UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended July 2, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission File Number 1-5109
TODD SHIPYARDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1506719
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
1801- 16th AVENUE SW, SEATTLE, WASHINGTON 98134-1089
(Street address of principal executive offices - Zip Code)
Registrant's telephone number: (206) 623-1635
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X]
There were 9,701,480 shares of the corporation's $.01 par value common stock
outstanding at July 2, 2000.
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PART I - FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Statements contained in this Report which are not historical facts or
information are "forward-looking statements." Words such as "believe,"
"expect," "intend," "will," "should," and other expressions that
indicate future events and trends identify such forward-looking statements.
These forward-looking statements involve risks and uncertainties which could
cause the outcome to be materially different than stated. Such risks and
uncertainties include both general economic risks and uncertainties and
matters discussed in the Company's annual report on Form 10-K which relate
directly to the Company's operations and properties. The Company cautions
that any forward-looking statement reflects only the belief of the Company or
its management at the time the statement was made. Although the Company
believes such forward-looking statements are based upon reasonable
assumptions, such assumptions may ultimately prove to be inaccurate or
incomplete. The Company undertakes no obligation to update any forward-
looking statement to reflect events or circumstances after the date on which
the statement was made.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Quarterly Periods Ended July 2, 2000 and June 27, 1999
(In thousands of dollars, except per share data)
Quarter Ended
7/02/00 6/27/99
Revenue $33,401 $29,747
Operating expenses:
Cost of revenue 23,287 21,979
Administrative and
manufacturing overhead
expense 7,756 7,502
Contract reserve (47) (993)
Total operating expenses 30,996 28,488
Operating income 2,405 1,259
Investment and other income 475 452
Gain on sales of available-for-sale
securities - 126
Income before income tax expense 2,880 1,837
Income tax expense 560 40
Net income $ 2,320 $ 1,797
Net income per Common Share:
Basic $ 0.24 $ 0.18
Diluted $ 0.24 $ 0.18
Weighted Average Shares Outstanding
(thousands)
Basic 9,701 9,898
Diluted 9,795 10,011
Retained earnings at
beginning of period $50,718 $42,586
Net income for the period 2,320 1,797
Retained earnings at
end of period $53,038 $44,383
The accompanying notes are an integral part of this statement.
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TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETS
Periods Ended July 2, 2000 and April 2, 2000
(in thousands of dollars)
07/02/00 04/02/00
ASSETS: (Unaudited)(Audited)
Cash and cash equivalents $ 6,483 $ 5,513
Securities available for sale 48,523 47,105
Accounts receivable, net of allowance for
doubtful accounts of $100 at July 2, 2000
and April 2, 2000:
U.S. Government 3,620 8,149
Other 6,380 4,850
Costs and estimated profits in excess
of billings on incomplete contracts 13,298 12,536
Inventory 1,570 1,853
Other current assets 484 625
Total current assets 80,358 80,631
Property, plant and equipment, net 16,783 17,356
Restricted cash 2,543 2,543
Deferred pension asset 28,119 27,482
Other long term assets 4,148 4,135
Total assets $131,951 $132,147
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accruals $ 4,916 $ 7,227
Accrued payroll and related liabilities 4,183 4,852
Accrual for loss on contract 62 109
Billings in excess of costs and estimated
profits on incomplete contracts 2,706 1,840
Taxes payable other than income taxes 1,222 1,319
Income taxes payable 1,685 1,730
Total current liabilities 14,774 17,077
Environmental and other reserves 18,783 19,303
Accrued post retirement health benefits 19,432 19,582
Total liabilities 52,989 55,962
Commitments and contingencies
Stockholders equity:
Common stock, $.01 par value - authorized
19,500,000 shares, issued 11,956,033 shares
at July 2, 2000 and April 2, 2000, and
outstanding 9,701,480 at July 2, 2000
and April 2, 2000 120 120
Additional paid-in capital 38,145 38,145
Retained earnings 53,038 50,718
Accumulated other comprehensive income (loss) (829) (1,291)
Treasury stock (11,114) (11,114)
Notes receivable from officers for common stock (398) (393)
Total stockholders' equity 78,962 76,185
Total liabilities and stockholders' equity $131,951 $132,147
The accompanying notes are an integral part of this statement.
