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41
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended April 3, 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, 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. X Yes No
The aggregate market value of voting stock held by non affiliates
of the registrant was approximately $45 million as of June 23,
1994. There were 10,853,162 shares of the corporation's $.01 par
value common stock outstanding at June 23, 1994 held by non
affiliates.
APPLICABLE ONLY TO REGISTRANTS 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.
X Yes No
TABLE OF CONTENTS
PART I
Item 1. Business.............................................3
Item 2. Properties...........................................6
Item 3. Legal Proceedings....................................7
Item 4. Submission of Matters to a Vote of Security Holders..7
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters..........................7
Item 6. Selected Financial Data..............................8
Item 7. Management's Discussion and Analysis of Financial
Condition Financial Condition and Results of
Operations...........................................9
Item 8. Consolidated Financial Statements and
Supplementary Data..................................16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................37
PART III
Item 10. Directors and Executive Officers of the
Registrant..........................................37
Item 11. Executive Compensation..............................37
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................37
Item 13. Certain Relationships and Related Transactions......37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................37
ITEM 1. BUSINESS
Introduction
Todd Shipyards Corporation (the "Company") was organized in 1916
and has operated a shipyard in Seattle, Washington (the "Seattle
Shipyard") since incorporation. The Company has operated the
Shipyard as a wholly-owned subsidiary named Todd Pacific
Shipyards Corporation ("Todd Pacific") since 1977. The Company,
through Todd Pacific is engaged in the repair/overhaul,
conversion and construction of commercial and military marine
vessels.
From the mid 1970's until 1992, a substantial majority of the
revenues generated by the Seattle shipyard were attributable to
two major long term government contracts. As a result, the
Company had a substantial backlog of work during this era.
During the last two fiscal years, the Company's work backlog has
been much smaller, due to the shorter term nature of its ship
repair, overhaul and conversion contracts.
The Company is focusing on that portion of the vessel repair and
maintenance, overhaul, conversion and new construction work for
various commercial and governmental customers which is likely to
be performed on the West Coast. In particular, 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, and it plans to
bid on numerous repair, maintenance, overhaul and new
construction work on the ferry fleets operated by the states of
Washington and Alaska. The growing number of military vessels
home ported in Puget Sound waters with the opening of the
Everett, Washington Navy home port facility is expected to
provide increasing business opportunities to Puget Sound
shipyards. While the Company has previously been successful in
obtaining significant work in both the military and commercial
Puget Sound vessel repair and overhaul markets, there can be no
assurance that such success will continue.
A substantial portion of the revenues of the ship building and
repair industry has historically been derived from contracts with
the U.S. Government. The revenues and earnings of the private
sector of the ship building and repair industry will continue to
be materially affected by cessation of most U. S. Navy ("Navy")
new construction activity and by the reduction in the number of
ships in the Navy's active duty fleet, creating substantial
excess capacity in the industry. Excess shipyard capacity, both
nationally and locally, is expected to result in a continuation
of the intense price competition which the Company has faced in
recent years.
General
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 is
decreasing due to the downsizing of the active United States
Naval fleet. Also affecting private shipyards is the regional
impact of either the establishment or closure of United States
Navy ("Navy") home ports, the location of marine accidents, the
availability and scheduling of maintenance, 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
which are advertised for competitive bids, owners usually furnish
specifications and plans which become the basis for an agreed
upon contract. Jobs are usually contracted on a fixed-price
basis and any added work is negotiated.
U.S. Government ship repair and overhaul work is usually awarded
through a formal bidding process, which often results in
competition taking place among Government-owned and private
shipyards. 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.
Under government regulations, certain costs, including certain
financing costs and portions of the Company's marketing expenses,
are not allowable costs under flexibly priced contracts. The
government also 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 and overhaul work
require some form and amount of performance and payment bonding,
particularly state and U.S. Government agencies.
The activity of the Company's operations in recent years has
included a significant amount of repair, overhaul and conversion
of U.S. Government vessels including naval combatant and
auxiliary vessels, as well as commercial vessels such as
freighters, tankers, pipe laying reel ships, fishing industry
related vessels, cruise ships, barges, tug supply vessels and
ferries.
The approximate amount of revenues for each class of the
Company's shipbuilding operations for each of the last three
fiscal years are summarized as follows (in millions):
Classification 1994 1993 1992
U.S. Coast Guard FRAM Contract $ - $ 5.5 $ 78.7
Other U. S. Government 16.2 24.4 24.9
Total U.S. Government 16.2 29.9 103.6
Commercial Vessels 52.4 24.4 43.9
Total $ 68.6 $ 54.3 $147.5
In the fiscal year ended in March 1986 the Company was awarded a
fixed price contract by the U. S. Coast Guard to overhaul its
fleet of eight large West Coast based cutters (the Fleet Repair
and Modernization or "FRAM" contract). Work was completed on the
contract in the fiscal year ended in March 1993. From 1986 to
1992 the FRAM contract (valued at $480 million) provided a
majority of the revenues of the Seattle shipyard.
Construction
The Company has not had any ship construction revenues for the
last three fiscal years and currently has no backlog of ship
construction contracts. However, the Company may bid for a
contract which the Washington State Ferry System expects to award
in the latter half of 1994 for constructing three new
passenger/vehicle ferries estimated to have a value in the
aggregate of $150 to $175 million. However, no assurance can be
given that the Company will be successful in obtaining new
construction work.
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 shipbuilding industry is intense.
The Company competes for commercial and government work with a
number of other shipyards, some of whom have considerably lower
labor costs and more favorable work rules primarily due to their
nonunion status. The Company also competes with government
shipyards for government repair business. The declining 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 lead to acute price competition.
Commercial ship construction and, to a lesser extent, repair work
performed outside the United States are substantially less costly
than domestic ship construction and repair. Many contracts are
awarded pursuant to competitive bidding and profitability is
dependent upon effective cost controls and the ability to meet
strict schedules, among other factors. Speed in the completion
of construction and repair projects is another element of
competition. With respect to repair work, the location,
availability and technical capability of repair facilities are
important factors.
Environmental Matters
See Note 11 of the Notes to Consolidated Financial Statements.
Employees
The number of persons employed by the Company in its shipyard
operations varies considerably from time to time and averaged
approximately 800 during fiscal year 1994 and totaled
approximately 650 on April 3, 1994. During fiscal year 1994 an
average of approximately 650 (83%) of the Company's shipyard
employees were covered by a 40 month union contract at the
Seattle Shipyard which expires on July 31, 1996. At April 3, 1994
approximately 550 (82%) Company employees were covered under this
agreement.
Backlog
At April 3, 1994 the Company's backlog consists of approximately
$35 million of commercial repair/overhaul and conversion work,
all of which is expected to be completed in fiscal year 1995.
ITEM 2. PROPERTIES
The Company has one operating shipyard in Seattle, Washington.
The shipyard is comprised of piers, building ways, drydocks,
buildings, cranes, machinery, tools and related equipment and is
capable of performing all types of ship conversion and
repair/overhaul work. In addition the shipyard is capable of
constructing a wide variety of vessels up to 500 feet in length
and is licensed by two European manufacturers to repair large
marine diesel engines.
The Company owns or leases property aggregating approximately 721
acres at the locations set forth below:
Acreage
Location Owned Leased Date of Lease Expiration
Seattle, WA 27 19 2001, 2003,2012
Roundup, MT 670(1)
Alameda, CA 5(2) -
(1) The acreage located in Roundup, Montana is owned by Montana
Valley Land Company, a wholly-owned subsidiary of the Company.
