UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(No Fee Required)
For the quarterly period ended October 2, 1994
Commission File Number 1-5109
TODD SHIPYARDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1506719
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
1801- 16th AVENUE SW, SEATTLE, WASHINGTON 98134-1089
(Street address of principal executive offices - Zip Code)
Registrant's telephone number: (206) 623-1635
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
There were 10,757,390 shares of the corporation's $.01 par value common
stock outstanding at October 31, 1994.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes X No
----- ----
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(In thousands of dollars, except per share data)
Quarter Ended Six Months Ended
10/2/94 9/26/93 10/2/94 9/26/93
---------------- ----------------
Revenues $10,372 $13,688 $24,841 $27,968
Operating expenses:
Direct labor and benefits 4,825 7,686 11,740 15,043
Materials and other 1,633 6,514 5,715 12,557
Administrative expenses 4,960 5,939 10,803 11,898
Contract loss reserves (547) (1,380) (955) (3,810)
---------------- ----------------
Subtotal 10,871 18,759 27,303 35,688
Loss before investment and
other income, income taxes
and cumulative effect of
change in accounting principle (499) (5,071) (2,462) (7,720)
Investment and other income 1,616 455 2,566 2,868
---------------- ----------------
Income (loss) before income
taxes and cumulative effect of
change in accounting principle 1,117 (4,616) 104 (4,852)
Income tax provision (benefit) - (769) - (834)
---------------- ----------------
Income (loss) before cumulative
effect of change in accounting
principle 1,117 (3,847) 104 (4,018)
Cumulative effect to April 3,
1994 of accounting change,
net of tax - - 438 -
---------------- ----------------
Net income (loss) $ 1,117 $(3,847) $ 542 $(4,018)
================ ================
Earnings per share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.10 $ (0.33) $ 0.01 $ (0.34)
Cumulative effect of change
in accounting principle - - 0.04 -
---------------- ----------------
Income (loss) per common share $ 0.10 $ (0.33) $ 0.05 $ (0.34)
================ ================
Pro forma amounts, assuming
the new accounting method is
applied retroactively:
Net income (loss) $ 1,117 $(3,602) $ 542 $(3,487)
Earnings per share 0.10 (0.31) 0.05 (0.30)
Weighted average number of
shares 10,804 11,808 10,885 11,808
================ ================
Retained earnings at
beginning of period $28,775 $32,966 $29,788 $33,137
Income (loss) for the period 1,117 (3,847) 542 (4,018)
Unrealized loss on available-
for-sale securities (138) - (576) -
---------------- ----------------
Retained earnings at
end of period $29,754 $29,119 $29,754 $29,119
================ ================
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETS (in thousands of dollars, except share data)
Period Ended
10/2/94 4/3/94
--------------------
ASSETS: (Unaudited) (Audited)
Cash and cash equivalents $ 3,358 $ 3,787
Restricted cash 5,367 5,719
Marketable securities 44,363 48,480
Accounts receivable, less allowance for losses
of $551 at 10/2/94 and $653 at 4/3/94:
U.S. Government 1,106 3,364
Commercial and other 5,098 4,748
--------------------
6,204 8,112
Costs and estimated profits in excess of
billings on incomplete contracts 3,329 3,063
Inventories 939 932
Other current assets 1,755 985
--------------------
Total current assets 65,315 71,078
Property, plant and equipment, net 23,970 24,001
Deferred pension asset 14,507 13,937
Other assets 2,438 2,431
--------------------
Total assets $106,230 $111,447
====================
LIABILITIES:
Accounts payable and accruals $ 6,811 $ 7,266
Payrolls and vacations 3,539 3,552
Taxes other than income taxes 456 1,370
Other 70 334
Accrual for loss on contracts 25 2,267
Income taxes 3,482 3,952
--------------------
Total current liabilities 14,383 18,741
Accrued postretirement health benefits 22,323 22,466
Environmental remediation reserves 6,456 6,500
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 19,500,000
shares authorized; 11,956,033 shares issued 120 120
Additional paid-in capital 38,181 38,181
Retained earnings 29,754 29,788
--------------------
68,055 68,089
Treasury stock, at cost (1,168,543 shares