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TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarterly Periods Ended July 2, 2000 and June 27, 1999
(in thousands of dollars)
Period Ended
7/02/00 6/27/99
OPERATING ACTIVITIES:
Net income $ 2,320 $ 1,797
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 708 629
Environmental reserves (520) (133)
Deferred pension asset (637) (600)
Post retirement health benefits (150) (150)
Decrease (increase) in operating assets:
Costs and estimated profits in excess of
billings on incomplete contracts (762) (5,244)
Inventory 283 (622)
Accounts receivable 2,999 (2,062)
Other (net) 128 194
(Decrease) increase in operating liabilities:
Accounts payable and accruals (2,311) 473
Contract reserves (47) (993)
Accrued payroll and related liabilities (669) 300
Billings in excess of costs and estimated
profits on incomplete contracts 866 (1,015)
Income taxes payable (45) (2,290)
Other (net) (97) (128)
Net cash provided by (used in)
operating activities 2,066 (9,844)
INVESTING ACTIVITIES:
Purchases of marketable securities (1,749) (6,620)
Maturities of marketable securities 500 2,000
Sales of marketable securities 243 2,975
Capital expenditures (135) (156)
Other 45 31
Net cash used in investing activities (1,096) (1,770)
FINANCING ACTIVITIES:
Restricted cash - (162)
Purchase of treasury stock - (62)
Net cash used in financing activities - (224)
Net increase (decrease) in cash and cash
equivalents 970 (11,838)
Cash and cash equivalents at beginning of period 5,513 12,332
Cash and cash equivalents at end of period 6,483 494
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - 7
Income taxes $ 600 $ 2,330
The accompanying notes are an integral part of this statement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Todd Shipyards Corporation (the "Company") filed its Consolidated Financial
Statements for the fiscal year ended April 2, 2000 with the Securities and
Exchange Commission on Form 10-K. That report should be read in connection
with this Form 10-Q.
1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements are unaudited but in the
opinion of management reflect all adjustments necessary for a fair
presentation of the Company's financial position and results of operations.
2. RECENT ACCOUNTING PRONOUCEMENTS
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation (FIN
44), that clarifies guidance for certain issues related to the application of
APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The
adoption of FIN 44 by the Company on July 1, 2000 had no impact on the
Company's operating or financial position. The Company does not expect that
FIN 44 will impact the way it accounts for its equity instruments in the
future.
3. CONTRACTS
Combatant Maintenance Team ("CMT") Contract
During the first quarter of fiscal year 2001, the Company was awarded on a
sole source basis, a five year, cost-type contract for the repair and
maintenance of six surface combatant class vessels (frigates and destroyers)
stationed in the Puget Sound area by the Department of the Navy. The Navy
has not released a notional value of the maintenance work, though the Company
believes that if all options are exercised, the value may be approximately
$60 to $75 million over the five year period. Work on this contract, which
will be performed primarily in the Company's Seattle shipyard, began late in
the Company's first quarter.
Auxiliary Oiler Explosive ("AOE") Contract
In May 1996, the Company was awarded a cost-type contract for phased
maintenance repairs to four Navy AOE class supply ships during a five year
availability schedule. The contract, which has been performed primarily at
the Company's Seattle shipyard, had an original notional value of $79
million. Since the inception of this contract, the Navy has exercised work
options, which have increased the contract value to approximately $100
million. Based on current availability schedules the contract is anticipated
to conclude during the second quarter of fiscal year 2002. To meet this
availability schedule, the Company anticipates the Navy will exercise
contract options, which will increase the final contract value to
approximately $129 million. The Company is not aware if the Navy will award
a subsequent contract at the conclusion of this current contract.
Planned Incremental Availability ("PIA")
In January 1999, the Company was awarded a five year cost-type contract for
phased maintenance on three Carrier Vessel Nuclear, or CVN class aircraft
carriers, by the Department of the Navy. The notional value for this five
year contract is approximately $100 million. Work on this contract is
currently being performed at the Puget Sound Naval Shipyard, located in
Bremerton, Washington.
Preservation Contract
During the second quarter of fiscal year 2000, the Company was awarded a
ferry overhaul contract with an estimated price of approximately $29 million.
The contract calls for the overhaul of the Washington State Ferry, MV Yakima.
Since the contract was awarded, its scope of work has been reduced slightly
and its value is currently estimated to be approximately $28 million.
