42
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 1996,
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, WA 98134-1089 (206) 623-1635
(Address of principal executive offices)(zip code) Registrant's
telephone number
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
Common stock, $.01 par value per share New York Stock Exchange
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. X Yes 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 voting stock held by non affiliates
of the registrant was approximately $59 million as of February
12, 1997. There were 9,910,180 shares of the corporation's $.01
par value common stock outstanding at February 13, 1997 held by
non affiliates.
TABLE OF CONTENTS
PART I
Item 1. Business.............................................
Item 3. Legal Proceedings....................................
PART II
Item 6. Selected Financial Data..............................
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................
Item 8. Consolidated Financial Statements and
Supplementary Data..................................
ITEM 1. BUSINESS
INTRODUCTION
Todd Shipyards Corporation (the "Company") was organized in 1916
and has operated a shipyard in Seattle, Washington (the
"Shipyard") since incorporation. The Company operates the
Shipyard through its wholly-owned subsidiary named Todd Pacific
Shipyards Corporation ("Todd Pacific"). Todd Pacific is engaged
in the repair/overhaul, conversion and construction of commercial
and military marine vessels. In addition, through TSI
Management, Inc., the Company's investment management subsidiary,
the Company operates three FM-radio stations in Monterey
California.
Until early in this decade, a substantial portion of the
Company's revenues and profits were attributable to long-term
government contracts. The significant decline in the annual
shipbuilding budgets of the U.S. Navy (the "Navy") has greatly
reduced the Company's bidding opportunities for long-term
government contracts. This reduction in long-term government
contracts has created excess ship construction and repair
capacity in all of the Company's markets. This excess shipyard
capacity, both nationally and locally, has resulted in intense
price competition. The Company has responded to this competition
by carefully reviewing its overhead, streamlining its operations
and introducing advanced shipyard production techniques.
Recent Shipyard activity has included construction of Jumbo Mark
II Class ferries ("Mark II Ferry")for the Washington State Ferry
System ("Ferry System"), short-term repair, overhaul and phased
maintenance work on government vessels, as well as commercial
repair, overhaul and conversion work on container vessels,
tankers, fishing industry vessels, cruise ships, barges, tug
supply vessels and ferries.
The Company believes that it will continue to perform a
substantial amount of maintenance and repair work on commercial
vessels engaged in various seagoing trade activities in Puget
Sound (near Seattle). It plans to pursue repair, maintenance,
overhaul and new construction work for the ferry fleets operated
by the states of Washington and Alaska. Additionally, the
growing number of military vessels home ported in Puget Sound
waters with the activation of the Everett, Washington Navy home
port facility is expected to provide business opportunities to
Puget Sound shipyards.
The Company has from time to time considered opportunities to
diversify in marine industries and businesses unrelated to the
Shipyard.
OPERATIONS OVERVIEW
Repair and Overhaul Operations
The Company's repair and overhaul work ranges from relatively
minor repair to major overhauls and often involves the drydocking
of the vessel under repair. The level of repair and overhaul
business available to domestic private-sector shipyards has been
impacted by the downsizing of the active Navy fleet. Also
affecting private shipyards is the impact of stationing vessels
at Navy home ports, the location of marine accidents, the
availability and scheduling of maintenance and overhauls, and
conditions within the maritime industry as a whole.
Commercial repair and overhaul contracts are obtained by
competitive bidding, awarded by negotiation or assigned by
customers who have a preference for a specific shipyard. On jobs
that are advertised for competitive bids, owners usually furnish
specifications and plans which become the basis for an agreed
upon contract. Repair and overhaul jobs are usually contracted
on a fixed-price basis with additional work contracted on a
negotiated-price basis.
U.S. Government ship repair and overhaul work is usually awarded
through a formal bidding process. The Company also performs
repair/overhaul work for the Navy under flexibly-priced
contracts. These contracts provide for reimbursement of costs, to
the extent allocable and allowable under applicable regulations,
and payment of an incentive or award fee based on the customer's
judgment of the contractor's performance with respect to certain
pre-established criteria. The government regulates the methods
by which overhead costs are allocated to government contracts.
The Company's commercial and U.S. Government repair and overhaul
contracts contain terms of customer payment determined by mutual
agreement. Typically the Company is periodically reimbursed
through progress payments based on the achievement of certain
agreed to benchmarks subject to a specified level of retention.
Some vessel owners contracting for repair, overhaul and new
construction work require some form and amount of performance and
payment bonding, particularly state agencies.
Construction Operations
The Company has a $181 million (including $6 million of optional
growth items) Ferry System contract for the construction of three
Mark II Ferries. The Mark II Ferries are designed to transport
218 automobiles and 2,500 passengers on the waterways of Puget
Sound and will be the largest ferries in the Ferry System fleet.
Distribution of Work
The approximate distribution of the Company's Shipyard activities
for each of the last three fiscal years are summarized as
follows:
1996 1995 1994
U.S. Government 35% 60% 24%
Commercial 65% 40% 76%
Total 100% 100% 100%
As the table indicates, a majority of the Company's work in the
year ended March 31, 1996 was comprised of commercial activity.
Commercial activity increased in 1996, principally due to the
construction activities related to the three Mark II Ferries
discussed above in "Construction Operations".
Employees
The number of persons employed by the Company varies considerably
from time to time depending primarily on the level of shipyard
activity, averaging approximately 900 employees during fiscal
year 1996 and totaling approximately 1,175 employees on March 31,
1996. During fiscal year 1996 an average of approximately 750 of
the Company's shipyard employees were covered by a union contract
at the Shipyard which expires on July 31, 1996. At March 31,
1996 approximately 1,025 Company employees were covered under
this agreement.
During fiscal year 1996, the Company, along with the two other
major west coast unionized shipyards, formed a multi-employer
bargaining group ("Bargaining Group") for the purposes of
negotiating a west coast multiple year union contract. In May
1996, the Bargaining Group completed negotiations for a new
contract with the consortium of unions that form the Pacific
Coast Metal Trades District Council. This contract allows for
skill based compensation and relaxation in historic work rules.
On June 5 1996, a majority of the shipyard workers at the three
shipyards comprising the Bargaining Group did not ratify the
contract. The Bargaining Group is currently working with union
workers and union leadership to resolve contractual issues. The
Company expects work to continue under the existing contract
until contractual issues are resolved. Over the past fiscal year
the Company has invested heavily in its labor relations efforts
including the establishment of labor/management committees and
conflict resolution education for all parties. The Company
believes that its relations with its employees are good.
Availability of Materials
The principal materials used by the Company in its Shipyard are
steel and aluminum plate and shapes, pipe and fittings, and
electrical cable and fittings. The Company believes that each of
these items can presently be obtained in the domestic market from
a number of different suppliers. In addition, the Company
maintains a small on site inventory of these items that is deemed
sufficient for emergency ship repairs.
Competition
Competition in the domestic shipyard industry is intense. The
Company competes for commercial and government work with a number
of other northwest shipyards, some of which have more
advantageous cost structures. The Company's competitors for
overhaul/conversion and repair work include non-union shipyards,
shipyards with excess capacity and government subsidized
facilities. The Company's competitors for new construction work
include shipyards on the gulf coast and east coast with
substantial financial resources and significant recent
investments in productivity enhancing facilities. The reduced
size of the U.S. Government's active duty fleet has resulted in a
significant decline in the total amount of government business
available to the private sector shipyards, has created excess
shipyard capacity, and has led to acute price competition.
Commercial ship construction and, and to a lesser extent, repair
work performed in certain foreign markets is less costly than
domestic ship construction and repair. Many contracts are
awarded pursuant to competitive bidding and profitability is
dependent upon effective cost controls, production efficiencies
and the ability to meet strict schedules, among other factors.
With respect to repair work, the location, availability and
technical capability of repair facilities are important factors.
Environmental Matters
The Company 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.
Fines and penalties may be imposed for non-compliance with these
laws. Such laws and regulations may expose the Company to
liability for acts of the Company which are or were in compliance
with all applicable laws at the time such acts were performed.
Recurring costs associated with the Company's environmental
compliance program are not material and are expensed as incurred.
Capital expenditures in connection with environmental compliance
are not material to the Company's financial statements. See Item
7, Management's Discussion and Analysis and Note 1. to the
Consolidated Financial Statements for further discussion of these
costs.
The Company has an accrued liability of $7.9 million as of March
31, 1996, for environmental matters. As assessments of
environmental matters and remediation activities progress, these
liabilities are reviewed periodically and adjusted to reflect
additional technical, engineering and legal information that
becomes available. The Company's estimate of its environmental
liabilities is affected by several uncertainties such as, but not
limited to, the method and extent of remediation of contaminated
sites, the percentage of material attributable to the Company at
the sites relative to that attributable to other parties, and the
financial capabilities of the other PRPs at most sites. The
Company's estimate of its environmental liabilities is also
affected as additional information becomes known regarding
alleged damages from past exposure to asbestos at Company
facilities. The Company is covered under its various insurance
policies for some, but not all, potential environmental
liabilities. See Item 3. Legal Matters, Item 7. Management's
Discussion and Analysis and Note 12 of the Notes to Consolidated
Financial Statements for further information regarding the
Company's environmental matters.
Safety Matters
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 production
supervisors and make periodic inspections of safety procedures to
insure compliance with Company policies on safety and industrial
hygiene. All employees are required to attend routine periodic
safety training meetings.