at 10/2/94; 1,019,370 shares at 4/3/94) 4,987 4,349
--------------------
Total stockholders' equity 63,068 63,740
--------------------
Total liabilities & stockholders' equity $106,230 $111,447
====================
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Six Month Period Ended
10/2/94 9/26/93
-------------------
Cash flows from operating activities:
Net Income (loss) $ 542 $ (4,018)
Adjustments to reconcile net income (loss) to
net cash provided used in activities:
Effect of change in accounting principle (438) -
Depreciation and amortization 1,505 1,540
Utilization of contract loss reserves (955) (3,810)
Decrease in accounts receivable 1,908 8,799
Increase in costs and estimated profits in
excess of billing on incomplete contracts (1,114) (2,034)
Decrease in taxes other than income taxes (915) (96)
Decrease (increase) in other current assets (770) 591
Increase in deferred pension asset (570) (600)
Decrease in income taxes (470) (12)
Decrease in accounts payable and accruals (455) (642)
Increase (decrease) in retiree medical liability (143) 300
Other, net (385) (312)
-----------------
Total adjustments (2,802) 3,724
-----------------
Cash used in operating activities (2,260) (294)
Cash flows from investing activities:
Purchases of marketable securities (2,962) (10,537)
Maturities of marketable securities 6,036 9,365
Sales of marketable securities 467 5,862
Capital expenditures (1,424) (1,601)
-----------------
Net cash provided by investing activities 2,117 3,089
Cash flows from financing activities:
Purchases of treasury stock (638) -
Decrease in cash restricted to secure bid
and performance bonds 352 1,431
-----------------
Net cash provided by (used in) financing
activities: (286) 1,431
Net change in cash and cash equivalents (429) 4,226
Cash and cash equivalents at beginning of period 3,787 24,673
-----------------
Cash and cash equivalents at end of period $ 3,358 $ 28,899
=================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1 $ 16
Income taxes 459 22
The accompanying notes are an integral part of this statement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Todd Shipyards Corporation (the "Company") has filed its Consolidated
Financial Statements for the fiscal year ended April 3, 1994 with the
Securities and Exchange Commission as part of its Annual Report on Form 10-
K. That report should be read in connection with this Form 10-Q.
1. STATEMENTS NOT AUDITED
The accompanying Consolidated Financial Statements are unaudited but in the
opinion of management reflect all adjustments necessary for a fair
presentation of financial position and results of operations. Certain
amounts in the fiscal 1994 financial statements have been reclassified to
conform to the fiscal 1995 presentation.
2. CHANGE IN CONTRACT ACCOUNTING METHOD
Effective the beginning of the quarter ended July 3, 1994 the Company
changed its method of accounting for general and administrative costs from
recognizing these expenses as contract costs to recognizing them as
incurred which reflects the change, over time, in the Company's business
from predominately longer term Department of Defense to predominately
shorter term commercial contracts. This change has been applied to general
and administrative costs of prior years and results in a cumulative effect
adjustment of $438, which is included in income of the first quarter of
fiscal year 1995. The effect of the change was to decrease income before
the cumulative effect of the accounting change by $1,703 ($.16 per share)
for the six month period ended October 2, 1994. There was no income tax
effect as a result of the change.
3. CONTRACTS IN PROGRESS
Navy Repair Contract - In March 1994, the Company entered into a contract
to perform repair work on a Navy carrier (the "Carrier Project") at the
Puget Sound Naval Shipyard. Work began in March 1994 and was completed in
September 1994. During the quarter ended October 2, 1994, the Company
reduced previously established program loss reserves of $786 due to
production improvements and completion of change order negotiations.
4. INCOME TAXES
During the quarter and the six month period ended October 2, 1994, the
Company's income tax provision was offset by a reduction in the deferred
tax valuation reserve.