(2) The acreage located in Alameda, California was previously
occupied by the Company's San Francisco Shipyard which was closed
in fiscal year 1988. The sale of this property to the U.S. Navy
for approximately $600 thousand is pending the approval of the
Governor of California.
The Company has three drydocks, two steel and one wood, all of
which are located at the Seattle Shipyard. The design capacities
of such drydocks are as follows:
Year Type Max.Displacement Date of Lease
Name Built Owned Leased Capacity(in tons) Expiration
Emerald Sea 1970 Steel 40,000 -
YFD-70 1945 Steel 17,500 6/14/95
YFD-54 1943 Wood 5,700 6/30/94
The Company currently leases two drydocks from the Navy. It is
the practice of the Navy to lease its drydocks upon advertised
public bid. The Company has notified the Navy of its intent to
discontinue leasing the YFD-54 upon the expiration of the current
lease term.
The Company is required to maintain Navy certification on its
drydocks and cranes in order to qualify its facilities to bid on
and perform work under certain Navy and Coast Guard contracts.
The Company's current certification for the drydocks listed above
are 30,000 tons, 14,000 tons and 4,205 tons, respectively. While
such certification is less than the maximum design capacity, it
is sufficient to allow the Company to perform work on most Naval
and all Coast Guard vessels. The annual maintenance and repair
cost related to the drydocks including their certifications
totaled approximately $.7 million, $.4 million and $1.0 million
in fiscal years 1994, 1993, and 1992, respectively, and are
projected to average approximately $1.0 million annually in
future years. The Company also maintains certification of its
cranes which have a maximum lifting capacity ranging in size from
1/2 ton to 150 tons.
The Company believes that its owned and leased properties at the
Seattle Shipyard are in reasonable operating condition given
their age and usage, although, from time to time, the Company has
been required to incur substantial expenditures to ensure the
continuing serviceability of its owned and leased machinery and
equipment.
ITEM 3. LEGAL PROCEEDINGS
See Notes 10 and 11 of the Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter
of fiscal year 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's stock is listed on the New York Stock Exchange (the
"NYSE"). The following table sets forth for the fiscal quarters
indicated the high and low composite sales prices of the stock as
reported by the NYSE.
Quarter Ended High Low
March 29, 1992 $5.00 $4.00
June 28, 1992 5.63 4.38
September 27, 1992 5.13 4.25
December 27, 1992 4.50 3.50
March 28, 1993 6.00 4.13
June 27, 1993 5.50 4.50
September 26, 1993 4.75 4.25
January 2, 1994 4.38 4.00
April 3, 1994 4.50 4.00
On June 23, 1994 the high and low prices of the Company's common
stock on the NYSE were $4.38 and $4.13, respectively.
At June 23, 1994 there were approximately 2360 holders of record
of the outstanding shares of common stock. The Company does not
presently anticipate the declaration of dividends.
ITEM 6. SELECTED FINANCIAL DATA (In thousands of dollars,
except per share data)
April 3, March 28, March 29, March 31, April 1
1994 1993 1992 1991 1990
Operations:
Revenues(1) $68,552 $54,278 $147,500 $187,230 $241,567
Income (loss)
from continuing
operations(1) (2,714) (11,802) 19,637 19,599 (30,577)
per share (.24) (.99) 1.64 2.65 (8.13)
pro forma per
share(2) 1.64 (2.56)
New income(loss)(3)(2,714) (11,802) 29,021 6,782 59,449
per share (.24) (.99) 2.43 .66 13.33
pro forma per
share(2) .57 4.97
Financial position:
Working capital 52,337 57,311 67,195 38,632 259,259
Fixed assets 24,001 24,636 27,192 28,656 30,632
Total assets 111,447 129,287 138,988 117,588 367,711
Stockholders'
equity 63,740 70,700 83,240 54,219 47,437
per common share 5.83 5.99 6.96 4.54 1.78
pro forma per
share(2) 4.53 3.97
(1) Restated to exclude the results of The Aro Corporation which
was purchased on December 1, 1985 and sold on February 8,
1990.
(2) Calculated assuming the shares issued in the reorganization
were outstanding since the beginning of fiscal year 1990.
(3) For the fiscal year ended March 31, 1991, includes a
reduction of net income of approximately $23.5 million
resulting from the Company adopting SFAS 106 "Employers'
Accounting for Post Retirement Benefits Other Than Pensions"
and electing to recognize the total accumulated obligation
in fiscal year 1991. For fiscal year ended April 1, 1990,
includes gain on sale of and income from discontinued
operations of $63.4 million.
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.
Operating Results
In the fiscal year ended on April 3, 1994, the Company
experienced a net loss of $2.7 million on revenues of $68.6
million, compared with a net loss of $11.8 million on revenues of
$54.3 million in the fiscal year ended March 28, 1993. Included
in the $68.6 million in revenues was $52.4 million in revenues
from the commercial sector, an increase in commercial revenue of
$28.0 million (115%) from the previous fiscal year. The increase
is primarily due to a two-ship conversion contract and a ferry
overhaul contract. Government sector revenues decreased by $13.7
million (46%) due to lower government phased maintenance program
activities.
The Company's operating results were adversely effected by
problems encountered on the two major commercial contracts.
Tight contract and work specifications resolved in favor of the
vessel owner on a contract to convert two commercial vessels to
an open cargo hold design resulted in incurring losses on that
contract of $3.9 million in excess of the previously established
loss reserve. On the ferry overhaul contract, various problems
including the failure of an engineering subcontractor to produce
drawings in a timely manner caused substantial delays in the
identification and commencement of work on the contract, driving
costs to complete the work $2.2 million beyond original
estimates.
To compensate for the lack of large scale long term Government
contracts in its future business base, the Company is engaged in
an ongoing organizational streamlining of its Seattle shipyard
designed to reduce overhead costs while preserving the yard's
ability to undertake large scale ship repair, maintenance and
construction contracts. The streamlining accomplished in fiscal
year 1994 resulted in a reduction of the Seattle Shipyard's
annual overhead costs by $1.7 million compared to fiscal year
1993 despite a substantial increase in the shipyard's business
activity level.
The Company's future profitability depends largely on the ability
of the Seattle shipyard to maintain an adequate volume of ship
repair, overhaul and conversion business. The Company competes
with other large West-Coast shipyards some of whom have more
advantageous cost structures. Many of the Company's competitors
are nonunion, and some of them have much larger volumes of
business over which to allocate their overhead costs.
During the Company's 1995 fiscal year, the Washington State Ferry
System is expected to award three major contracts for
construction of three new ferries, overhaul of three Super class
ferries and overhaul of an Evergreen State class ferry. The
Navy's Everett home port officially commenced operations in April
1994, and the relocation of a number of Navy ships to that
facility is scheduled to take place during the upcoming year.
The Company believes that it may be awarded contracts for
substantial amounts of shipyard related work from the Navy and
Washington State Ferries. However, no assurance can be given that
the Company will be successful in obtaining this work.
Financial Overview
For the fiscal year ended April 3, 1994, the Company had revenues
of $68.6 million and a net loss of $2.7 million. The net loss
included a $10.2 million credit from contract loss reserve
utilization, a $6.5 million charge to earnings for an
environmental clean-up reserve, a $5.9 million credit from
reversing facility closure reserves, $2.2 million of interest
income, a $1.9 million pension plan credit resulting from an
increase in its deferred pension asset, a $1.8 million credit
related to the settlement of a dispute with a former insurance
carrier and a $0.6 million gain on the sale of its Galveston
shipyard property.