Backlog
At March 31, 1996 the Company's backlog consists of approximately
$146 million of construction, repair and overhaul work. This
compares with backlogs of $76 million and $35 million at April 2,
1995 and April 3, 1994 respectively. Substantially all of the
Company's firm backlog is for the construction of three Mark II
Ferries that are scheduled for delivery during fiscal years 1997,
1998 and 1999.
In May 1996, the Company was awarded a cost-type contract for
phased maintenance repairs to four Navy supply ships currently
scheduled over eleven availabilities in five-years. The notional
value of the contract is $79 million. The Company can provide no
assurance as to the timing or level of work that may be performed
as part of the maintenance contract.
The Company plans to actively pursue additional commercial and
government construction contracts, as well as targeted government
and commercial repair/overhaul opportunities. International
construction and repair opportunities are limited because
shipbuilders in foreign countries are often subsidized by their
governments. These subsidies allow foreign shipbuilders to enter
into production contracts at prices below their actual production
costs. Passage of the proposed Organization for Economic
Cooperation and Development ("OECD") legislation currently being
considered in Congress would reduce these shipbuilding subsidies
and enhance the Company's ability to pursue international
shipbuilding prospects. Competition for domestic construction
and repair opportunities will be intense as certain of the
Company's larger east coast competitors have better shipbuilding
facilities and access to more financial resources. The Company
is working to maximize its advantages of geographic location, its
Navy and United States Coast Guard ("Coast Guard") experience,
its current Ferry Construction activities and the skills of its
experienced workforce.
INVESTMENTS AND ACQUISITIONS
The Company has from time to time pursued opportunities to
diversify its business, in areas such as metal fabrication,
marine transportation, other marine industries and businesses
unrelated to the Shipyard. The Company, through a subsidiary,
purchased three radio stations in fiscal year 1996. The Company
continues to evaluate suitable investment opportunities that
would appropriately utilize the Company's resources.
ITEM 3. LEGAL PROCEEDINGS
The Company 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.
Fines and penalties may be imposed for non-compliance with these
laws. Such laws and regulations may expose the Company to
liability for acts of the Company which are or were in compliance
with all applicable laws at the time such acts were performed.
The Company faces potential liabilities in connection with the
alleged presence of hazardous waste materials at certain of its
closed shipyards, at its Shipyard and at several sites used by
the Company for disposal of alleged hazardous waste.
The Company is identified as a potentially responsible party
("PRP") by the Environmental Protection Agency ("EPA") under the
Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA," commonly known as the "Superfund") in connection
with matters pending at five Superfund sites. Additionally, the
Company has been named as a PRP for three Superfund cases where
the Company has asserted that its liability was discharged when
it emerged from bankruptcy in 1990. One of the five pending
Superfund matters relates to the Company's operations at Harbor
Island, Washington, for which the EPA established separate
proceedings for soil and groundwater matters (the "Soil and
Groundwater Operable Unit") and for shipyard sediments (the
"Shipyard Sediments Unit").
In addition to the five pending Superfund matters, the Company is
subject to suits, claims and proceedings brought by state
agencies and others seeking remediation of alleged environmental
impairments at four additional sites.
Generally these environmental claims relate to sites used by the
Company for disposal of alleged hazardous waste, although one
matter relates to a site in which the allegations are predicated
upon the Company's prior ownership of a shipyard property. The
matters relating to the Harbor Island Sites, at which the
Company's Shipyard is located, is discussed below. Reference is
made to Note 12 of the Notes to the Consolidated Financial
Statements in Item 8 below for information with respect to all
pending suits, claims and proceedings, including four as to which
the Company believes it has no or only nominal liability.
The Company and several other parties have been named as PRPs by
the EPA pursuant to CERCLA in connection with the documented
release or threatened release of hazardous substances, pollutants
and contaminants at the Harbor Island Superfund Site,(the
"Site").To date, the EPA has separated the Site into two operable
units (Soil and Groundwater Unit and Shipyard Sediments Unit).
The Company, along with a number of other Harbor Island PRPs,
received a Special Notice Letter from the EPA on May 4, 1994
pursuant to section 122 (e) of CERCLA. The Company entered into
a Consent Decree for the Soil and Groundwater Operable Unit in
September 1994 under which the Company has agreed to remediate
the designated contamination on its property. That remediation
is anticipated to begin during late 1996 or early 1997. The
Company and EPA currently are negotiating the extent and
methodology of that remediation.
Included in its $7.9 million total reserve for environmental
matters is a reserve of $5.5 million to address remediation of
its portion of the Harbor Island Soil and Groundwater Operable
Unit. The Company estimates remediation of the Soil and
Groundwater Operable Unit will take 12 to 24 months from the
clean-up start date.
In October 1995 the EPA released for public comment the Proposed
Plan ("Proposed Plan") for the clean-up of sediments within the
Shipyard Sediments Operable Unit. That Proposed Plan includes
four possible clean-up alternatives ranging from taking no-action
to dredging and removing the alleged contaminated sediments. The
EPA Proposed Plan estimates the CompanyOs share of any clean-up
effort could range from no cost if no-action were taken to $30
million for a broadly defined effort. The Company provided
comments to the EPA during the public comment period for the
Proposed Plan and challenged the EPAOs conclusions. The Company
disputes the identification of a separate Shipyard Sediment Unit,
the scope of the work identified in the Proposed Plan and the
timing of the clean-up effort. After the EPA considers the
public comments received, it will issue a Record of Decision
("ROD") stating which clean-up action EPA believes should be
undertaken. Subsequent to the issuance of the ROD, the EPA will
meet with the Company and other affected parties to negotiate the
scope of clean-up activities. The Company intends to contest
vigorously the ROD should it not reflect issues addressed by the
Company in its public comments to the EPA. The Company cannot
estimate a timeline for resolving the issues relating to any
potential clean-up of the Shipyard Sediment Unit. Based on the
currently available facts, and consideration of other factors,
the Company does not believe that it has sufficient information
to estimate the potential liability associated with any potential
remediation of the Shipyard Sediments Unit. Specifically, the
Company believes that until the EPA issues its Record of Decision
addressing the scope of remediation, if any, disposal
alternatives and the timing and cost of any clean-up remain
significantly uncertain. Accordingly, the Company has not
established a reserve for a potential Shipyard Sediments Unit
clean-up.
The Company has been named as a defendant in civil actions by
parties alleging damages from past exposure to toxic substances,
generally asbestos, at closed former Company facilities. The
Company has approximately 94 cases involving 278 plaintiffs
pending against it, together with other ship builders and
repairers, ship owners, asbestos manufacturers, distributors and
installers and equipment manufacturers, involving injuries or
illnesses allegedly caused by exposure to asbestos or other toxic
substances. The Company and its insurers are vigorously
defending these actions. Most of these cases have been filed
since 1991 by heirs of retired employees or employees of
subcontractors who allegedly worked at Company sites, and allege
contact with asbestos for varying periods of time and allege that
such exposure caused illness and/or death. The cases are
generally filed with multiple claimants and multiple defendants
and are generally insured matters. Suits of this nature
generally seek amounts in excess of $100,000 on behalf of each
claimant as against all defendants and to date have been settled
for immaterial amounts. The Company and its insurers are
vigorously defending these actions. By their very nature, civil
actions relating to toxic substances vary according to the cases'
fact patterns, jurisdiction and other factors. Accordingly, the
Company cannot predict the eventual number of such cases or their
eventual resolution. The Company has included an estimate of its
potential liability for these issues in its environmental
reserves.
PART II
ITEM 6. SELECTED FINANCIAL DATA (In thousands of dollars,
except per share data)
March 31, April 2, April 3, March 28, March 29,
1996 1995 1994 1993 1992
Revenue $101,687 $69,096 $68,552 $54,278 $147,500
Income (loss)
from operations 1,017 (898) (13,224) (14,018) 22,206
Income (loss)
before cumulative
effect of change
in accounting
principles 4,132 3,402 (2,714) (11,802) 29,021
Cumulative effect
of change in
accounting
principles(1) - 438 - - -
Net income(loss) 4,132 3,840 (2,714) (11,802) 29,021
Per share of common stock
Income (loss)
before cumulative
effect of change
in accounting
principles 0.42 0.32 (0.24) (0.99) 2.43
Cumulative effect
of change in
accounting
principles(1) - 0.04 - - -
Net income (loss) 0.42 0.36 (0.24) (0.99) 2.43
Financial position:
Working capital 48,880 50,704 52,337 57,311 67,195
Fixed assets 26,499 24,552 24,001 24,636 27,192
Total assets 117,380 110,924 111,447 129,287 138,988
Stockholders'
equity 67,380 62,433 63,740 70,700 83,240
per common share 6.80 6.28 5.83 5.99 6.96
(1) Effective April 4, 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 contracts to predominately shorter
term commercial and government contracts. This change has
been applied to general and administrative costs of prior
years and results in a cumulative effect credit of $438
thousand ($0.04 per share).
ITEM 7. 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. The following discussion and analysis of
financial condition and results of operations contains forward-
looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of
factors discussed below and elsewhere in this Form 10-K.
Overview:
The Company's future profitability depends largely on the ability
of the Shipyard to maintain an adequate volume of ship repair,
overhaul and conversion business to augment its longer term
contracts. The variables affecting the Company's business volume
include subsidies provided to competing northwest shipyards,
excess west coast and industry-wide shipyard capacity, foreign
competition, governmental legislation and regulatory issues,
activity levels at the Everett Navy home port, competitors
pricing behavior, and Company labor efficiencies and work
practices.