5. ENVIRONMENTAL MATTERS
The Company faces significant potential liabilities in connection with the
alleged presence of hazardous waste materials at certain of its closed
shipyards, at its Seattle Shipyard and at several sites used by the Company
for disposal of alleged hazardous waste. The Company continues to analyze
environmental matters and associated liabilities for which it may be
responsible. No assurance can be given as to the existence or extent of any
significant environmental liabilities until such analysis is complete. The
Company has provided aggregate reserves of $6,500 for contingent
environmental remediation liabilities for the sites that have progressed to
the degree that it is possible to estimate remediation costs. The actual
costs will depend upon numerous factors, including the number of parties
found liable at each environmental site, the method of remediation, outcome
of negotiations with regulatory authorities, outcome of litigation,
technological developments and changes in environmental laws and
regulations. The Company is negotiating with its insurance carriers and
certain prior landowners and operators for past and future remediation
costs. The Company has not included any insurance recovery in determining
its remediation provision. No assurance can be given that the $6.5 million
reserve is adequate to cover all potential remediation costs the Company
could incur. The Company's involvement in each of these sites is detailed
in its previously filed Form 10-K.
On September 30, 1994, the Company entered into a Consent Decree (the
"Decree") with the Environmental Protection Agency for the remediation of
surface and ground water contamination at the Harbor Island Superfund Site
(the "Site"). While the Decree encompasses the entire Site, a
Participation Agreement executed among the PRPs contemplates each
Potentially Responsible Party assuming responsibility for its own property.
Financial assurances are mandated to secure performance. The estimated
cost of the cleanup is assumed in the aforementioned $6.5 million reserve.
6. OTHER CONTINGENCIES
The Company is subject to various risks and is involved in various claims
and legal proceedings arising out of the ordinary course of its business.
These include complex matters of contract performance specifications,
environmental protection and Government procurement regulations. Only a
portion of these risks and legal proceedings involving the Company are
covered by insurance.
7. SHARE REPURCHASE
Beginning in fiscal year 1994, the Company has from time to time re-
acquired shares of the Company's stock in a number of open market
transactions. As of October 31, 1994 the Company had repurchased 1,050,985
shares of the Company's common stock for a total cost of $4,342 bringing
total treasury shares to 1,198,643. The Company is funding these purchases
out of working capital.
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Notes to Consolidated Financial Statements are an integral part of
Management's Discussion and Analysis of Financial Condition and Results of
Operations and should be read in conjunction herewith.
OPERATING RESULTS
All comparisons within the following discussion are with the corresponding
periods in the previous year, unless otherwise stated.
Revenue - Revenue in the second quarter of fiscal year 1995 decreased 24%
to $10.4 million compared with $13.7 million in the prior year. Decreases
in commercial work were partially offset by repair work performed on the
Carrier Project (see note 3). Commercial revenue decreased as prior year
amounts included performance on a contract to convert two vessels to an
open-cargo configuration (the "Conversion Project") and a contract to
overhaul a Washington State ferry (the "Overhaul Project").
Revenue for the second quarter was as follows:
FY % of FY % of Change
Contract Source 1995 Revenue 1994 Revenue Amount Percent
- --------------- ---- ------- ----- ------- ------ -------
U.S. Government $ 4.8 46% $ 1.8 14% $ 3.0 267%
Commercial 5.6 54% 11.9 86% (6.3) (53%)
- --------------- ---- ------- ----- ------- ------ -----
Total revenue $10.4 100% $13.7 100% $(3.3) (24%)
==== ==== ==== ==== ==== ====
For the six month period revenue decreased 11% to $24.8 million from $28.0
million as increases in government business (primarily the Carrier Project)
were exceeded by decreases in commercial programs (primarily the Conversion
Project).
Revenue for the six month period was as follows:
FY % of FY % of Change
Contract Source 1995 Revenue 1994 Revenue Amount Percent
- --------------- ---- ------- ----- ------- ------ -------
U.S. Government $12.2 49% $ 4.9 17% $ 7.3 249%
Commercial 12.6 51% 23.1 83% (10.5) (45%)
- --------------- ---- ------- ----- ------- ------ -----
Total revenue $24.8 100% $28.0 100% $ (3.2) (11%)
==== ==== ==== ==== ==== ====
Operating expenses - Direct costs during the second quarter and six months
ending October 2, 1994 were 59% and 69% of revenue reflecting early first
quarter difficulties experienced on the Carrier Project and second quarter
improvements. Direct costs during the second quarter and six months ending
September 26, 1993 were 104% and 99% of revenue. This performance was
primarily due to the difficulties experienced on the Conversion Project.