Liquidity, Capital Resources and Working Capital
During fiscal year 1994, working capital decreased by $5.0
million to $52.3 million at April 3, 1994 which includes
restricted and unrestricted cash, cash equivalents and marketable
securities of $58.0 million. The material items contributing to
the decrease in working capital were: (i) a decrease in cash,
cash equivalents, restricted cash, securities available for sale
and accounts receivable of $16.2 million used to fund operating
activities, (ii) the purchase of $3.6 million of treasury stock,
and (iii) a decrease of $2.5 million in costs and estimated
profits in excess of billings on incomplete contracts. These
items were partially offset by: (i) the utilization of $10.2
million in accrued contract loss reserves and (ii) a decrease of
$2.6 million in the estimated liability for closure of a
facility.
Expenditures for property, plant and equipment in fiscal year
1994 were $2.7 million compared to $.9 million for the prior
fiscal year and were primarily for the purchase of equipment for
the Seattle Shipyard. These expenditures are in addition to
ongoing repair and maintenance expenditures in the Seattle
Shipyard of $3.8 million, $2.7 million, and $4.3 million in
fiscal years 1994, 1993 and 1992, respectively. A change in the
composition or timing of projected 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.
The Company is required on some of its projects to provide
customers with performance, contract and payment bonds. The
Company is required by the surety which issues such bonds to
provide it with readily negotiable securities collateralizing the
full amount of all outstanding bonds. The Company is presently
involved in negotiations with other potential sureties to provide
performance and payment bonding capabilities without tying up
substantial amounts of working capital in cash collateralization.
Management considers the ability to secure such arrengements to
be an essential ingredient in deciding how to bid on such work in
the future.
Financial -- 1994 Compared with 1993
Revenues
Revenues for the fiscal year ended April 3, 1994 increased $14.3
million (26%) compared to the prior fiscal year. The change in
revenues is summarized in the table below (in millions):
Percent of Percent of Change
1994 Revenue 1993 Revenue Amount Percent
U.S. Government $ 16.2 24% $ 29.9 55% $(13.7) (46%)
Commercial
Contracts 52.4 76% 24.4 45% 28.0 115%
Total revenue $ 68.6 100% $ 54.3 100% $ 14.3 26%
The increase in revenues was primarily due to two major
commercial contracts, partially offset by a decrease in
government revenue due in part to a lower level of activity on a
Navy phased maintenance contract.
Operating Expenses
Operating expenses increased $7.0 million (10%) compared to the
prior fiscal year. The change in operating expenses is
summarized in the table below (in millions):
Percent of Percent of Change
1994 Revenue 1993 Revenue Amount Percent
Percent
Direct labor and
benefits $ 36.3 53% $ 19.0 35% $ 17.3 91%
Materials and
other 25.7 37% 11.3 21% 14.4 127%
Administrative
expenses 25.4 37% 27.1 50% (1.7) (6%)
Gross operating
expenses $ 87.4 127% $ 57.4 106% $ 30.0 52%
Executive
compensation
agreements - n/a (1.3) (2%) 1.3 n/a
Provision for
(utilization of)
contract loss
reserves (10.2) (15%) 12.5 23% (22.7) (182%)
San Francisco
contract
settlements - n/a (1.5) (3%) 1.5 n/a
Retirement System
cost (benefit) (1.9) (3%) 1.2 2% (3.1) (258%)
Total operating
expenses $ 75.3 109% $ 68.3 126% $ 7.0 10%
The increase in operating expenses was primarily due to the
increased level of activity at the Seattle shipyard. Increased
gross operating expenses of $30.0 million were the result of
increases of the shipyard's direct labor, fringe benefits and
direct material costs of $31.7 million partially offset by a
reduction of $1.7 million in administrative costs. The $30.0
million increase in the shipyard's operating expenses was
partially offset by a $22.7 million decrease in net operating
expenses due contract loss reserve activity, due to net creation
of loss reserves in fiscal year 1993 of $12.5 million and net
utilization of $10.2 million in loss reserves in fiscal year
1994.
Investment and Other Income
Investment and other income increased $1.4 million compared to
the prior fiscal year. The increase was due to a $5.9 million
reversal of facility closure reserves, a $1.8 million gain from
the settlement of a dispute with a former insurer and $.6 million
gain on the sale of the Galveston facility reduced by a $6.5
million environmental clean-up provision and decreased investment
income due to a decreases in market interest rates.
Interest and Debt Expenses
Interest and debt expenses were relatively unchanged compared to
the prior fiscal year and represent primarily financing expenses
on a capital lease.
Income Taxes
For fiscal year 1994 the income tax benefit of $263,000
represents a refund of fiscal year 1993 estimated tax payments.
For fiscal year 1993 the income tax expense of $50,000 reflects
the limitation of the recognition of tax credits attributable to
net operating losses and other miscellaneous adjustments.
Financial -- 1993 Compared with 1992
Revenue
Revenues for the fiscal year ended March 28, 1993 decreased $93.2
million (63%) compared to the year ended March 29, 1992. The
change in revenues is summarized in the table below (in
millions):
Percent of Percent of Change
1993 Revenue 1992 Revenue Amount Percent
Coast Guard FRAM
Contracts $ 5.5 10% $ 78.7 53% $(73.2) (93%)
Other Government
contracts 24.4 45% 24.9 17% (.5) (2%)
Revenue from
U.S. Government 29.9 55% 103.6 70% (73.7) (71%)
Commercial
Contracts 24.4 45% 43.9 30% (19.5) (44%)
Total revenue $54.3 100% $147.5 100% $(93.2) (63%)
The decrease in revenues was primarily due to completion of the
FRAM contract with the Coast Guard and decreased repair/overhaul
work on commercial contracts.
Operating Expenses
Operating expenses decreased $57.0 million (45%) compared to the
prior fiscal year. The change in operating expenses is
summarized in the table below (in millions):
Percent of Percent of Change
1993 Revenue 1992 Revenue Amount Percent
Direct labor and
benefits $ 19.0 35% $50.0 34% $(31.0) (62%)
Materials and
other 11.3 21% 52.6 36% (41.3) (79%)
Administrative
expenses 27.1 50% 35.7 24% (8.6) (24%)
Gross operating
expenses 57.4 106% 138.3 94% (80.9) (58%)
Executive
compensation
agreements (1.3) (2%) 2.6 2 % (3.9) (150%)
Provision for
(reversal of)
contract loss
reserves 12.5 23% (17.1) (12%) 29.6 (173%)
San Francisco
contract
settlements (1.5) (3%) - - (1.5) n/a
Retirement system
cost 1.2 2% 1.5 1% (.3) (20%)
Total operating
expenses $68.3 126% $125.3 85% $(57.0) (45%)
The decrease in operating expenses was substantially due to the
decreased level of repair/overhaul activity at the Seattle
Shipyard. The reductions were partially offset by (i) changes in
reserve activity as the Company accrued $12.5 million in fiscal
year 1993 for estimated losses on a conversion contract compared
to reversing $17.1 million in loss reserves in fiscal year 1992
upon the completion of the FRAM program, (ii) costs attributable
to the use of excess pension fund assets to pay retiree medical
benefits and incentive retirement costs and (iii) reversals of
executive compensation expense accruals.