The Company continues to respond to the increasingly competitive
shipbuilding and repair industry. The Company's Shipyard is
focusing on profitably serving its government and commercial
customers. To accomplish this goal, Shipyard management has
worked to increase business volume, reduce operating costs and
improve production efficiencies.
The Company's backlog at March 31, 1996 was approximately $146
million. This backlog consists primarily of Mark II Ferry work
to be performed. In May 1996, the Company was awarded a cost-
type contract for phased maintenance repairs to four Navy supply
ships currently scheduled over eleven availabilities in five-
years. The notional value of the contract is $79 million. The
Company can provide no assurance as to the timing or level of
work that may be performed as part of the maintenance contract.
The Company believes that the supply ship contract combined with
the Mark II Ferry contract will provide a steady base of business
through fiscal year 2001. The Company is working to identify and
win additional new construction work that would match the
Shipyard's production capacity.
The Company's Mark II Ferry program, awarded in fiscal year 1995,
is just over 20% complete at March 31, 1996. Construction of the
first ferry began in the fall of 1995. The Company anticipates
delivering the first ferry in the fourth quarter of fiscal year
1997.
The Company's quarterly revenue varies period to period depending
primarily on the timing of customer maintenance efforts. Based
on current known repair backlog, Company management expects sales
revenue to decrease in the first and second quarters of fiscal
year 1997 as compared to fourth quarter 1996 results. While the
Company anticipates total revenue for fiscal year 1997 to benefit
from higher levels of Mark II Ferry construction activity, these
increases may be offset in part by decreases in repair activities
which by their very nature are impossible to predict.
As addressed further in Note 12 of the Notes to the Consolidated
Financial Statements, the Environmental Protection Agency ("EPA")
released for public comment the Proposed Plan for the clean-up of
sediments in an area defined as the Shipyard Sediments Operable
Unit at the Seattle Shipyard. The Company has communicated its
opposition to the Proposed Plan and intends to vigorously contest
a Record of Decision should it not address the Company's
concerns.
Year to year comparisons:
1996 Compared with 1995
Net income for 1996 increased by 8% from 1995 levels as a result
of the following components.
Revenues
Revenues for the fiscal year ended March 31, 1996 increased $32.6
million (47%) compared to the prior fiscal year. The increase in
fiscal year 1996 sales was primarily attributable to the Mark II
Ferry construction program partially offset by lower government
maintenance work.
Cost of Sales
Fiscal year 1996 cost of sales increased $26.5 million (59%)
compared to 1995 results as the Company's 1996 Mark II Ferry
margins recognized were lower than the margins earned on
maintenance work in 1995. As a result of this difference, costs
of sales were 70% of sales in fiscal year 1996 compared to 65% of
sales in 1995.
Administrative Expenses
Administrative expenses for the year were up $5.3 million (22%)
from prior year results as the Company incurred higher than usual
repair and maintenance costs preparing for the new construction
project and added costs relating to the radio station
acquisitions. These repair cost increases and radio station
start-up costs were partially offset by changes in the estimate
of workers' compensation insurance refunds for favorable claims
experience during past fiscal years.
Contract Loss Reserves
In 1995, the Company utilized $1.0 million in contract loss
reserves related to work performed on a government vessel repair.
Provision for Environmental Reserves
In fiscal year 1996, the Company did not add to its environmental
provisions. In fiscal year 1995, the Company added $2.0 million
in provisions for environmental liabilities for sites and
circumstances where it was possible to make reasonable estimates
of the Company's potential liability.
Operating Results
Fiscal year 1996 operating profit increased $1.9 million compared
to the prior fiscal year loss of $.9 million. The increase in
operating profit reflects the $2.0 million environmental
provision in fiscal year 1995. Fiscal year 1996 also benefited
from increased Mark II Ferry construction overhead contribution
largely offset by lower contract margins on repair activities,
increased administrative costs and modest start-up losses for the
Company's radio station operations.
Investment and Other Income
Investment and other income decreased $.7 million compared to
fiscal year 1995 results. Higher interest rates earned in fiscal
year 1996 were offset by decreased investment balances compared
to fiscal year 1995. Fiscal year 1995 investment and other
income results included a $.4 million bankruptcy distribution.
Fiscal year 1995 also benefited from a $.5 million gain on a land
sale. Included in 1996 and 1995 other income results was a gain
of $.2 million reflecting principal payments on bonds relating to
the sale of the Company's former Galveston facility.
Income Taxes
For fiscal year 1996 and fiscal year 1995, the Company recognized
no income tax expense as the expense was offset by a reduction in
the deferred tax valuation reserve.
1995 Compared with 1994
Net income for 1995 was $3.8 million compared to a 1994 loss of
$2.7 million as a result of the following factors.
Revenues
Revenues for the fiscal year ended April 2, 1995 increased $.5
million (1%) compared to the prior fiscal year. The increase in
sales was primarily attributable to a high level of activity on a
Navy contract. The increase in Navy revenues was largely offset
by prior year activity on a conversion contract and an overhaul
contract.
Cost of Sales
Fiscal year 1995 cost of sales decreased $14.9 million (25%)
compared to 1994 results as the Company benefited from high
margin work in 1995. Costs of sales were 65% of sales in fiscal
year 1995 compared to 88% of sales in 1994 as fiscal year 1994
included two difficult conversion and overhaul contracts.
Administrative Expenses
Administrative expenses for fiscal year 1995 were $23.7 million
in 1995 down $1.7 million (7%) compared to $25.4 million in 1994.
The Company attributes this reduction in cost to its streamlining
efforts partially offset by increased bid and proposal costs.
Contract Loss Reserves
In 1995, the Company utilized $1.0 million in contract loss
reserves related to performance of a contract to repair a
government vessel. The Company utilized a $10.2 million reserve
in 1994 related to a contract to convert two commercial vessels
to an open-cargo configuration.
Provision for Environmental Reserves
In fiscal year 1995, the Company added $2.0 million in provisions
for environmental liabilities for sites and circumstances where
it was possible to make reasonable estimates of the Company's
potential liability. In fiscal year 1994, the Company
established environmental reserves of $6.5 million.
Operating Results
In fiscal year 1995, the Company had an operating loss of $.9
million compared to a loss of $13.2 million in the prior year.
Results for fiscal year 1995 benefited from lower provisions for
environmental matters, higher margin work and lower
administrative expenses.
Gain on sale of facility
During the second quarter of fiscal year 1995, the Company sold
its Alameda, California property to the U.S. Government for $.6
million and recognized a net gain of $.5 million. 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 and recognized a net gain of $.6
million in 1994. Included in 1995 other income was a gain of $.2
million reflecting a current period bond principal payment.
Investment and Other Income
Investment and other income decreased $.2 million compared to
fiscal year 1994 results. Fiscal year 1995 activity benefited
from Galveston bond interest income and principal payments of $.7
million, unclaimed bankruptcy distributions of $.4 million and
increased interest income of $.6 million. 1994 activity included
a $1.8 million gain from the settlement of a dispute with a
former insurer.
Income Taxes
For fiscal year 1995, the Company recognized no income tax
expense as the expense was offset by a reduction in the deferred
tax valuation reserve. Fiscal year 1993 income tax benefits of
$.3 million represent a refund of fiscal year 1993 estimated tax
payments.
Cumulative Effect of Change in Accounting Principles
Effective April 4, 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 contracts to
predominately shorter term commercial and government contracts.
This change has been applied to general and administrative costs
of prior years and resulted in a cumulative effect credit of $.4
million, which was included in income of the first quarter of
fiscal year 1995. The effect of the change was to decrease
fiscal year 1995 income before the cumulative effect of the
accounting change by $1.3 million ($.12 per share) There was no
income tax effect as a result of the change.
Environmental Matters
Ongoing Operations:
Recurring costs associated with the Company's environmental
compliance program are not material and are expensed as incurred.
Capital expenditures in connection with environmental compliance
are not material to the Company's financial statements.
Past Activities:
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 has been named as a defendant in civil
actions by parties alleging damages from past exposure to toxic
substances at Company facilities.
The EPA has separated the Company's Harbor Island Site into two
operable units (Soil and Groundwater Unit and Shipyard Sediments
Unit). The Company, along with a number of other Harbor Island
PRPs, received a Special Notice Letter from the EPA on May 4,
1994 pursuant to section 122 (e) of CERCLA. The Company entered
into a Consent Decree for the Soil and Groundwater Operable Unit
in September 1994 under which the Company has agreed to remediate
the designated contamination on its property. That remediation
is anticipated to begin during late 1996 or early 1997. The
Company and EPA currently are negotiating the extent and
methodology of that remediation. The duration of the Soil and
Groundwater Unit remediation is expected to be 12 to 24 months
from the start date.
The Company is also a PRP at the Shipyard Sediments Unit of the
Harbor Island Superfund Site. The Company believes that the
Environmental Protection Agency ("EPA") intends to issue the
Record of Decision pertaining to that site before the end of
calendar year 1996. The EPA indicated in its Proposed Plan
issued in October, 1995 a range from zero if no-action were taken
to $30 million for a broadly defined effort. As of March 31,
1996, based on the currently available facts, and consideration
of other factors, the Company does not believe that it has
sufficient information to estimate the potential liability
associated with any potential remediation of the Shipyard
Sediments Unit.
