pacific's machinery, equipment, inventory and trade accounts receivable on
certain bonded jobs.
Capital Resources
Based on its current projections for fiscal year 1995, the Company believes
that its present amount of cash and cash equivalents will be sufficient for
the Company's working capital needs. A change in the composition or timing
of project work could cause capital expenditures and repair and maintenance
expenditures to increase. The future business plans of the Seattle
Shipyard are not expected to require substantial additional capital
expenditures. Capital expenditures are expected to be financed out of
working capital.
Todd Pacific is finalizing an annually renewable, $3 million revolving
credit facility which will be secured by a first lien on certain trade
receivables. Outstanding borrowings under the credit facility may not
exceed certain percentages of Todd Pacific's trade receivables.
FUTURE OPERATIONS
The Company's future profitability depends largely on the ability of the
Seattle Shipyard to maintain an adequate volume of ship repair, overhaul,
conversion and new construction business. The Company competes with other
northwest shipyards, some of which have more advantageous cost structures.
The Company's competitors include non-union shipyards and shipyards with
excess capacity.
On January 12, 1995 the Ferry System awarded Todd Pacific the Jumbo
Contract. Pursuant to the project Invitation For Bids, the Jumbo Contract
award is for one vessel (valued at $68 million). Barring unforeseen
circumstances, Todd Pacific expects to execute the contract before February
3, 1995. The Ferry System reserves a contract option to contract two
additional vessels, to be exercised within twelve (12) months after
contract execution. Should the options be exercised, the Jumbo Contract
value would be $182 million.
At January 1, 1995 the Company's work backlog consists of approximately $20
million, not including $68 million for the first Jumbo Contract ferry.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Todd Pacific has been notified by the California Environmental Protection
Agency that it may be considered a potentially responsible party for the
cleanup of the Omega Chemical Corporation site ("Omega Site") in Whittier,
California. It is alleged that the Los Angeles Division of Todd Pacific
caused certain production wastes and by-products to be transported to this
hazardous waste treatment and storage facility between 1976 and 1991. The
California Department of Toxic Substances Control is pursuing the clean up
of the Omega Site pursuant to state and federal regulations. The Company
is investigating these allegations.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
On January 3, 1995 the Company filed a current report on Form 8-K
announcing that Todd Pacific was the apparent low bidder for the
construction of three Jumbo Mark II Class Ferries for the Washington State
Department of Transportation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
TODD SHIPYARDS CORPORATION
Registrant
By:/s/ David K. Gwinn
David K. Gwinn
Chief Financial Officer and Treasurer
January 31, 1995
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