Investment and Other Income
Investment and other income decreased $6.7 million compared to
the prior fiscal year. The decrease was due to a $6.9 million
gain from the settlement of a contract dispute with a customer in
the prior year.
Interest and Debt Expenses
Interest and debt expenses were relatively unchanged compared to
the prior fiscal year and represent primarily letter of credit
fees.
Income Taxes
The income tax provision of $50,000 for fiscal year 1993 reflects
the limitation of the recognition of tax credits attributable to
net operating losses and other miscellaneous adjustments. The
$11.5 million income tax provision in the prior year reflects the
statutory rate, the alternative minimum tax and other
adjustments.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
See following page.
REPORT OF ERNST & YOUNG 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
April 3, 1994 and March 28, 1993 and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended April 3, 1994. Our
audits also included the financial statement schedules listed on
the index at item 14(a). These financial statements and
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and schedules 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 and schedules 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 statement 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 April 3, 1994 and March 28, 1993 and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended April 3, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, the
related financial statements schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
As more fully described in Note 11, the Company has been named as
a potentially responsible party or contributor by the
Environmental Protection Agency and state agencies at several
different sites. The ultimate amount of liability cannot be
determined at this time.
/s/ Ernst & Young
Seattle, Washington
June 15, 1994
TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETS
APRIL 3, 1994 and MARCH 28, 1993
(in thousands of dollars)
1994 1993
ASSETS:
Cash and cash equivalents $ 3,787 $ 24,673
Restricted cash 5,719 10,961
Securities available for sale 48,480 29,081
Accounts receivable, less allowance for
losses of $653 and $1,807, respectively
U.S. Government 3,364 4,952
Other 4,748 12,016
Costs and estimated profits in excess of
billings on incomplete contracts 3,063 5,542
Inventories 932 984
Other current assets 985 1,724
Total current assets 71,078 89,933
Property, plant and equipment, at cost 61,854 59,827
Less accumulated depreciation 37,853 35,191
24,001 24,636
Deferred pension asset 13,937 12,012
Other assets 2,431 2,706
Total assets $111,447 $129,287
LIABILITIES AND STOCKHOLDERS EQUITY:
Accounts payable and accruals $ 7,266 $ 6,828
Payrolls and vacations 3,552 4,657
Accrual for loss on contracts 2,267 12,499
Billings in excess of costs and estimated
profits on incomplete contracts 156 199
Capitalized lease obligations 93 360
Estimated facility closure liability 85 2,686
Taxes other than income taxes 1,370 1,414
Income taxes 3,952 3,979
Total current liabilities 18,741 32,622
Environmental Remediation Reserves 6,500 -
Deferred credit related to closure
of Galveston Shipyard - 3,281
Accrued post retirement health benefits 22,466 22,684
Stockholders equity:
Common stock ($.01 par value) 120 120
Additional paid-in capital 38,181 38,181
Retained earnings 29,788 33,137
68,089 71,438
Less treasury stock 4,349 738
Total stockholders' equity 63,740 70,700
Total liabilities and stockholders'
stockholders equity $111,447 $129,287
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended April 3, 1994, March 28, 1993, March 29, 1992
(In thousands of dollars)
1994 1993 1992
Revenues $ 68,552 $ 54,278 $147,500
Operating expenses:
Labor, material and other
expenses 66,621 59,406 111,474
Taxes, other than income taxes 5,161 3,250 6,187
Depreciation and amortization 3,173 3,291 2,976
Pension expense 321 2,349 4,657
75,276 68,296 125,294
Income (loss) from operations (6,724) (14,018) 22,206
Investment and other income 3,773 2,371 9,039
Interest and debt expenses (26) (105) (119)
Income (loss) before income taxes (2,977) (11,752) 31,126
Income tax provision (benefit) (263) 50 11,489
Income (loss) before
extraordinary item (2,714) (11,802) 19,637
Extraordinary item - - 9,384
Net income (loss) $ (2,714) $(11,802) $ 29,021
Net income (loss) per common share:
Income (loss), before extra-
ordinary item $ (.24) $ (.99) $ 1.64
Extraordinary item - - .79
Net income (loss) $ (.24) $ (.99) $ 2.43
Weighted average number of shares
(thousands) 11,540 11,943 11,956
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 3, 1994, March 28, 1993 and March 29, 1992
(in thousands of dollars)
1994 1993 1992
Cash flows from operating activities:
Income (loss) before
extraordinary items $(2,714) $(11,802) $19,637
Utilization of net operating loss
and tax credit carryforwards - - 9,384
Net Income (loss) $(2,714) $(11,802) $29,021
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,173 3,291 2,976
Galveston facility closure
adjustment (3,246) - -
Los Angeles facility closure
adjustment (2,636) - -
Increase (decrease) in accrued
loss on contracts (10,232) 12,499 (16,000)
Decrease (increase) in accounts
receivable 9,460 16,372 (11,197)
Increase in environmental cleanup
accrual 6,500 - -
Decrease (increase) in costs and
estimated profits in excess of
billings on incomplete contracts 2,479 (715) 15,583
Decrease (increase) in deferred
pension asset (1,925) 1,150 1,466
Increase (decrease) payrolls and
vacations (1,105) (3,183) 3,368
Decrease (increase) in other
current assets 739 (526) 2,728
Increase (decrease) in accounts
payable 438 (932) (2,831)
Decrease (increase) in other
assets 275 (13) (2,480)
Increase (decrease) in income
taxes (27) (1,817) 1,849
Other (1,654) (3,319) (1,819)
Net cash - operating activities (475) 11,005 22,664
1994 1993 1992
Cash flows from investing activities:
Purchases of securities available
for sale (46,278) (77,484) -
Maturities of securities available
for sale 16,487 44,494 -
Sales of securities available
for sale 9,756 3,909 -
Purchases of property, plant and
equipment (2,655) (901) (1,573)
Other 648 (756) (975)
Net cash - investing activities (22,042) (30,738) (2,548)
Cash flows from financing activities:
Decrease (increase) in restricted
cash 5,242 (8,877) 9,120
Purchases of treasury stock (3,611) (738) -
Net cash - financing activities 1,631 (9,615) 9,120
Net change in cash and cash
equivalents (20,886) (29,348) 29,236
Beginning cash and cash equivalents 24,673 54,021 24,785
Ending cash and cash equivalents 3,787 24,673 54,021
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 26 $ 105 $ 119
Income taxes 27 1,867 256
The accompanying notes are an integral part of this statement
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 3, 1994, March 28, 1993 and March 29, 1992
(in thousands of dollars/shares)
Additional
Common Paid-in Retained Treasury Total
Stock Capital Earnings Stock Equity
Balance at
March 31,1991 $ 120 $ 38,181 $15,918 $ - $54,219
1992 Net income 29,021 29,021
Balance at
March 29, 1992 120 38,181 44,939 - 83,240
Purchase of common
shares for treasury (738) (738)
1993 Net loss (11,802) (11,802)
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 (635) (635)
1994 Net loss (2,714) (2,714)
Balance at
April 3, 1994 $ 120 $ 38,181 $29,788 $(4,349) $63,740
SHARES ISSUED AND OUTSTANDING:
Balance at
March 31, 1991 and
March 29, 1992 11,956 -
Purchase of
common shares
for treasury (148)
Balance at
March 28, 1993 11,956 (148)
Purchase of
common shares
for treasury (871)
Balance at
April 3, 1994 11,956 (1,019)
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 1994, March 28, 1993 and March 29, 1992
1. PRINCIPAL ACCOUNTING POLICIES
(A) Consolidation - The consolidated financial statements
include the accounts of Todd Shipyards Corporation (the
"Company") and its wholly-owned subsidiary Todd Pacific Shipyards
Corporation ("Todd Pacific"). All intercompany transactions have
been eliminated. The Company's policy is to end its fiscal year
on the Sunday nearest March 31. In accordance with this policy,
the Company's fiscal year 1994 ended on April 3, 1994 is a 53
week year.