Potential additional future expenses related to the method and
extent of remediation are not quantifiable as they are dependent
upon many unknowns such as, but not limited to, the method of
remediation, outcome of negotiations with regulatory authorities,
the scope of remediation necessary, the final number of parties
found liable at each site, technological developments and changes
in environmental laws. Potential expense related to remediation
of the sediments surrounding the Company's Harbor Island facility
in Seattle, Washington have been estimated by the EPA to range
from zero for no action to $30 million.
The Company has approximately 94 cases involving 278 plaintiffs
pending against it, together with other ship builders and
repairers, ship owners, asbestos manufacturers, distributors and
installers and equipment manufacturers, involving injuries or
illnesses allegedly caused by exposure to asbestos or other toxic
substances. The Company and its insurers are vigorously
defending these actions. By their very nature, civil actions
relating to toxic substances vary according to the cases' fact
patterns, jurisdiction and other factors. Accordingly, the
Company cannot predict the eventual number of such cases or their
eventual resolution. The Company has included an estimate of its
potential liability for these issues in its environmental
reserves. Potential additional future expenses related to
alleged damages from past exposure to toxic substances is not
quantifiable due to uncertainties of the number of cases, the
extent of alleged damages, the population of claimants and size
of any awards and/or settlements.
The Company spent $.5 million in fiscal year 1996 for site
remediation and other matters. Most of these expenditures were
related to the Company's Harbor Island facility. While the
Company expects to spend larger amounts in future years, the
timing of such expenditures is impossible to predict due largely
to uncertainties relating to remediation of the Harbor Island
facility.
The Company's policy is to accrue costs for environmental matters
in the accounting period in which the responsibility is
established and the cost is estimable. The Company's estimates
of its liabilities for environmental matters are based on
evaluations of currently available facts with respect to each
individual situation and take into consideration factors such as
existing technology, presently enacted laws and regulations, and
the results of negotiations with regulatory authorities. The
Company does not discount these liabilities.
Actual environmental costs will depend upon numerous factors,
such as, but not limited to, the number of parties found liable
at each environmental site, the method of remediation, outcome of
negotiations with regulatory authorities, outcome of litigation,
probable outcome of insurance recovery, technological
developments and changes in environmental laws and regulations.
Therefore these costs cannot be predicted with certainty.
Accordingly the Company cannot predict the effect of
environmental matters on its liquidity, financial position and
profitability.
The Company's financial statements as of March 31, 1996 reflect
aggregate reserves of $7.9 million relating to environmental
matters. The Company is negotiating with its insurance carriers
and certain prior landowners and operators for past and future
remediation costs. In addition, the Company believes that the
U.S. Government may be obligated to contribute to a share of
clean-up costs for certain sites. However, no assurance can be
given that the Company's $7.9 million in environmental reserves
as of March 31, 1996 is adequate to cover all potential
environmental costs the Company could incur; the Company expects
to add reserves to address the Shipyard Sediments Unit of the
Harbor Island Superfund Site at which time it has sufficient
information to estimate the potential liability.
Liquidity, Capital Resources and Working Capital:
During fiscal year 1995, working capital decreased modestly by
$1.8 million to $48.9 million at March 31, 1996 which includes
restricted and unrestricted cash, cash equivalents and marketable
securities of $43.1 million. The decrease in working capital is
attributable to fixed asset additions and acquisition activity.
Expenditures for property, plant and equipment in fiscal year
1996 were $5.0 million compared to $3.3 million for the prior
fiscal year and were attributable to Shipyard equipment
purchases. These expenditures are in addition to ongoing repair
and maintenance expenditures in the Shipyard of $6.1 million,
$3.7 million, and $3.8 million in fiscal years 1996, 1995 and
1994, respectively. The Company anticipates a decrease from
fiscal year 1996 property, plant and equipment expenditures and
repair and maintenance expenditures levels as 1996 included
efforts to prepare for construction of the Mark II Ferries. The
future business plans of the Shipyard are not expected to require
capital expenditures in excess of annual depreciation. Capital
expenditures are expected to be financed out of cash flow.
The Company is required on some of its projects to provide
customers with performance, contract and payment bonds. On
December 28, 1994 Todd Pacific entered into an agreement with a
surety pursuant to which the surety provided a contract bond for
the Mark II Ferry contract. The contract bond is secured by Todd
Pacific's machinery, equipment, inventory and trade accounts
receivable on certain bonded jobs. The surety has also issued
bonds totaling $4.1 million for current commercial repair jobs
Todd Pacific established an annually renewable $3 million
revolving credit facility 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.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Todd Shipyards Corporation
We have audited the accompanying consolidated balance sheets of
Todd Shipyards Corporation and subsidiaries (the "Company") as of
March 31, 1996 and April 2, 1995 and the related consolidated
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. Our
audits also included the financial statement schedule listed on
the index at item 14(a). The financial statements and schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial
statements and schedule 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 statements presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Todd Shipyards Corporation and subsidiaries
at March 31, 1996 and April 2, 1995 and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended March 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the
related financial statements schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As more fully described in Note 1 to the financial statements,
the Company changed its method of applying general and
administrative costs on contracts.
/s/Ernst & Young LLP
Seattle, Washington
May 17, 1996
<PAGE>
TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 and APRIL 2, 1995
1996 1995
(in thousands)
ASSETS:
Cash and cash equivalents $ 8,552 $ 11,966
Restricted cash 1,546 313
Securities available for sale 33,036 41,901
Accounts receivable, less allowance for
losses of $511 and $548, respectively
U.S. Government 2,731 435
Other 6,299 6,331
Costs and estimated profits in excess of
billings on incomplete contracts 15,063 6,392
Inventories 1,225 1,063
Other 254 61
Total current assets 68,706 68,462
Property, plant and equipment, at cost 65,607 61,129
Less accumulated depreciation 39,108 36,577
26,499 24,552
Deferred pension asset 17,201 15,564
Other 4,974 2,346
Total assets $117,380 $110,924
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accruals $ 11,831 $ 7,076
Payrolls and vacations 3,896 3,596
Treasury stock purchases payable - 2,525
Other 656 323
Taxes other than income taxes 1,073 1,136
Income taxes 2,370 3,102
Total current liabilities 19,826 17,758
Environmental reserves 7,896 8,423
Accrued post retirement health benefits 22,278 22,310
Stockholders' equity:
Common stock $.01 par value-authorized
19,500,000 shares, issued 11,956,033
shares at March 31, 1996 and April 2, 1995,
and outstanding 9,910,187 at March 31, 1996
and 9,939,009 at April 2, 1995 120 120
Additional paid-in capital 38,181 38,181
Retained earnings 38,696 33,576
76,997 71,877
Less treasury stock 9,617 9,444
Total stockholders' equity 67,380 62,433
Total liabilities and stockholders'
equity $117,380 $110,924
The accompanying notes are an integral part of this statement.
<PAGE>
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 1996, April 2, 1995, and April 3, 1994
(In thousands of dollars)
1996 1995 1994
Revenues $101,687 $ 69,096 $ 68,552
Operating Expenses:
Cost of sales 71,674 45,234 60,080
Administrative expense 28,996 23,740 25,428
Provision for environmental
reserves - (2,000) (6,500)
Contract reserves utilization - (980) (10,232)
Subtotal 100,670 69,994 75,276
Operating Income (Loss) 1,017 (898) (13,224)
Closed facilities adjustment
Galveston - - 3,131
Los Angeles - - 2,522
Gain on sale of facility - 505 613
Investment and other income 3,115 3,795 3,981
Income (Loss) Before Income
Taxes and Cumulative Effect of
Change in Accounting Principle 4,132 3,402 (2,977)
Income tax provision (benefit) - - (263)
Income (Loss) Before Cumulative
Effect of Change in Accounting
Principle 4,132 3,402 (2,714)
Cumulative effect to April 3,
1994 of accounting change,
net of tax - 438 -
Net Income (Loss) $ 4,132 $ 3,840 $(2,714)
Net Income (Loss) per Common Share:
Income (Loss), before Cumulative
Effect of Change in Accounting
Principle $ 0.42 $ .32 $ (.24)
Cumulative effect of change
in accounting principle - .04 -
Net Income (Loss) $ 0.42 $ .36 $ (.24)
Proforma amounts, Assuming the New
Accounting Method is Applied
Retroactively:
Net Income (Loss) $ 4,132 $ 3,402 $ (4,034)
Net Income (Loss) per Share .42 .32 (.35)
Weighted Average Number of Shares
(thousands) 9,931 10,740 11,540
The accompanying notes are an integral part of this statement.
