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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d)of the
Securities Exchange
Act of 1934 for the fiscal year ended March 29, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934 for the Transition period from ___ to
___
Commission File Number 1-5109
TODD SHIPYARDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1506719
(State or other jurisdiction of (IRS Employer I.D.No.)
incorporation or organization)
1801-16th Avenue SW, Seattle, WA 98134-1089
(Address of principal executive offices) (zip code)
Registrant's telephone number (206) 623-1635
Securities registered pursuant to Section 12(g) of the Act: None
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Name of each exchange on which registered: 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]
The aggregate market value of voting stock held by non affiliates
of the registrant was approximately $44 million as of June 12,
1998.
There were 9,910,180 shares of the corporation's $.01 par value
common stock outstanding at June 12, 1998.
Documents Incorporated by Reference
Portions of the Proxy Statement dated July 15, 1998 to be
delivered to shareholders in connection with the Annual Meeting
of Shareholders to be held September 18, 1998 are incorporated by
reference into Part III.
TABLE OF CONTENTS
PART I
Page
No.
Item 1. Business............................................. *
Item 2. Properties........................................... *
Item 3. Legal Proceedings.................................... *
Item 4. Submission of Matters to a Vote of Security Holders.. *
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters.......................... *
Item 6. Selected Financial Data.............................. *
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. *
Item 8. Consolidated Financial Statements and
Supplementary Data................................... *
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. *
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 Related Transactions....... *
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................ *
* No page numbers are contained in EDGAR version.
ITEM 1. BUSINESS
INTRODUCTION
Todd Shipyards Corporation (the "Company") was organized in 1916
and has operated a shipyard in Seattle, Washington (the
"Shipyard") since incorporation. The Company operates the
Shipyard through its wholly owned subsidiary Todd Pacific
Shipyards Corporation ("Todd Pacific"). Todd Pacific is engaged
in the repair/overhaul, conversion and construction of commercial
and military ships and vessels.
Until the late 1980's, a substantial portion of the Company's
revenues and profits were attributable to long-term United States
Government ("Government") contracts. The significant decline in
the annual shipbuilding budgets of the Department of the Navy
(the "Navy") has greatly reduced the Company's bidding
opportunities for long-term Government contracts. This reduction
in long-term Government contracts has created excess ship
construction and repair capacity in all of the Company's markets.
This excess shipyard capacity, both nationally and locally, has
resulted in intense price competition. The Company has responded
to this competition by carefully reviewing its overhead,
streamlining its operations and implementing advanced shipyard
production techniques.
Recent Shipyard activity has included construction of Jumbo Mark
II Class ferries ("Mark II Ferry") for the Washington State Ferry
System ("Ferry System"), short-term repair, overhaul and phased
maintenance work on Government vessels, as well as commercial
repair, overhaul and conversion work on container vessels,
tankers, fishing industry vessels, cruise ships, barges, tug
supply vessels and ferries.
The Company believes that it will continue to perform a
substantial amount of maintenance and repair work on commercial
and Federal Government vessels engaged in various seagoing trade
activities in the Pacific Northwest. It plans to pursue repair,
maintenance, overhaul and new construction work for the vessel
fleets operating on Puget Sound (near Seattle) and the Pacific
Coast. These include the Washington State Ferry System, the
Alaska Marine Highway System, the U.S. Navy, the U.S. Coast
Guard, passenger cruise ships, American-flagged cargo carriers,
the fishing fleets, tankers, and the tug and barge operators.
The Company has from time to time considered opportunities to
diversify in marine industries and businesses unrelated to the
Shipyard.
OPERATIONS OVERVIEW
Repair and Overhaul Operations
The Company's repair and overhaul work ranges from relatively
minor repair to major overhauls and often involves the drydocking
of the vessel under repair. The level of repair and overhaul
business available to domestic private-sector shipyards has been
impacted by the downsizing of the active Navy fleet. Also
affecting private shipyards is the impact of stationing vessels
at Navy home ports, the location of marine accidents, the
availability and scheduling of maintenance and overhauls, and
conditions within the maritime industry as a whole.