(B) Inventories - Inventories, consisting of materials and
supplies, are valued at lower of cost (principally average) or
replacement market.
(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 useful lives where permitted.
(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, are recorded on the percentage-of-completion method
(determined based on direct labor hours). Profits on all other
contracts, generally short-term, are recorded upon completion.
Full provision is made for estimated losses on contracts not
completed. Revisions to contract estimates are recorded as the
estimating factors are refined.
(E) Income Taxes - Effective March 29, 1993 the Company adopted
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes." This Statement requires the establishment of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on differences between the
financial statement carrying amounts and the tax basis of assets
and liabilities using currently enacted tax rates which are
expected to be in effect during the years in which the
differences are anticipated to reverse. As permitted by
Statement 109, the Company has elected not to restate the
financial statements of prior years. There was no cumulative
effect on income of adopting Statement 109.
(F) Cash and Cash Equivalents - The Company considers all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. Cash equivalents consists
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.
(G) 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 and
investment grade commercial paper.
On April 3, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". In accordance with Statement 115
Company management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity.
Marketable equity and debt securities not held as trading assets
in anticipation of short-term market movements and not classified
as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate
component of shareholder' equity. The amortized cost of debt
securities in this category is adjusted for amortization of
premiums and accretion of discounts. Such amortization is
included in investment income. Realized gains and losses and
declines in value judged to be other-than-temporary are
calculated based upon the amortized cost of the instrument and
are included in investment income. The cost of securities sold
is based on the specific identification method. Interest and
dividends on available-for-sale securities are included in
investment income.
2. RESTRICTED CASH AND SURETY LINE
In June 1993, the Company entered into a contract for the
overhaul of the Washington State Ferry "M.V. Tillikum". In
accordance with the terms of this contract, the Company deposited
$3.9 million in lieu of posting performance bonds. This amount,
together with other escrow accounts securing contract and other
performance bonds, is classified as restricted cash on the
Company's balance sheet.
The Company has an agreement with an insurer pursuant to which
the insurer will provide a surety line, for the necessary bid,
performance, contract and payment bonds, to the Company in the
aggregate amount of $17 million, provided that the bonds are
fully secured by the Company through letters of credit, cash, or
cash equivalents. The agreement is terminable at will by either
party. The Company is currently securing contract performance and
payment bonds by depositing the required security amounts in an
escrow account with the Company's insurer. The amount being used
for this purpose totaled approximately $.8 million on April 3,
1994 and March 28, 1993 and is classified as other current assets
on the Company's balance sheet.
3. SECURITIES AVAILABLE FOR SALE
The Company implemented Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" on April 3, 1994. The following is a summary of
available-for-sale securities as of April 3, 1994:
Gross Gross Estimated
Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
U.S. Treasury securities
and agency obligations $24,435 $ - $ 145 $24,290
U.S. corporate securities 3,027 - 45 2,982
Mortgage-backed
securities 21,653 6 451 21,208
$49,115 $ 6 $ 641 $48,480
Gross realized gains on sales of available-for-sale securities
totaled $19 thousand for the fiscal year ending April 3, 1994.
The Company had no realized losses on sales of available-for-sale
securities in fiscal year 1994.
The amortized cost and estimated fair value of the Company's
available-for-sale debt and mortgage-backed securities at April
3, 1994, by contractual maturity, are shown below:
Estimated
Fair
(In Thousands) Cost Value
Due in one year or less $ 5,037 $ 5,026
Due after one year through three years 22,425 22,246
27,462 27,272
Mortgage-backed securities 21,653 21,208
$49,115 $48,480
4. CONTRACT RECEIVABLES, CLAIMS AND ESTIMATED COSTS TO
COMPLETE CERTAIN CONTRACTS
Contracts -
Commercial Conversion - On February 4, 1993 the Company entered
into a contract for the conversion of two commercial container
ships to an open cargo hold configuration. The Company recognized
a $12.5 million loss provision in fiscal year 1993 based on a bid
price that was below full costs and the early performance results
on the first ship. The Company recognized an additional $3.9
million loss in fiscal year 1994 due to problems encountered
during the year in completion of work on the contract.
Additional work required by the owner had not been included in
earlier estimates. The learning curve anticipated for the second
ship in earlier estimates was not achieved because of additional
work required to meet dimensional tolerances despite large errors
in the ship's actual pre-conversion dimensions.
Tillikum - In May 1993, the Company entered into a contract with
Washington State Ferries to perform a major overhaul of its ferry
M/V Tillikum. In order to meet the requirements included in the
contract for participation by disadvantaged business enterprises,
the Company elected to subcontract to such businesses certain
portions of the work, including the detailed design work. Late
receipt of the required drawings and design errors which the
subcontractor failed to resolve caused delays in the
identification and commencement of the work and resulted in
acceleration of the work schedule to meet contractually specified
deadlines. This and other problems caused the Company to incur
approximately $2.2 million in unanticipated costs on the
contract.
Dredge Wheeler - Subsequent to the year ended April 3, 1994,
after execution of mutual releases, an insurance carrier paid the
Company $2.0 million in settlement of a claim it filed involving
damage sustained in 1990 by the Army Corps of Engineers dredge
Wheeler while the dredge was undergoing major repairs at the
Company's Galveston, Texas, shipyard. The payment fully
discharges the Company's previously recorded receivable of
approximately $1.8 million and will result in recognition of a
$0.2 million gain in the first quarter of the Company's fiscal
year ended April 2, 1995.
Navy Overhaul Contract - On November 3, 1993 the Company entered
into an agreement with the U.S. Navy to settle a dispute over
final pricing of work performed on the USS Chandler. The
settlement resulted in the collection of an amount slightly
greater than the Company's previously recorded receivable.
The Company's reported operating expenses for fiscal year 1994
were reduced by $10.2 million due to the utilization of $12.5
million of prior year loss reserves and the establishment of $2.3
million in current year loss reserves.
Unbilled Receivables - Certain unbilled items on completed
contracts included in accounts receivable were approximately $.9
million at April 3, 1994 and $9.9 million at March 28, 1993.
Retainages - Costs and estimated profits in excess of billings on
incomplete contracts include $1.0 million in retainages at April
3, 1994 and no retainages at March 28, 1993 (after deducting
progress billings of $157 million and $146 million at April 3,
1994 and March 28, 1993, respectively). Retainages are generally
due upon completion or acceptance of the contracted work and
completion of related warranty periods.