<PAGE>
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1996, April 2, 1995, and April 3, 1994
(in thousands of dollars)
1996 1995 1994
OPERATING ACTIVITIES:
Net income (loss) $ 4,132 $3,840 $(2,714)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Effect of change in accounting
principle - (438) -
Depreciation and amortization 3,208 3,078 3,173
Increase (decrease) in
environmental reserve (527) 1,923 6,500
Decrease in accrued loss on
contracts - (980) (10,232)
Los Angeles facility closure
adjustment - (35) (2,636)
Galveston facility closure
adjustment - (50) (3,246)
CHANGES IN OPERATING ASSETS
AND LIABILITIES
Decrease (increase) in costs
and estimated profits in
excess of billings on
incomplete contracts (8,671) (4,178) 2,479
Increase (decrease) in
accounts payable
and accruals 4,755 (190) 438
Decrease (increase) in
accounts receivable (2,264) 1,377 9,460
Increase in deferred
pension asset (1,637) (1,627) (1,925)
Decrease in income taxes (732) (850) (27)
Increase (decrease) payrolls
and vacations 300 44 (1,105)
Other 835 83 (640)
Net cash - operating activities (601) 1,997 (475)
1996 1995 1994
INVESTING ACTIVITIES:
Purchases of securities
available for sale $(19,774) $(10,297) $(46,278)
Maturities of securities
available for sale 22,959 15,358 16,487
Sales of securities
available for sale 6,721 1,466 9,756
Purchases of property, plant
and equipment (4,954) (3,287) (2,655)
Acquisition (3,850) - -
Other 16 106 648
Net cash - investing activities 1,118 3,346 (22,042)
FINANCING ACTIVITIES:
Purchases of treasury stock (2,698) (2,570) (3,611)
Decrease (increase) in
restricted cash (1,233) 5,406 5,242
Net cash - financing activities (3,931) 2,836 1,631
NET CHANGE IN CASH AND CASH
EQUIVALENTS (3,414) 8,179 (20,886)
BEGINNING CASH AND CASH EQUIVALENTS 11,966 3,787 24,673
ENDING CASH AND CASH EQUIVALENTS $ 8,552 $ 11,966 $ 3,787
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3 $ 3 $ 26
Income taxes 541 900 27
Noncash financing activities:
Treasury stock purchases payable - 2,525 -
The accompanying notes are an integral part of this statement
<PAGE>
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 31, 1996, April 2, 1995, and April 3, 1994
(in thousands of dollars/shares)
Additional
Common Paid-in Retained Treasury Total
Stock Capital Earnings Stock Equity
Balance at
March 28, 1993 $ 120 $ 38,181 $33,137 $ (738) $70,700
Purchase of common
shares for treasury (3,611) (3,611)
Unrealized losses on
marketable securities
available-for-sale,
net of tax (635) (635)
1994 Net loss (2,714) (2,714)
Balance at
April 3, 1994 120 38,181 29,788 (4,349) 63,740
Purchase of common
shares for treasury (5,095) (5,095)
Unrealized losses on
marketable securities
available-for-sale,
net of tax (52) (52)
1995 Net income 3,840 3,840
Balance at
April 2, 1995 120 38,181 33,576 (9,444) 62,433
Purchase of common
shares for treasury (173) (173)
Unrealized gains on
marketable securities
available-for-sale,
net of tax 988 988
1996 Net income 4,132 4,132
Balance at
March 31, 1996 $ 120 $ 38,181 $38,696 $(9,617) $67,380
The accompanying notes are an integral part of this statement.
<PAGE>
TODD SHIPYARDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 31, 1996, April 2, 1995, and April 3, 1994
1. PRINCIPAL ACCOUNTING POLICIES
(A) Basis of Presentation - The consolidated financial
statements include the accounts of Todd Shipyards Corporation
(the "Company") and its wholly-owned subsidiaries Todd Pacific
Shipyards Corporation ("Todd Pacific"), TSI Management, Inc.
("TSI") and Elettra Broadcasting, Inc. ("Elettra"). All
intercompany transactions have been eliminated. The Company's
policy is to end its fiscal year on the Sunday nearest March 31.
Certain reclassifications with the consolidated financial
statements have been made to conform to the current year
presentation.
(B) Business - The Company's primary business is shipbuilding,
conversion and repair for the United States Government, state
ferry systems, and domestic and international commercial
customers. Substantially all of the Company's work is performed
at its Seattle Washington facility by a unionized production
workforce. Through TSI, the Company's investment subsidiary, the
Company has invested in Elettra, a radio station operator.
(C) Depreciation and Amortization - Depreciation and amortization
are determined on the straight-line method based upon estimated
useful lives or lease periods; however, for income tax purposes,
depreciation is determined on both the straight-line and
accelerated methods, and on shorter periods where permitted.
Intangible assets, predominantly broadcasting licenses held by
Elettra, are amortized using the straight-line method over the
expected period of benefit ranging from 5 to 40 years.
(D) Revenues - Revenues consist of the estimated realizable value
of work performed under construction, repair and conversion
contracts. Profits on major contracts, those in excess of $3
million or six months duration, are recorded on the percentage-of-
completion method (determined based on direct labor hours).
Losses on contracts are reported in the period when first
estimated. Revisions to contract estimates are recorded as the
estimating factors are refined. The effect of these revisions is
included in income in the period the revisions are made.
(E) 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.
(F) Changes in Accounting Principles - Effective April 4, 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 contracts to predominately shorter
term commercial and government contracts. This change has been
applied to general and administrative costs of prior years and
results in a cumulative effect credit of $.4 million, 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 $1,314 ($.12 per share) for
the fiscal year ended April 2, 1995. There was no income tax
effect as a result of the change.
(G) Income Taxes - Income taxes are determined in accordance with
Statement of Financial Accounting Standards No. 109 which
requires an asset and liability approach for financial accounting
and reporting of income taxes. A valuation allowance is recorded
to reduce deferred tax assets when realization of the tax benefit
is uncertain.
(H) Inventories - Inventories, consisting of materials and
supplies, are valued at lower of cost (principally average) or
replacement market. The Company has many available sources of
supply for its commonly used materials.
(I) Cash and Cash Equivalents - The Company considers all highly
liquid debt instruments with a maturity of three months or less
to be cash equivalents. Cash equivalents consist primarily of
money market instruments, investment grade commercial paper and
U.S. Government securities. The carrying amounts reported in the
balance sheet are stated at cost which approximates fair value.
(J) Securities Available for Sale - The Company considers all
debt instruments purchased with a maturity of more than three
months to be securities available for sale. Securities available
for sale consist primarily of U.S. Government securities,
investment grade commercial paper and equities and are valued
based upon market quotes.
In accordance with Statement of Financial Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities", Company management determines the appropriate
classification of debt and equity securities at the time of
purchase and reevaluates such designation as of each balance
sheet date. All of the Company's short-term and long-term
investments are classified as available-for-sale as of the
balance sheet date and are reported at fair value, with
unrealized gains and losses, net of tax, recorded as a component
of stockholders' equity.
(K) Environmental Accounting -
For current operating activities, costs of complying with
environmental regulations are immaterial and expensed as
incurred. Environmental costs are capitalized if the costs
extend the life of the property and/or increase its capacity.
For matters associated with past practices and closed operations,
accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of the
liability can be reasonably estimated, based upon the projected
scope of the remediation, current law and existing technologies.
These accruals are adjusted periodically as assessment and
remediation efforts progress or as additional technical or legal
information becomes available. Accruals for environmental
liabilities are classified in the balance sheet as long term
obligations at undiscounted amounts and exclude legal costs and
claims, if material, for recoveries from insurance or other third
parties. Accruals for insurance or other third party recoveries
for environmental liabilities are recorded when it is probable
that a claim will be realized.
(L) New Accounting Standards -
The Company implemented Statement of Financial Accounting
Standards (Statement) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
during the first quarter of fiscal year 1996. Statement 121
establishes new accounting standards for measuring the impairment
of long-lived assets. There was no impact of adopting Statement
121 on the Company's consolidated financial statements.
During fiscal year 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (Statement)
No. 123 "Accounting for Stock-Based Compensation." Statement 123
is effective for fiscal years beginning after December 15, 1995.
The Company anticipates continuing to account for stock based
compensation according to Accounting Principles Board Opinion 25
"Accounting for Stock Issued to Employees." The Company will
adopt the disclosure provisions of Statement 123 at the beginning
of fiscal year 1997. It is anticipated that the impact of
adopting Statement 123 will not have a material effect on the
consolidated financial statements.
2. RESTRICTED CASH AND SURETY LINE
On December 28, 1994 Todd Pacific entered into an agreement with
a surety pursuant to which the surety will provide a contract
bond for a contract to build three Jumbo Mark II class ferries
("Mark II Ferries")for the Washington State Ferry System ("Ferry
System"). The contract bond is secured by Todd Pacific's
machinery, equipment, inventory and trade accounts receivable on
certain bonded jobs. The surety has also issued bonds totaling
$4.1 million for current commercial repair jobs.
Prior to December 1994, Todd Pacific utilized a cash
collateralized surety arrangement or posted cash in lieu of a
performance bond. There were no cash collateralized surety
arrangements on March 31, 1996 and $.1 million in such
arrangements on April 2, 1995. Cash collateralized surety
arrangements are classified as other current assets on the
balance sheet.
Restricted cash includes retention relating to Mark II Ferry
construction progress payments pursuant to contract terms.
3. SECURITIES AVAILABLE FOR SALE
The following is a summary of available-for-sale securities:
Amor- Gross Gross Estimated
tized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
March 31, 1996
U.S. Treasury securities
and agency obligations $13,424 $ - $ 128 $13,296
U.S. corporate securities 8,131 8 51 8,088
Mortgage-backed
securities 6,524 1 36 6,489
Total debt securities 28,079 9 215 27,873
Equity securities 4,603 560 - 5,163
$32,682 $ 569 $ 215 $33,036
Amor- Gross Gross Estimated
tized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
April 2, 1995
U.S. Treasury securities
and agency obligations $21,417 $ - $ 357 $21,060
U.S. corporate securities 4,021 2 66 3,957
Mortgage-backed
securities 15,724 - 538 15,186
Total debt securities 41,162 2 961 40,203
Equity securities 1,426 272 - 1,698
$42,588 $ 274 $ 961 $41,901
The Company had no gross realized gains on sales of available-for-
sale securities for the fiscal year ending March 31, 1996 or
April 2, 1995. Gross realized gains on sales of available-for-
sale securities were $19 thousand for the fiscal year ending
April 3, 1994. The Company had gross realized losses of $24
thousand on sales of available-for-sale securities during fiscal
year 1996. The Company had no realized losses on sales of
available-for-sale securities in fiscal years 1995 or 1994.