Work on the MV Yakima commenced during the third quarter of fiscal year 2000
and is approximately 62% complete at July 2, 2000. The project, which will
eventually replace or renovate the majority of the vessel's interior
structures, including the replacement of steel plating, passenger area
furniture, galley, fixtures, windows, and the removal of hazardous materials,
is expected to be completed during the fourth quarter of fiscal year 2001.
The Company's current estimates to complete the project are within the
established production budgets and the current completion schedule is
projected to be earlier than contractually required. The Company may be
awarded financial incentives if certain contractual delivery dates are met.
However, the Company has not recognized these incentives in its current
contract revenue.
Power Barge Contract
In the second quarter of fiscal year 1999, the Company commenced work on a
new construction contract with an estimated price of approximately $20.0
million. The contract called for the construction of a floating electrical
power plant (the "Margarita II"), 206 feet long and capable of developing 70
mega-watts of electricity.
During the first quarter of fiscal year 2000, the Margarita II was delivered
to its owner. To maintain production schedule deadlines and perform customer
directed change orders, the Company experienced significant contract cost
growth in both labor hours and material. However, agreement was not reached
between the Company and the owner regarding the potential increase in the
contract price, if any, to compensate for all of these changes.
At the time of delivery, the Company claimed it was owed approximately $3.5
million for customer directed change orders. In accordance with the terms of
the contract, sufficient funds were placed in an escrow trust account by the
vessel's owner to secure the $3.5 million in un-negotiated customer directed
change orders, as well as additional receivables owed to the Company.
During the period ending July 2, 2000, the Company and the vessel owner
negotiated approximately $0.5 million of customer directed change orders,
bringing the total amount of negotiated customer directed change orders to
approximately $0.9 million since the vessel was delivered. This leaves
approximately $2.6 million in un-negotiated change orders at July 2, 2000.
Since agreement has not been reached on the remaining un-negotiated change
orders, in accordance with the terms of the contract, the Company and the
vessel owner are settling the remaining change orders through a formal
arbitration process. Arbitration hearings, which began during the fourth
quarter of fiscal year 2000, resumed during the first quarter of fiscal year
2001, and are scheduled to be concluded during the second quarter of fiscal
year 2001. After the formal hearings are concluded, the Company anticipates
a ruling sometime during the third quarter of fiscal year 2001.
Since the Company cannot reasonably predict the outcome of the arbitration
with its customer, it has not recognized any revenue resulting from possible
recoveries in its current contract revenue. In addition, the Company cannot
reasonably estimate the costs associated with pursuing full recovery from the
vessel owner at this time. Therefore, these costs will be recognized as they
are incurred in future accounting periods.
At July 2, 2000, the Company believes that its remaining contract warranty
reserves are adequate and any potential warranty expense greater than
established reserves will be immaterial to the Company's financial condition
or operating results. However, the Company will review its reserve estimates
during the balance of the warranty period and may revise its reserves as
needed. The warranty period is scheduled to end early in the second quarter
of fiscal year 2001.
4. INCOME TAXES
The Company recognized $0.6 million in income tax expense during the first
three months of fiscal year 2001 after applying available business tax
credits. During the first three months of fiscal year 2000 the Company
recognized $40,000 in income tax expense after applying available business
tax credits.
5. ENVIRONMENTAL MATTERS
As discussed in the Company's Form 10-K for the fiscal year ended April 2,
2000, 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.
Harbor Island Site
The Company and several other parties have been named as potential
responsible parties by the Environmental Protection Agency ("EPA") pursuant
to the Comprehensive Environmental, Response, Compensation, and Liability Act
in connection with the documented release of hazardous substances,
pollutants, and contaminants at the Harbor Island Superfund Site upon which
the Seattle Shipyard is located.
Other Environmental Matters
The Company is also currently involved, together with other companies in some
cases, in other Superfund and Non-Superfund remediation sites and
environmental legal issues. In certain instances, the Company's liability
and proportionate share of costs have not been determined due to
uncertainties as to the nature and extent of site conditions and the
Company's involvement. Based on the Company's previous experience, its
allocated share of multi-participant remediation sites has often been
minimal, in certain instances less than 1 percent.
The actual costs relating to environmental remediation and settlements will
depend upon numerous factors, including the number of parties found liable at
each environmental site, the method of remediation, outcome of negotiations
with regulatory authorities, outcome of litigation, technological
developments and changes in environmental laws and regulations.