Customers - The Company currently operates in one business
segment, shipbuilding, which includes the construction,
repair/overhaul and conversion of marine vessels. Revenues from
the U.S. Government were $16.2 million (24%), $29.9 million
(55%), and $103.6 million (70%) in fiscal years 1994, 1993 and
1992, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation at
April 3, 1994 and March 28, 1993 consisted of the following:
1994 1993
Land $ 1,208 $ 1,208
Buildings 7,980 7,917
Piers, shipways and drydocks 25,260 25,205
Machinery and equipment 27,406 25,497
Total plant and equipment, at cost $61,854 $59,827
Less accumulated depreciation $37,853 $35,191
Plant, property and equipment, net $24,001 $24,636
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 Seattle Shipyard. The expense for these plans totaled
$2.2 million, $1.2 million and $3.2 million, for fiscal years
1994, 1993 and 1992, 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 employer 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.
The components of net periodic pension cost (benefit) for the
defined benefit plan in fiscal years 1994, 1993 and 1992 is as
follows (in thousands):
1994 1993 1992
Service cost-benefit earned during
the time period $ 333 $ 502 $ 848
Interest cost on projected benefit
obligation 2,325 2,439 2,863
Actual return on plan asset (1,981) (3,436) (3,768)
Net amortization and deferral (4,098) (2,986) (4,379)
Subtotal (3,421) (3,481) (4,436)
Liability for early retirement
incentive - 3,243 2,752
Net periodic pension benefit before
OBRA '90 (3,421) (238) (1,684)
Transfer of assets for payment of
retiree medical benefits
(401(h) Plan) 1,496 1,388 3,150
Net periodic pension cost (benefit) $ (1,925) $ 1,150 $ 1,466
During 1993 and 1994 the weighted average discount rate, rate of
increase in future compensation levels and the expected long-term
rate of return on assets used in determining the actuarial
present value of the projected benefit obligation were 8.0%, 5.0%
and 6.5%, respectively. During 1992, the weighted average
discount rate, rate of increase in future compensation levels and
the expected long-term rate of return on assets used in
determining the actuarial present value of the projected benefit
obligation were 8.5%, 7.5% and 8.5%, respectively.
The following table sets forth the plan's funded status and
amounts recognized in the Company's consolidated balance sheets
at April 3, 1994 and March 28, 1993 for the defined benefit plans
(in thousands):
1994 1993
Actuarial present value of benefit obligation:
Accumulated benefit obligations, including
vested benefits of $27,357 ($31,947 in 1993) $27,357 $33,066
Projected benefit obligation $28,756 34,563
Plan's assets at fair value 52,443 61,373
Plan's assets in excess of projected
benefit obligation 23,687 26,810
Unrecognized net loss 7,152 4,519
Unrecognized net transition asset being
recognized over 15 years (16,902) (19,317)
Deferred pension asset $13,937 $12,012
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 $1.5 million in
excess pension assets from its Retirement System into a fund to
pay fiscal year 1994 retiree medical benefit expenses.
Post retirement Group Health Insurance Program - The Company
sponsors a defined benefit health care plan that provides post
retirement medical benefits to 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 plan contains cost-sharing
features such as deductibles and coinsurance. These benefits are
funded monthly through the payment of group health insurance
premiums. In fiscal year 1991 the Company adopted Statement of
Financial Accounting Standard No. 106, "Employers' Accounting for
Post retirement Benefits Other Than Pensions". In accordance
with the provisions of Statement 106, the Company elected to
record the actuarially calculated $23.5 million total accumulated
obligation of such benefits as of March 31, 1991.
The actuarially calculated components of net periodic post
retirement health benefit cost for the defined benefit plan in
fiscal years 1994, 1993 and 1992 are as follows (in thousands):
1994 1993 1992
Service costs $ - $ - $ -
Interest cost on projected
benefit obligation 1,533 1,907 2,046
Return on plan assets - - -
Net amortization of gain (200) - -
Net period postretirement benefit
cost $ 1,333 $ 1,907 $ 2,046
Current year plan contributions $(1,551) $(1,593) $(1,604)
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 1993 and 1994 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
8% and 12% grading down to 5% over 21 years, respectively. During
1992, the weighted average discount rate and rate of increase in
the per capita cost of covered benefits used in determining the
actuarial present value of the accumulated health benefit
obligation were 9% and 12%, respectively. 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 April 3, 1994 by
$1.5 million and the interest cost component of net periodic post
retirement benefit cost for 1994 by $.1 million.
The following table sets forth the amounts recognized in the
Company's consolidated balance sheet at April 3, 1994 and March
28, 1993 for the post retirement health benefit obligation (in
thousands):
1994 1993
Accumulated post retirement health benefit
obligation $19,910 $19,928
Plan assets - -
Accumulated post retirement health benefit
obligation in excess of plan assets 19,910 19,928
Unrecognized net gain 4,160 4,360
Accrued post retirement health benefits 24,070 24,288
Less estimated current portion of obligations
classified as accrued expenses 1,604 1,604
Long-term portion of accrued post retirement
health benefits $22,466 $22,684
7. INCOME TAXES
The income taxes provided for or (credited to) the categories of
income (loss) are as follows (in thousands):
1994 1993 1992
Operations $ (263) $ 50 $11,489
Extraordinary item - utilization
of net operating loss and tax
credit carryforwards - - (9,384)
$ (263) $ 50 $ 2,105
The provision for income taxes consists of the following (in
thousands):
1994 1993 1992
Current: federal $ (263) $ 1,990 $ 165
state and local - -
Deferred: federal - (1,940) 1,940
state and local - - -
Total income tax provision $ (263) $ 50 $ 2,105
Upon adoption of Statement 109 in fiscal year 1994 there was no
cumulative effect on income as the Company had significant
business credit carryforwards for tax purposes. The Company
recorded these deferred taxes 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):
Liability Deferred Deferred
Method Method Method
1994 1993 1992
Tax provision (benefit) at
federal statutory tax rate $(1,042) $(3,996) $10,583
Increase in valuation allowance 1,261 - -
Tax rate differential (232)
Limitation on recognition of net
operating loss carryforward - 3,996 -
Utilization of net operating loss and
tax credit carry forward - - (9,384)
Alternative minimum tax - - 906
Other - net (250) 50 -
$ (263) $ 50 $ 2,105
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 April 3, 1994 were
as follows (in thousands):
Amount
Deferred income tax assets:
Business credit carryforwards $9,429
Alternative minimum tax credit carryforwards 2,874
Accrued employee benefits 2,351
Environmental reserve 2,138
Reserves for contract losses 1,442
Deferred gain on sale of facility 847
Reserve for doubtful accounts 228
Other 607
Total deferred income tax assets 19,916
Valuation reserve for deferred tax assets (7,934)
Net deferred tax assets 11,982
Deferred income tax liabilities:
Accelerated depreciation 6,344
Deferred pension income 4,878
Completed contracts 703
Other 57
Total deferred income tax liabilities 11,982
Net deferred taxes $ -
Major components of the deferred income tax provision (benefit)
for fiscal years ending March 28, 1993 and March 29, 1992 are as
follows (in thousands):
1993 1992
Accelerated depreciation $(1,064) $(1,011)
Completed contract method of accounting (8,244) 8,385
Decrease (increase) in nondeductible
reserves (2,996) 3,673
Decrease in shipyard closures reserves 436 555
Limitation of the recognition of net
operating loss 9,501 -
Utilization of net operating loss
carryforwards - (6,538)
Utilization of investment tax credit
carryforwards - (2,846)
Other - net 427 (278)
$(1,940) $ 1,940
The Company had net operating loss carryforwards for financial
statement purposes of $2.2 million at April 3, 1994 and $11.8
million at March 28, 1993. These carryforwards expire in 2009.