The amortized cost and estimated fair value of the Company's
available-for-sale debt, mortgage-backed and equity securities
are shown below:
Estimated
Amortized Fair
(In thousands) Cost Value
March 31, 1996
Due in one year or less $ 6,978 $ 6,968
Due after one year through three years 14,577 14,416
21,555 21,384
Mortgage-backed securities 6,524 6,489
Equity securities 4,603 5,163
$32,682 $33,036
Estimated
Amortized Fair
(In thousands) Cost Value
April 2, 1995
Due in one year or less $11,989 $11,852
Due after one year through three years 13,449 13,165
25,438 25,017
Mortgage-backed securities 15,724 15,186
Equity securities 1,426 1,698
$42,588 $41,901
4. CONTRACTS
Mark II Contract
The Company has a $181 million contract to construct three Mark
II Ferries for the Washington State Ferry System. The Mark II
Ferries are designed to transport 218 automobiles and 2,500
passengers each and will be the largest ferries in the Washington
State Ferry System fleet. Fabrication of the Mark II Ferries
began in August 1995. Delivery of the first ferry is scheduled
for the fourth quarter of fiscal year 1997 and delivery of the
second and third ferries is scheduled for fiscal year 1998 and
1999, respectively. As construction of the ferries progresses,
revisions in cost and profit estimates for the contract will be
made. Changes in these estimates may be a result of productivity
factors, overhead costs, material costs, production schedules and
levels of shipyard activity. Changes in the these factors could
materially affect the Company's financial results.
Unbilled Receivables - Certain unbilled items on completed
contracts included in accounts receivable were approximately $.3
million at March 31, 1996 and $2.7 million at April 2, 1995.
Retainages - Costs and estimated profits in excess of billings on
incomplete contracts include $.4 million in retainages at March
31, 1996 and $0 million at April 2, 1995 (after deducting
progress billings of $196 million and $154 million at March 31,
1996 and April 2, 1995, respectively). Retainages are generally
due upon completion or acceptance of the contracted work and
completion of related warranty periods.
Customers - Revenues from the U.S. Government were $35.5 million
(35%), 41.2 million (60%) and $16.2 million (24%) in fiscal years
1996, 1995 and 1994, respectively. Revenues from the Washington
State Ferry System were $40.7 million (40%), $8.3 million (12%)
and $18.5 million (26%) in fiscal year 1996, 1995 and 1994,
respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation at
March 31, 1996 and April 2, 1995 consisted of the following:
1996 1995
Land $ 1,151 $ 1,151
Buildings 9,755 8,555
Piers, shipways and drydocks 26,105 25,992
Machinery and equipment 28,596 25,431
Total plant and equipment, at cost 65,607 61,129
Less accumulated depreciation 39,108 36,577
Plant, property and equipment, net $26,499 $24,552
6. EMPLOYEE BENEFIT PLANS
Union Pension Plans - Operating Shipyard- The Company
participates in several multi-employer plans, which provide
defined benefits to the Company's collective bargaining employees
at its Shipyard. The expense for these plans totaled $2.5
million, $1.8 million and $2.2 million, for fiscal years 1996,
1995 and 1994, respectively.
Union Pension Plans - Previously Operated Shipyards- The Company
is a sponsor of several union pension plans due to the prior
operation of other shipyards. The ongoing operation and
management of these plans is the responsibility of boards of
trustees made up of equal numbers of Company and union
representatives.
Nonunion Pension Plans - The Company sponsors the Todd Shipyards
Corporation Retirement System (the "Retirement System"), a
noncontributory defined benefit plan under which substantially
all nonunion employees are covered. The benefits are based on
years of service and the employee's compensation before
retirement. The Company's funding policy is to fund such
retirement costs as required to meet allowable deductibility
limits under current Internal Revenue Service regulations. New
membership in the Retirement System was frozen on July 1, 1993.
The components of net periodic pension cost (benefit) for the
Retirement System defined benefit plan in fiscal years 1996, 1995
and 1994 are as follows (in thousands):
<PAGE>
1996 1995 1994
Service cost during the time period $ 195 $ 248 $ 333
Interest cost on projected benefit
obligation 2,184 2,179 2,325
Actual return on plan assets (5,583) (2,367) (1,981)
Net amortization and deferral 342 (3,093) (4,098)
Net periodic pension benefit before
OBRA '90 (2,862) (3,033) (3,421)
Transfer of assets for payment of
retiree medical benefits
(401(h) Plan) 1,225 1,406 1,496
Net periodic pension cost (benefit) $ (1,637) $(1,627) $(1,925)
Significant assumptions used in determining pension obligations,
and the related pension expense, include a weighted-average
discount rate of 7.25% at March 31, 1996 and 8% at April 2, 1995
and April 3, 1994, an assumed rate of increase in future
compensation of 4.5% at March 31, 1996 and 5% at the end of
fiscal years 1995 and 1994, and an estimate of expected long-term
rate of return on plan assets of 7% at March 31, 1996 and 6.5% at
the end of fiscal years 1995 and 1994. The decrease in the
discount rate reflects the decrease in interest rates at March
31, 1996. The change in assumed increases in future compensation
incorporates reduced inflation expectations. The increase in
long-term plan asset rates of return reflects current and
expected plan asset portfolio investment allocations.
The following table sets forth the Retirement System plan's
funded status and amounts recognized in the Company's
consolidated balance sheets at March 31, 1996 and April 2, 1995
for the Retirement System defined benefit plan (in thousands):
1996 1995
Actuarial present value of benefit obligation:
Accumulated benefit obligations,
fully vested $28,371 $27,566
Projected benefit obligation $29,810 $28,651
Plan's assets at fair value 52,525 49,932
Plan's assets in excess of projected
benefit obligation 22,715 21,281
Unrecognized net loss 6,559 8,771
Unrecognized net transition asset being
recognized over 15 years (12,073) (14,488)
Deferred pension asset $17,201 $15,564
The Retirement System plan assets consist principally of common
stocks and U.S. Government and corporate obligations.
Under a provision of the Omnibus Budget Reform Act of 1990 ("OBRA
'90") the Company transferred approximately $1.2 million in
excess pension assets from its Retirement System into a fund to
pay fiscal year 1996 retiree medical benefit expenses. OBRA '90,
was modified by the Retirement Protection Act of 1994 to extend
annual excess asset transfers through the fiscal year ending
March 2001.
Savings Investment Plan
The Company sponsors a Savings Investment Plan (the "Savings
Plan"), under Internal Revenue Code Section 401, covering
substantially all non-union employees. Under the Savings Plan,
the Company at its sole discretion can contribute an amount equal
to up to 6% of each participant's annual salary depending on the
participant's Savings Plan contributions, and the Company's
profits and performance. The Company has made no contributions
to the Savings Plan during the last three years.
Post Retirement Group Health Insurance Program - The Company
sponsors a defined benefit retirement health care plan that
provides post retirement medical benefits to former full-time
exempt employees, and their spouses, who met specified criteria.
The Company terminated post retirement health benefits for any
employees retiring subsequent to May 15, 1988. The retirement
health care plan contains cost-sharing features such as
deductibles and coinsurance. These benefits are funded monthly
through the payment of group health insurance premiums.
The actuarially calculated components of net periodic post
retirement health care benefit cost for the defined benefit plan
in fiscal years 1996, 1995 and 1994 are as follows (in
thousands):
1996 1995 1994
Service costs $ - $ - $ -
Interest cost on projected
benefit obligation 1,180 1,343 1,533
Return on plan assets - - -
Net amortization of gain (276) (182) (200)
Net period postretirement benefit
cost $ 904 $ 1,161 $ 1,333
Current year plan contributions $ 1,274 $ 1,467 $ 1,551
Since such benefit obligations do not accrue to current employees
of the Company, there is no current year service cost component
of the accumulated post retirement health benefit obligation.
For fiscal year 1996, the weighted average discount rate and rate
of increase in the per capita cost of covered benefits (i.e.,
health care cost trend) used in determining the actuarial present
value of the accumulated health benefit obligation were 6.5% and
8% grading down to 5% over 20 years, respectively. The 1996
weighted average discount rate reflects changes in economic
conditions. The 1996 health care cost trend reflects the
expectation that long term medical cost growth trends will not
stay at current levels. For fiscal year 1995, the weighted
average discount rate and rate of increase in the per capita cost
of covered benefits were 7% and 8%, respectively. For fiscal
year 1994, the weighted average discount rate and rate of
increase in the per capita cost of covered benefits were 8% and
12% grading down to 5% over 21 years, respectively. In
accordance with Statement of Financial Accounting Standards 106,
"Employers' Accounting for Post retirement Benefits Other Than
Pensions", retirement health care plan gains or losses exceeding
10% of the benefit obligation are amortized over the
beneficiaries average remaining life expectancy (11 years). The
health care cost trend rate assumption has a significant effect
on the amounts reported. Increasing the assumed health care cost
trend rate by one percentage point in each year would increase
the accumulated post retirement health benefit obligation as of
March 31, 1996 by $2.0 million and the interest cost component of
net periodic post retirement benefit cost for 1995 by $.1
million.