The Company's financial statements as of July 2, 2000 reflect aggregate
reserves for environmental matters of $18.8 million. The Company is
negotiating with its insurance carriers and certain prior landowners and
operators for past and future remediation costs. The Company has recorded a
non-current asset of $2.4 million to reflect a contractual arrangement with
an insurance company to share costs for certain environmental matters. No
assurance can be given that the Company's reserves are adequate to cover all
potential environmental costs the Company could incur.
6. COMPREHENSIVE INCOME
Comprehensive income was $2.8 million for the three month period ended July
2, 2000, which consisted of net income of $2.3 million and net unrealized
gains on marketable securities of $0.5 million. Comprehensive income for the
first quarter of fiscal year 2000 was $2.1 million, which consisted of net
income of $1.8 million and net unrealized gains on marketable securities of
$0.3 million.
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Notes to Consolidated Financial Statements are an integral part of
Management's Discussion and Analysis of Financial Condition and Results of
Operations and should be read in conjunction herewith.
OPERATING RESULTS
All comparisons within the following discussion are with the corresponding
periods in the previous year, unless otherwise stated.
Revenue - The Company's first quarter revenue of $33.4 million reflects an
increase of $3.7 million (12%) from last year's level of $29.7 million. This
increase is primarily attributable to the Company's strategy of concentrating
on commercial and government repair and overhaul activities. During the
first quarter of fiscal year 2001, the Company's revenue from commercial and
government repair and overhaul activities increased $6.0 million, while
revenues from new construction activities decreased $2.3 million from the
previously reported period last fiscal year.
Cost of Revenue - Cost of revenue during the first quarter of fiscal year
2001 was $23.3 million, or 70% of revenue. Cost of revenue during the first
quarter of fiscal year 2000 was $22.0 million, or 74% of revenue. Cost of
revenue as a percentage of total revenue during the first quarter of fiscal
year 2001 reflects improved margins on commercial and government repair and
overhaul activities. The higher cost of revenue percentage reported during
the first quarter of fiscal year 2000 reflects the lower margins experienced
in completing the Margarita II contract, as well as the Company's inability
to fully recognize revenue on those costs.
Administrative and manufacturing overhead expense - Overhead costs for
administrative and manufacturing activities were $7.8 million, or 23% of
revenue for the first quarter of fiscal year 2001 and $7.5 million, or 25% of
revenue for the first three months of fiscal 2000. The increase in
administrative and manufacturing overhead expense of $0.3 million (4%) was
the result of higher revenue volumes experienced during the first quarter of
fiscal year 2001. As a percentage of revenue, administrative and
manufacturing overhead expense decreased during the first quarter of fiscal
year 2001 when compared to the first quarter of fiscal year 2000, which is
the result of the Company's continued emphasis on overhead cost control.
Contract reserve activity - During the first quarter of fiscal year 2001 the
Company utilized $47,000 of previously recorded contract and warranty loss
reserves associated with the Power Barge contract. During the first three
months of fiscal year 2000, the Company utilized $1.0 million in previously
recorded Jumbo Mark II and Power Barge contract and warranty loss reserves.
Investment and other income - Investment and other income for the first
quarter of fiscal year 2001 was $0.5 million. During the first three months
of fiscal year 2000 the Company recorded $0.5 million in investment and other
income.
Gain on sale of available-for-sale security - During the first quarter of
fiscal year 2001 the Company did not realize any gains from the sale of an
available-for-sale security. During the first three months of fiscal year
2000, the Company reported a gain from the sale of an available-for-sale
security of $0.1 million.
Income taxes - The Company recognized $0.6 million in income tax expense
during the first three months of fiscal year 2001 after applying available
business tax credits. During the first three months of fiscal year 2000 the
Company recognized $40,000 in income tax expense after applying available
business tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Based upon its current cash position described below and anticipated fiscal
year 2001 cash flow, the Company believes it has sufficient liquidity to fund
operations for this fiscal year. Accordingly, shipyard capital expenditures
are expected to be financed out of working capital. A change in the
composition or timing of projected work could cause capital expenditures and
repair and maintenance expenditures to increase.