The Company had net operating loss carry forwards for federal
income tax purposes of $10.4 million at March 29, 1992, all of
which were used during fiscal year 1993. The Company had no net
operating loss carryforwards for federal income tax purposes as
of April 3, 1994.
The Company had tax credit carryforwards for financial statement
purposes at March 29, 1992 and March 28, 1993 of approximately
$9.1 million. The Company had, for federal income tax purposes,
tax credit carryforwards of $9.4 million at April 3, 1994. If not
utilized, these carryforwards will expire in fiscal years 1995
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 carry forward against regular federal income taxes in
future years in the event regular federal income taxes exceed the
alternative minimum tax.
The Company does not presently believe that an ownership change
as defined for purposes of limiting the utilization of net
operating loss and tax credit carry forwards has occurred.
8. LEASES
Operating lease payments charged to expense were $.7 million, $.8
million, and $1.4 million for fiscal years 1994, 1993 and 1992,
respectively.
Minimum lease commitments at April 3, 1994 are summarized below
(in thousands):
Capital Operating
Leases Leases
1995 $ 96 $ 660
1996 - 365
1997 - 211
1998 - 146
1999 - 146
Thereafter - 1,455
Total minimum lease commitments 96 $ 2,983
Less amount representing interest (3)
Present value of net minimum lease payments $ 93
Capitalized leases included in plant, drydocks and equipment and
the related accumulated depreciation amounted to $1.4 million and
$1.3 million, respectively.
9. FACILITY CLOSURES
GALVESTON SHIPYARD
On December 16, 1993, the Company sold its Galveston shipyard
facilities to the Board of Trustees of the Galveston Wharves
("Galveston Wharves") for $6 million, consisting of $.6 million
cash with the balance financed with City of Galveston special
project revenue bonds issued to the Company. The revenue bonds
bear interest at the rate of eight percent payable semiannually
beginning July 1, 1994. The revenue bonds are secured by a lien
on the shipyard property and a subordinate lien on the revenues
of the Galveston Wharves. Annual bond principal payments of
$.216 million are due beginning January 1, 1995 with a final
balloon payment of $3.456 million due January 1, 2004. The
Company is recognizing the gain on the sale of the facility as
payments are received.
Upon the sale of the Galveston facility, the Company reversed a
$3.2 million deferred credit relating to estimated Galveston
facility closure costs. Upon receipt of the initial proceeds from
the Galveston facility and equipment sale, the Company recognized
a net gain of $.6 million.
LOS ANGELES SHIPYARD
During the third quarter ended January 2, 1994, the Company
reduced the Los Angeles facility closure provision from $2.7
million to $.1 million to account for remaining Los Angeles
facility closure costs. The provision had reflected estimated
contributions necessary to fund the Los Angeles Local 9 pension
plan. Based on data available to the Company regarding the plan
assets and the plan's expected future operating activity, the
Company believes that the pension plan assets currently
adequately fund its liabilities and that no contributions to the
plan will be necessary.
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. 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 has
been fully completed. The overall eventual outcome of
environmental matters cannot be determined at this time, however,
several site investigations have progressed sufficiently to allow
for provisions in the accompanying consolidated financial
statements.
The Company has been named as a potentially responsible party
("PRP") 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 Seattle Shipyard is located. The EPA has
stated that, at this time, it is not aware of any other PRPs for
the Seattle Shipyard. The EPA has initiated a remedial
investigation and feasibility study ("RI/FS") for the Soil and
Groundwater Operable Unit of the Site ("Operable Unit"). The EPA
issued its Record of Decision ("ROD") for the Operable Unit in
September, 1993. (The RI/FS for the Sediment portion of the Site
is due to be released in 1995.) The ROD requires soil cleanup at
the Site of Total Petroleum Hydrocarbons ("TPH") and metals.
Soils containing in excess of 10,000 mg/kg of TPH must be
excavated and treated on-site with a thermal desorption 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 letter triggers a
sixty day moratorium on EPA enforcement activities related to the
Site which will expire on July 5, 1994. If the PRPs have
submitted a "good faith" offer to the EPA by that deadline the
moratorium will be extended by an additional sixty days. To
avoid agency enforcement, an agreement must be reached between
the EPA and the PRPs by September 6, 1994.
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.
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. It is the Company's position that its involvement
with the OII site is de minimis. In April 1992, the Company, a
nonsettling party, was notified by letter that the OII Steering
Committee, consisting of 133 settling parties, intends to pursue
contribution from the nonsettling parties. The Company is
continuing to investigate this matter.
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 US Navy 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 $158,287. The
Company intends to pursue its right to contractual
indemnification from the United States for the disposal of this
waste.
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.
Todd 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 ("RCRA"). 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. 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.
During the fiscal year ended April 3, 1994 the Company analyzed
the most recent data available from the EPA and other sources
regarding the Harbor Island Superfund Site and believes it is now
possible to estimate an initial cost for the proposed surface and
ground water clean-up phase of the Remedial Investigation and
Feasibility Study. The Company further believes that
investigations regarding several other sites have progressed to
the degree that it is currently possible to estimate costs for
their respective remediations. The Company has provided
aggregate reserves of $6.5 million for these contingent
liabilities; no amount has been taken into consideration for the
possible recovery of some or all of these amounts through various
insurance contracts and/or right of contribution actions against
prior landowners and others who may have been responsible for the
alleged damage to the various sites. However, no assurance can
be given that the $6.5 million reserve is adequate to cover all
potential remediation costs the Company could incur. With
respect to the remediation the Harbor Island Operable Unit, a
final determination has not yet been made either of the timing
and technique which may be used or of the possible participation
of other parties in the remediation efforts.
Any remediation efforts necessary as a result of the RI/FS due to
be released in 1995 pertaining to the Sediment portion of the
Harbor Island Site have not been included in the above stated
reserve. The investigation of the Sediment contamination has not
progressed to the stage where any potential remediation cost or
method has been determined. At this time it is not possible for
the Company to predict accurately the scope of any liability
relative to the Sediment portion of the Site.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter for the fiscal years ended April 3,
1994 and March 28, 1993 are as follows (in thousands):
Income
(loss) Income Net
from Income (loss) income
Revenues operations (loss) per share (loss)
1st Qtr 1994 $ 14,280 $ (2,649) $ (171) $ (0.01) $ (171)
2nd Qtr 1994 13 688 (5,071) (3,847) (0.33) (3,847)
3rd Qtr 1994 20,870 2,001 1,804 0.15 1,804
4th Qtr 1994 19,714 (1,005) (500) (0.05) (500)
$ 68,552 $ (6,724) $(2,714) $ (0.24) $(2,714)
1st Qtr 1993 $ 18,585 $ 1,207 1,129 $ 0.10 $ 1,537
2nd Qtr 1993 12,936 157 489 0.04 633
3rd Qtr 1993 8,704 (8,384) (7,013) (0.59) (7,565)
4th Qtr 1993 14,053 (6,998) (6,407) (0.54) (6,407)
$ 54,278 $(14,018) (11,802) $ (0.99) $11,802)
Fiscal year 1994 first quarter net income includes a $1.8 million
insurance settlement. Fiscal year 1994 third quarter net income
includes in-yard government phased maintenance activity
accomplished during the period.