The following table sets forth the amounts recognized in the
Company's consolidated balance sheet at March 31, 1996 and April
2, 1995 for the post retirement health benefit obligation (in
thousands):
1996 1995
Accumulated post retirement health benefit
obligation $20,016 $19,877
Plan assets - -
Accumulated post retirement health benefit
obligation in excess of plan assets 20,016 19,877
Unrecognized net gain 3,378 3,887
Accrued post retirement health benefits 23,394 23,764
Less estimated current portion of obligations
classified as accrued expenses 1,116 1,454
Long-term portion of accrued post retirement
health benefits $22,278 $22,310
7. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
1996 1995 1994
Current: federal $ - $ - $ (263)
state and local - - -
Deferred: federal - - -
state and local - - -
Total income tax provision $ - $ - $ (263)
The Company records its deferred tax benefits on the balance
sheet net of a valuation reserve due to the lack of reasonable
assurance that they will be realized.
The provision (benefit) for income taxes differs from the amount
of tax determined by applying the federal statutory rate for the
following reasons (in thousands):
1996 1995 1994
Tax provision (benefit) at
federal statutory tax rate $ 1,446 $ 1,344 $(1,042)
Increase (decrease) in valuation
allowance (829) (908) 1,261
Tax rate differential - - (232)
Tax effect of adjustment of
contingent liabilities (541) (850) (27)
Other - net (76) 414 (223)
$ - $ - $ (263)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred income tax assets and liabilities at March 31, 1996,
April 2, 1995 and April 3, 1994 were as follows (in thousands):
1996 1995 1994
Deferred income tax assets:
Business credit carryforwards $7,269 $8,092 $9,429
Alternative minimum tax credit
carryforwards 2,874 2,874 2,874
Accrued employee benefits 9,214 9,272 10,026
Environmental reserve 2,490 2,815 2,138
Contract deferrals 1,115 958 1,442
Deferred gain on sale of facility 601 627 847
Securities available-for-sale - 241 -
Reserve for doubtful accounts 179 192 228
Other 1,087 802 607
Total deferred income tax assets 24,829 25,873 27,591
Valuation reserve for deferred
tax assets (13,872) (14,701) (15,609)
Net deferred tax assets 10,957 11,172 11,982
Deferred income tax liabilities:
Accelerated depreciation 4,739 5,488 6,344
Deferred pension income 6,020 5,447 4,878
Completed contracts - - 703
Securities available-for-sale 124 - -
Other 74 237 57
Total deferred income tax liabilities 10,957 11,172 11,982
Net deferred taxes $ - $ - $ -
The Company had, for federal income tax purposes, tax credit
carryforwards of $7.3 million and $8.1 million at March 31, 1996
and April 2, 1995, respectively. If not utilized, these
carryforwards will expire in fiscal years 1997 through 2001
In addition, the Company has paid approximately $2.9 million of
alternative minimum taxes on alternative minimum taxable income
from fiscal years 1988 through 1992, which will be allowed as a
credit carryforward against regular federal income taxes in
future years in the event regular federal income taxes exceed the
alternative minimum tax.
8. LEASES
Operating lease payments charged to expense were $.9 million, $.5
million, and $.7 million for fiscal years 1996, 1995 and 1994,
respectively. Certain leases contain renewal options and
escalation clauses. Minimum lease commitments at March 31, 1996
are summarized below (in thousands):
Operating
Leases
1997 $ 345
1998 333
1999 299
2000 273
2001 244
Thereafter 1,172
Total minimum lease commitments $ 2,666
9. INCENTIVE STOCK OPTION PLAN
On September 23, 1993 Company shareholders approved an incentive
stock compensation plan under which key employees may be granted
stock purchase options, restricted stock and stock appreciation
rights. The purpose of the plan is to encourage the acquisition
of the Company's common stock by key employees who perform
significant services for the benefit of the Company and to serve
as a means of attracting and retaining outstanding employees.
There are five hundred thousand shares of common stock of the
Company reserved for award under this plan. Stock option awards
require, among other things, that the key employee remain an
employee of the Company during the period of the stock option,
subject to certain provisions, and that the stock option price
will not be less than 100% of the fair market value of the common
stock on the date of the grant.
A summary of the Company stock options issued and outstanding is
as follows:
Exercise
Shares Price
Outstanding at April 3, 1994 - -
Granted 210,000 $4.25-$4.50
Outstanding at April 2, 1995 210,000 $4.25-$4.50
Granted 100,000 $6.00
Outstanding at March 31, 1996 310,000 $4.25-$6.00
Available for grant at March 31, 1996 190,000
Options totaling 192,333 and 134,500 shares were exercisable at
March 31, 1996 and April 2, 1995, respectively. As of March 31,
1996 there have been no awards of restricted stock or stock
appreciation rights.
10. 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, since the availability and coverage of such insurance
generally has declined or the cost has become prohibitive.
11. FINANCING ARRANGEMENTS
Todd Pacific utilizes an annually renewable $3 million revolving
credit facility 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. There were no balances outstanding at March 31,
1996.
12. ENVIRONMENTAL MATTERS
The Company faces potential liabilities in connection with the
alleged presence of hazardous waste materials at certain of its
closed shipyards, at its 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 environmental
liabilities until such analysis has been completed. The eventual
outcome of all environmental matters cannot be determined at this
time, however, the analysis of some matters have progressed
sufficiently to warrant establishment of reserve provisions in
the accompanying consolidated financial statements.
Harbor Island Site:
The Company and several other parties have been named as
potentially responsible parties ("PRPs") by the Environmental
Protection Agency ("EPA") pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act
("CERCLA") in connection with the documented release or
threatened release of hazardous substances, pollutants and
contaminants at the Harbor Island Superfund Site (the "Site"),
upon which the Shipyard is located.
To date, the EPA has separated the Site into two operable units
(Soil and Groundwater Unit and Shipyard Sediments Unit). The
Company, along with a number of other Harbor Island PRPs,
received a Special Notice Letter from the EPA on May 4, 1994
pursuant to section 122 (e) of CERCLA. The Company entered into
a Consent Decree for the Soil and Groundwater Operable Unit in
September 1994 under which the Company has agreed to remediate
the designated contamination on its property. That remediation
is anticipated to begin during late 1996 or early 1997. The
Company and EPA currently are negotiating the extent and
methodology of that remediation. The duration of the Soil and
Groundwater Unit remediation is expected to be 12 to 24 months
from the start date. The Company has included in the below
stated reserve a total of $5.5 million to address its share of
the Harbor Island Soil and Groundwater Operable Unit remediation
and monitoring.
In October 1995 the EPA released for public comment the Proposed
Plan ("Proposed Plan") for the clean-up of sediments within the
Shipyard Sediments Operable Unit. That Proposed Plan includes
four possible clean-up alternatives ranging from taking no-action
to dredging and removing the alleged contaminated sediments. The
EPA Proposed Plan estimates the CompanyOs share of any clean-up
effort could range from no cost if no-action were taken to $30
million for a broadly defined effort. The Company provided
comments to the EPA during the public comment period for the
Proposed Plan and challenged the EPAOs conclusions. The Company
disputes the identification of a separate Shipyard Sediment Unit,
the scope of the work identified in the Proposed Plan and the
timing of the clean-up effort. After the EPA considers the
public comments received, it will issue a Record of Decision
("ROD") stating which clean-up action EPA believes should be
undertaken. Subsequent to the issuance of the ROD, the EPA will
meet with the Company and other affected parties to negotiate the
scope of clean-up activities. The Company intends to vigorously
contest the ROD should it not reflect issues addressed by the
Company in its public comments to the EPA.
The Company believes that the Environmental Protection Agency
("EPA") intends to issue its Record of Decision pertaining to the
Shipyard Sediments Unit on the Harbor Island Superfund Site
before the end of calendar year 1996. As of March 31, 1996,
based on the currently available facts, and consideration of
other factors, the Company does not believe that it has
sufficient information to estimate the potential liability
associated with any potential remediation of the Shipyard
Sediments Unit. Specifically, the Company believes that until
the EPA issues its Record of Decision addressing the scope of
remediation, if any, disposal alternatives and the timing and
cost of any clean-up remain significantly uncertain.
Accordingly, the Company has not established a reserve for a
potential Shipyard Sediments Unit clean-up.
In January 1990, the Company was notified that it was a PRP in an
action brought by the National Oceanic and Atmospheric
Administration ("NOAA") for alleged damages caused to the coastal
and marine natural resources in the Duwamish River and Elliott
Bay off the Harbor Island Site. Subsequent to this notification,
NOAA brought suit against the City of Seattle and the
Governmental agency responsible for sewage treatment in the
Seattle area ("Metro") for their contributions of hazardous
materials to the Duwamish River and Elliott Bay. This litigation
was settled between the parties. While NOAA, the City of Seattle
and Metro retain the right to bring suit against all the other
named PRPs, including the Company, the Company has not been
contacted since the January 1990 notification. The Company does
not know the scope of the alleged damages caused to the coastal
and marine natural resources or the methods of measuring these
alleged damages. For these reasons, the Company does not believe
that any estimate of any potential liability relating to these
actions can be made at this time.