Operating expenses for the second quarter and six month period of fiscal
year 1995 were reduced by $.5 million and $.9 million respectively for
utilization of contract loss reserves established for the Carrier Project
and the Overhaul Project. Operating expenses for the second quarter of the
prior year were reduced by $1.4 million as $6.2 million in loss reserve
utilization was offset by a $4.8 million increase in contract loss
reserves. For the six month period of the prior year operating expenses
were reduced by $3.8 million reflecting $12.1 million in loss reserve
utilization offset by $8.3 million in increased contract loss provisions.
Investment and other income - Investment and other income for the second
quarter increased $1.2 million reflecting better investment returns, a $.4
million benefit from unclaimed bankruptcy distributions and a $.5 million
gain on the sale of land located in Alameda, California. The land was
previously occupied by the Company's San Francisco Shipyard which was
closed in fiscal year 1988.
Income taxes - The Company recognized no income tax expense in the first
and second quarters of fiscal year 1995 as the expense was offset by a
reduction in the deferred tax valuation reserve. The prior year benefits
reflect overpayment of fiscal year 1993 income taxes and the tax effect of
losses experienced on the Conversion and Overhaul Projects.
Liquidity
Working capital - During the second quarter of fiscal year 1995, working
capital increased by $.9 million to $50.9 million. The increase in working
capital during the quarter is attributable to improved performance on the
Carrier Project. For the six month period, working capital decreased $1.4
million due to losses from shipyard operations (primarily the Overhaul
Project and the Carrier Project). Working capital includes restricted and
unrestricted cash, cash equivalents and marketable securities of $53.1
million.
Unbilled receivables - As of October 2, 1994 unbilled items on completed
contracts of $1.9 million was included in accounts receivable compared with
$2.1 million at July 3, 1994 and $.9 million at April 3, 1994.
Restricted Cash - As of October 2, 1994 the Company's restricted cash
balance was $5.4 million compared with $5.7 million at April 3, 1994. The
restricted cash balance consists of escrow accounts established to secure
contract performance and contract warranty provisions and to secure lease
payments. Subsequent to the end of the quarter, the Washington State Ferry
System released the $3.9 million escrow account relating to the Overhaul
Project.
Capital Resources
Based on its current projections for fiscal year 1995, the Company believes
that its present amount of cash and cash equivalents will be sufficient for
the Company's working capital needs. A change in the composition or timing
of project work could cause capital expenditures and repair and maintenance
expenditures to increase. The future business plans of the Seattle
Shipyard are not expected to require substantial additional capital
expenditures. Capital expenditures are expected to be financed out of
working capital or a revolving line of credit facility.
FUTURE OPERATIONS
The Company's future profitability depends largely on the ability of the
Seattle Shipyard to maintain an adequate volume of ship repair, overhaul,
conversion and new construction business. The Company competes with other
northwest shipyards, some of whom have more advantageous cost structures.
The Company's competitors include non-union shipyards and shipyards with
excess capacity.
At October 2, 1994 the Company's work backlog consists of approximately $25
million of government repair/overhaul work, all of which is expected to be
completed in fiscal year 1995.
The Company believes that it will have opportunities to bid on Washington
State Ferry System and Navy contracts suitable to our shipyard. However,
no assurance can be given that the Company will be successful in obtaining
this work.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Company's Annual Meeting of Shareholders (the "Meeting") was held on
September 29, 1994 in Seattle, Washington.
At the Meeting, the stockholders elected six directors, each of whom will
serve until the next Annual Meeting of Shareholders or until his respective
successor shall have been elected and qualified or until his earlier
resignation or removal. The Board of Directors elected at the Meeting and
the votes cast in favor of their election (with the votes cast in favor of
their election out of a total of 10,805,490 entitled to vote) are as
follows: Brent D. Baird (9,761,607); Steven A. Clifford (9,760,469);
Patrick W.E. Hodgson (9,761,717); Joseph D. Lehrer (9,758,413); Philip N.
Robinson (9,762,878); and John D. Weil (9,761,813).
The shareholders ratified the appointment of Ernst & Young LLP as the
Company's independent public accountants by a vote of 9,765,771 to 33,970
with 25,695 abstaining.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TODD SHIPYARDS CORPORATION
Registrant
By:/s/ David K. Gwinn
David K. Gwinn
Chief Financial Officer and Treasurer
November 1, 1994