TODD SHIPYARDS CORPORATION
Schedule I - Marketable Securities - Other Investments
April 3, 1994
(in thousands of dollars)
Amount at
which each
Market value security is
Name of issuer of ea. issue carried on
and title Principal Cost of at balance the balance
of each issue amount ea. issue sheet date sheet
US Treasury
Obligations $22,090 $21,794 $21,836 $21,836
FNMA, Mortgage
backed securities 9,987 10,106 9,763 9,763
FHLMC, Mortgage
backed securities 8,040 8,120 7,987 7,987
FHLB, Obligations 1,500 1,500 1,473 1,473
TVA Power Bond 1993,
Ser. A. 1,000 995 981 981
ATT, 4.5% Note 1,000 994 985 985
IBM, 4.55% Asset
Trust,Ser. A. 1,778 1,777 1,749 1,749
Merrill Lynch, 4.75%
Note 500 498 489 489
Mobil, 6.5% Note 500 524 510 510
SmithKline Beecham
5.25% Note 1,000 1,020 998 998
Structured Asset
Securities, CMO 1,700 1,725 1,709 1,709
Total Marketable
Securities $49,095 $49,053 $48,480 $48,480
Schedule X - Supplementary Income Statement Information
Years Ended April 3, 1994, March 28, 1993 and March 29, 1992
(in thousands of dollars)
Charged to Costs and Expenses
for the Fiscal Year Ended
April 3, March 28, March 29,
1994 1993 1992
1. Maintenance and repairs $3,843 $2,672 $4,300
3. Taxes, other than payroll and
income taxes 1,051 892 1,425
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCED DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
**
ITEM 11. EXECUTIVE COMPENSATION
**
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
**
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
**
** The information for the above items will be provided in the
1994 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1 & 2. Financial Statements
The financial statements and financial statement schedule
listed in the accompanying index to financial statements and
financial statement schedules are filed as part of this annual
report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this annual report.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K for the fourth
quarter ended April 3, 1994.
TODD SHIPYARDS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
Items 14(a) 1 & 2
Report of Independent Auditors...............................15
Consolidated Balance Sheets at April 3, 1994
and March 28, 1993.........................................16
Consolidated Statements of Operations
For the years ended April 3, 1994,
March 28, 1993 and March 29, 1992..........................17
Consolidated Statements of Cash Flows
For the years ended April 3, 1994,
March 28, 1993 and March 29, 1992..........................18
Consolidated Statements of Stockholders Equity
For the years ended April 3, 1994,
March 28, 1993 and March 29, 1992..........................20
Notes to Consolidated Financial Statements
For the years ended April 3, 1994,
March 28, 1993 and March 29, 1992..........................21
Supplementary Information:
Quarterly Financial Data (unaudited).......................35
Consolidated Financial Statement Schedules:
I-Marketable Securities..................................36
X-Supplementary Income Statement Information.............36
All other schedules are omitted because they are not applicable,
or not required or because the required information is included
in the consolidated financial statements or notes thereto.
TODD SHIPYARDS CORPORATION INDEX TO EXHIBITS
(SEE SEPARATE PACKET)
Item 14(a)3
Exhibit Sequential
Number Page No.
3-1 Certificate of Incorporation of the Company *
dated November 29, 1990, filed in the Company's
Form 8-B Registration Statement dated January
15, 1991 Exhibit 3-1.
3-2 By-Laws of the Company dated November 29, 1990, *
as amended October 1, 1992 filed in the Company's
Form 10-K Report for 1993 as Exhibit 3-2.
10-1 Lease Agreement of floating drydock dated May 15, *
1981 between the Company and NAVSEA amended May
14, 1986, filed in the Company's Form 10-K for
1991 as Exhibit 10-2.
10-2 Amendments to Lease Agreement of floating drydock *
dated December 6, 1989, March 7, 1990 and June 6,
1990 filed in the Company's Form 10-K for 1990 as
Exhibit 10(h)(i).
10-3 Lease Agreement of floating drydock dated April 1, *
1987 between the Company and NAVSEA filed in the
Company's Form 10-K for 1991 as Exhibit 10-4.
10-4 Collective Bargaining Agreement between Todd 42-88
Pacific, Seattle Division and the Metal Trades
Dept. of the A.F.L.- C.I.O., the Pacific Coast
Metal Trades District Council, the Seattle Metal
Trades Council and the International Unions
signatory thereto dated April 1, 1993. *
10-5 Unsigned executed copy of Harbor Area Lease *
Agreement dated March 21, 1985 between the Company
and the State of Washington Dept. of Natural
Resources filed in the Company's Form 10-K for
1990 as Exhibit 10(ac)
10-6 Harbor Area Lease Agreement dated December 13,
1982 between the Company and the State of
Washington Dept. of Natural Resources filed in the
Company's Form 10-K for 1990 as Exhibit 10(ad).
10-7 Waterway Permit dated September 1, 1986 between *
the Company and the State of Washington Dept. of
Natural Resources filed in the Company's Form
10-K for 11990 as Exhibit 10(ae).
10-8 Waterway Permit dated September 1, 11986 between *
the Company and the State of Washington Dept. of
Natural Resources filed in the Company's Form
10-K for 1990 as Exhibit 10(ae)(i).
10-9 Lease Agreement dated December 4, 1989 between *
the Company and Tar Asset Figueroa filed in the
Company's Form 10-K for 1990 as Exhibit 10(al).
10-10 Savings Investment Plan of the Company filed *
in the Company's form 10-K for 1990 as Exhibit
10(ap).
10-11 Todd Shipyards Corporation Retirement System Plan *
filed in the Company's Form 10-K for 1990 as
Exhibit 10(aq).
10-12 Contracts for the Modification and Repair of the *
SS Kauai and for the SS Maui for the Matson
Navigation Company, Inc. by Todd Pacific dated
February 4, 1993.
10-13 Contract with the State of Washington for repair 89-162
of the MV Tillikum by Todd Pacific dated May 10,
1993.
10-14 Purchase and Sale Agreement and Deed of Trust 163-191
relating to the sale of the Company's Galveston
facility to the Galveston Wharves dated December
16, 1993.
22-1 Subsidiaries of the Company. 192
28-1 Unsigned unexecuted copy of Indemnity Agreement *
between the Company and ACSTAR Insurance Company
filed in the Company's Form 10-K for 1990 as
Exhibit 28(k).
28-2 Letters dated April 25, May 7 and June 8, 1990 *
between the Company and ACSTAR Insurance Company
in respect to the terms of the Surety Agreement
between the parties and the Court order dated
July 2, 1990 authorizing the Company to enter into
the Surety Agreement and the Indemnity Agreement
(Exhibit 28-3), filed in the Company's Form 10-K
Report for 1991 as Exhibit 28-4(a).
Note: All Exhibits are in SEC File Number 1-5109.
* Incorporated herein by reference.
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/ David K. Gwinn
David K. Gwinn
Chief Financial Officer
June 30, 1994
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 /s/ Steven A. Clifford
Brent D. Baird, Director Steven A. Clifford, Director
June 24, 1994 June 24, 1994
/s/ Patrick W.E. Hodgson /s/ Joseph D. Lehrer
Patrick W.E. Hodgson, Joseph D. Lehrer, Director
Chairman, Chief Executive June 24, 1994
Officer, and Director
June 24, 1994
/s/ Philip N. Robinson /s/ John D. Weil
Philip N. Robinson, Director John D. Weil, Director
June 24, 1994 June 24, 1994