Other Environmental Matters:
The Company has been notified by the EPA that the Casmalia
Resources Hazardous Waste Management Facility in Santa Barbara
County, California is undergoing remediation and closure under
the Resource Conservation and Recovery Act. It is alleged that
the Los Angeles Division of Todd Pacific deposited certain
production wastes and by-products at this disposal site
throughout the 1980's. The Company has been participating in
settlement discussions with other PRPs and the EPA as a member of
the Steering Committee. The Company has included an estimate of
the potential liability for this site in its below stated
reserves. Payments, expected to be immaterial, are anticipated
to begin in fiscal year 1997 and extend for up to ten years.
Investigation continues on this site.
In June 1989, the Company was notified by the City of Hoboken,
New Jersey (the "City") that a volume of oil had been discovered
on the surface of the property that had been owned and operated
as the Hoboken Division of the Company. In June 1992, the City
and the Company were named as PRPs by the State of New Jersey
(the "State"). The City has undertaken a clean-up of the
property. The State has issued a Notice of Violation against the
Company pursuant to the New Jersey Spill Act ("Spill Act"). The
City and the State allege that the Company abandoned three
underground storage tanks in 1969 when the property was sold to
the City and that the discovered surface oil spilled from those
tanks. In April 1994 the City of Hoboken initiated a civil
action against the Company entitled City of Hoboken v. Todd et
al. for contribution under the Spill Act seeking reimbursement
for all monies expended for the cleanup of the Hoboken property.
Also named in the suit is the developer who allegedly trespassed
onto the property and caused the oil spill and several insurance
companies who allegedly issued comprehensive general liability
insurance policies in favor of the City of Hoboken covering the
property. The Company is vigorously defending this action. The
Company has included an estimate of the potential liability for
the site in its below stated reserves. The trial date for this
case is scheduled for Spring of calendar 1997.
Todd Pacific was 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 in
September of 1994. 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. No estimation of potential
liability or potential timing of payments, if any, is currently
available as the scope of the total Omega Site has not yet been
quantified and little information regarding the Company's
involvement in the site has to date been identified.
The Company was identified in 1983 as a generator of materials
deposited at the Western Processing Site in Kent, Washington.
Since that time the Company has executed, along with several
hundred other PRPs, a Consent Decree committing to its
proportionate share of the cleanup to take place at the site.
While it is not possible to predict the entire liability due
under the terms of the Consent Decree, the known costs to the
Company are included in the below stated reserve. Immaterial
settlement payments are scheduled for fiscal year 1997, with
smaller payments anticipated until the end of the decade.
In November 1987, the Company was identified as a PRP by the EPA
in conjunction with the cleanup of the Operating Industries, Inc.
("OII") hazardous materials disposal site at Monterey Park,
California. In September 1995 the Company entered into a Partial
Consent Decree with the EPA to contribute $.6 million as its
partial share of remediation costs at the OII site which
encompasses all costs assessed to date. Payment to the EPA is
expected in summer 1996. A proposed final consent decree for
site remediation is not expected from the EPA until calendar
1997. The cost of the partial settlement and future final
consent decree settlement is assumed in the below stated reserve.
The Company was identified as a PRP in 1986 as a generator of
materials deposited at the Maxey Flats Disposal Site in Fleming
County, Kentucky and specifically has been identified as a de
minimis contributor based on its volume of less than .25% of the
total site makeup. These materials were allegedly generated from
work the Company performed for the United States Department of
Commerce Maritime Administration ("MARAD") on the nuclear ship NS
SAVANNAH during the 1960's and 1970's. The EPA invited the
Company to participate with the de minimis coordinating committee
to resolve its alleged liability on a volume contribution basis
and as a result, the Company has agreed to settle its potential
liability in this matter for a cash payment of $.2 million.
Payment to the EPA is anticipated in summer 1996. The Company
has included the settlement payment in the below stated reserve.
The Company plans to pursue MARAD reimbursement for this cash
payment.
The Company has been named as a defendant in civil actions by
parties alleging damages from past exposure to toxic substances,
generally asbestos, at closed former Company facilities. These
cases are generally filed with multiple claimants and multiple
defendants and are generally insured matters. In certain
jurisdictions, the laws are structured to allow the heirs of
former employees to sue for gross negligence and to seek punitive
damages in addition to compensatory awards. The Company is not
fully insured for these matters. Costs to date to administer and
settle these cases have not been material. Estimation of
eventual potential liability, if material, is not possible as the
Company has no means to quantify the number of potential cases,
the timing of such cases, the jurisdiction or what judgments or
settlements, if any, would result. The Company and its insurers
are vigorously defending these actions. The Company has included
its current estimate of the potential liability for known issues
in its below stated reserves.
The Company has provided aggregate reserves of $7.9 million for
these contingent liabilities. As discussed in Footnote 1 to the
Consolidated Financial Statements, no amount has been taken into
consideration for the possible recovery of these amounts through
right of contribution actions against prior landowners and others
that may have been responsible for the alleged damage to the
various sites. No assurance can be given that the $7.9 million
in environmental reserves is adequate to cover all potential
remediation costs and related expenses or awards the Company
could incur; the Company expects to add reserves to address the
Shipyard Sediments Unit of the Harbor Island Superfund Site at
which time it has sufficient information to estimate the
potential liability.
13. SUBSEQUENT EVENT
The Company owned 120,200 shares of another corporation's common
stock ("Investee") at March 31, 1996, reflected as an available-
for-sale marketable security investment in the accompanying
consolidated balance sheet. There is a common director of the
Company and the Investee. The fair market value of the Investee
common stock was approximately $1.8 million at March 31, 1996.
Subsequent to fiscal year end March 31, 1996, the Company sold
70,000 shares of the Investee common stock for $1.7 million, a
gain of $.9 million ($.09 per share). This gain will be recorded
in the Company's first quarter 1997 results for the period ending
June 30, 1996. The remaining shares will continue to be
classified as available-for-sale securities on the balance sheet.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter for the fiscal years ended March 31,
1996 and April 2, 1995 are as follows (in thousands):
Cumulative
Operating effect of Net
income Income accounting income
Revenues (loss) (loss) change (loss)
1st Qtr 1996 $ 12,952 $ (800) $ 59 $ - $ 59
2nd Qtr 1996 26,837 (1) 689 - 689
3rd Qtr 1996 21,783 1,240 2,059 - 2,059
4th Qtr 1996 40,115 578 1,325 - 1,325
$101,687 $ 1,017 $ 4,132 $ - $ 4,132
1st Qtr 1995 $ 14,469 $ (1,963) $(1,013) $ 438 $ (575)
2nd Qtr 1995 10,372 ( 499) 1,117 - 1,117
3rd Qtr 1995 15,551 337 1,250 - 1,250
4th Qtr 1995 28,704 1,227 2,048 - 2,048
$ 69,096 $ (898) $ 3,402 $ 438 $ 3,840
Earnings per share of common stock:
Cumulative
effect of Net
Income accounting income
(loss) change (loss)
1st Qtr 1996 $ 0.01 $ - $ 0.01
2nd Qtr 1996 0.07 $ - $ 0.07
3rd Qtr 1996 0.21 $ - $ 0.21
4th Qtr 1996 0.13 $ - $ 0.13
1st Qtr 1995 $ (0.09) $ 0.04 $ (0.05)
2nd Qtr 1995 0.10 - $ 0.10
3rd Qtr 1995 0.12 - $ 0.12
4th Qtr 1995 0.19 - $ 0.19
The cumulative effect of changes in accounting principles amount
is net of income tax effect. Each quarter is 13 weeks in length.
Fiscal year 1995 fourth quarter net income reflects high Navy
contract activity.
Todd Shipyards Corporation
Schedule II - Valuation and Qualifying Reserves
For years ending March 31, 1996, April 2, 1995 and April 3, 1994
(in thousands)
Reserves deducted from assets to which they apply - Allowance for
doubtful accounts:
Year Year Year
ended ended ended
March 31, April 2, April 3,
1996 1995 1994
Balance at beginning of period $ 548 $ 653 $ 1,807
Charged to costs and expenses 68 - -
Deductions from reserves (1) (105) (105) (1,154)
Balance at close of period $ 511 $ 548 $ 653
Notes:
(1) Deductions from reserves represent uncollectible accounts
written off less recoveries. Deductions to the allowance account
include $100 thousand and $604 thousand credited to other income
in fiscal years 1995 and 1994, respectively, for changes in the
Company's business volume.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934 the registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TODD SHIPYARDS CORPORATION
Registrant
By: /s/ Stephen G. Welch
Stephen G. Welch
Chief Financial Officer
and Treasurer
February 14, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
/s/ Brent D. Baird
Brent D. Baird, Director Steven A. Clifford, Director
February 12, 1997 February , 1997
/s/ Patrick W.E. Hodgson /s/ Joseph D. Lehrer
Patrick W.E. Hodgson, Joseph D. Lehrer, Director
Chairman, Chief Executive February 12, 1997
Officer, and Director
February 12, 1997
/s/ Philip N. Robinson /s/ John D. Weil
Philip N. Robinson, Director John D. Weil, Director
February 12, 1997 February 12, 1997
/s/ Stephen G. Welch
Stephen G. Welch
Acting Chief Financial Officer
Principal Financial Officer and
Principal Accounting Officer
February 14, 1997
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