Working Capital
Working capital during the first three months of fiscal year 2001 remained
relatively unchanged from the beginning of the fiscal year. Working capital
for the period ending July 2, 2000 was $65.6 million, which represents an
increase of $2.0 million (3%) from the working capital reported at the end of
fiscal year 2000.
Unbilled Receivables
As of July 2, 2000 unbilled items on completed contracts totaled $1.1 million
compared with $1.4 million at the end of the first quarter of fiscal year
2000 and $1.2 million at the beginning of fiscal year 2001.
Capital Resources
Capital expenditures for the first quarter of fiscal 2001 were $0.2 million
compared to $0.3 million in the first quarter of fiscal year 2000. Fiscal
year 2001 capital expenditures are expected to increase slightly over fiscal
year 2000 expenditure levels, which were approximately $1.6 million. Capital
investment by the Company has increased in each of the past two fiscal years
as the Company selectively invests in productivity enhancing projects.
Stock Repurchase
During the quarter ended July 2, 2000, the Company did not repurchase shares
of its Common Stock. During the first three months of fiscal year 2000, the
Company repurchased an aggregate of 15,000 shares of its Common Stock. The
number of shares held as treasury stock as of July 2, 2000, is 2,169,553.
RECENT ACCOUNTING PRONOUCEMENTS
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation (FIN
44), that clarifies guidance for certain issues related to the application of
APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The
adoption of FIN 44 by the Company on July 1, 2000 had no impact on the
Company's operating or financial position. The Company does not expect that
FIN 44 will impact the way it accounts for its equity instruments in the
future.
ENVIRONMENTAL MATTERS
On Going 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 some of
its closed shipyards, at its Harbor Island shipyard, and at several sites
used by the Company to dispose of alleged hazardous waste. The Company has
been named as defendant in civil actions by parties alleging damages from
past exposure to toxic substances at Company facilities. The nature of
environmental investigation and clean up activities makes it difficult to
determine the timing and amount of any estimated future cash flows that may
be required for remedial efforts. The Company reviews these matters and
accrues for costs associated with remediation of environmental pollution when
it becomes probable that a liability has been incurred and when the amount of
the Company's liability (or the Company's proportionate share of the amount)
can be reasonably estimated.
Harbor Island Site
As discussed further in the Company's Form 10-K for the year ending April 2,
2000, the Company and several other parties have been named as potential
responsible parties by the Environmental Protection Agency ("EPA") pursuant
to the Comprehensive Environmental, Response, Compensation, and Liability Act
in connection with the documented release of hazardous substances,
pollutants, and contaminants at the Harbor Island Superfund Site upon which
the Seattle Shipyard is located.
The Company's financial statements as of July 2, 2000 reflect aggregate
reserves for environmental matters of $18.8 million. The Company is
negotiating with its insurance carriers and certain prior landowners and
operators for past and future remediation costs. The Company has recorded a
non-current asset of $2.4 million to reflect a contractual arrangement with
an insurance company to share costs for certain environmental matters. No
assurance can be given that the Company's reserves are adequate to cover all
potential environmental costs the Company could incur.
Actual costs to address environmental matters in which the Company is
involved will depend on numerous factors, including the number of parties
found liable at each environmental site, the method of remediation, outcome
of negotiations with regulatory authorities, outcome of litigation,
technological developments, and changes in environmental laws and
regulations.
BACKLOG
At July 2, 2000 the Company's firm shipyard backlog consists of approximately
$28 million of repair and overhaul work. The Company's repair and overhaul
work generally is of short duration with little advance notice. The Company's
backlog at June 27, 1999 was approximately $26 million.
FUTURE SHIPYARD OPERATIONS
The Company's future profitability depends largely on the ability of the
shipyard to maintain an adequate volume of repair and overhaul business. The
Company competes with other northwest and west coast shipyards, some of which
have more advantageous cost structures. The Company's competitors include
non-union shipyards, shipyards with excess capacity and government subsidized
facilities.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
The Company has filed the following report on Form 8-K during the first
quarter of its fiscal year ended July 2, 2000:
Form 8-K dated April 20, 2000 submitting the press release issued by the
Company regarding the Company's proposed stock repurchase plan approved by
its Board of Directors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TODD SHIPYARDS CORPORATION
Registrant
By:_______________________________
Scott H. Wiscomb
Chief Financial Officer and Treasurer
August 1, 2000
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