Commercial repair and overhaul contracts are obtained by
competitive bidding, awarded by negotiation or assigned by
customers who have a preference for a specific shipyard. On jobs
that are advertised for competitive bids, owners usually furnish
specifications and plans which become the basis for an agreed
upon contract. Repair and overhaul jobs are usually contracted
on a fixed-price basis with additional work contracted on a
negotiated-price basis.
Government ship repair and overhaul work is usually awarded
through a formal bidding process. The Company also performs
repair/overhaul work for the Navy under flexibly-priced
contracts. These contracts provide for reimbursement of costs, to
the extent allocable and allowable under applicable regulations,
and payment of an incentive or award fee based on the customer's
judgment of the contractor's performance with respect to certain
pre-established criteria. The Government regulates the methods
by which overhead costs are allocated to Government contracts.
The Company's commercial and Government repair and overhaul
contracts contain terms of customer payment determined by mutual
agreement. Typically the Company is periodically reimbursed
through progress payments based on the achievement of certain
agreed to benchmarks subject to a specified level of retention.
Some vessel owners contracting for repair, overhaul and new
construction work require some form and amount of performance and
payment bonding, particularly state agencies.
Construction Operations
The Company has a contract with the Ferry System for the
construction of three Mark II Ferries for $181 million (including
$7 million of optional growth items). The Mark II Ferries are
designed to transport 218 automobiles and 2,500 passengers each
on the waterways of Puget Sound and will be the largest ferries
in the Ferry System fleet. The Mark II Ferry program, awarded in
fiscal year 1995, is approximately 90% complete at March 29,
1998.
Distribution of Work
The approximate distribution of the Company's Shipyard revenues
for each of the last three fiscal years are summarized as
follows:
1998 1997 1996
Federal Government 18% 10% 35%
Commercial 72% 90% 65%
Total 100% 100% 100%
The Mark II Ferry program, which represented 55% of fiscal 1998
revenue, 59% of fiscal 1997 revenues and 40% of fiscal 1996
revenues is expected to be concluded during the current fiscal
year which will have a significant impact both on the volume and
nature of the business being conducted and the relative
contribution of federal government and commercial operations.
Future Operations
The Company plans actively to pursue Government and commercial
repair/overhaul opportunities. International construction and
repair opportunities are limited because shipbuilders in foreign
countries are often subsidized by their governments. These
subsidies allow foreign shipyards to enter into production
contracts at prices below their actual production costs.
Competition for domestic construction and repair opportunities
will continue to be intense as certain of the Company's larger
competitors have more modern shipbuilding facilities, lower labor
cost structures, or access to greater financial resources. The
Company is working to maximize its advantages of geographic
location, its current Mark II Ferry construction activities and
the skills of its experienced workforce.
Employees
The number of persons employed by the Company varies considerably
from time to time depending primarily on the level of Shipyard
activity, averaging approximately 1,120 employees during fiscal
year 1998 and totaling approximately 846 employees on March 29,
1998. With respect to the Mark II Ferry project, the Company
employed an average of approximately 400 persons on the project
during fiscal year 1998 and 250 persons on March 29, 1998.
During fiscal year 1998 an average of approximately 1,000 of the
Company's Shipyard employees were covered by a union contract
that became effective on November 24, 1997. At March 29, 1998
approximately 728 Company employees were covered under this
contract.
During fiscal year 1998, the Company and the Puget Sound Metal
Trades Council (representing the Pacific Coast Metal Trades
District Council and its member unions) submitted their final
collective bargaining contract positions to binding arbitration
in accordance with the provisions set forth in the Mark II Ferry
project agreement in force between the parties. Subsequent to
and in keeping with the arbitrator's ruling, the parties executed
a new labor agreement effective November 24, 1997. Prior to the
arbitration process, the Company had reached unanimous agreement
with the bargaining representatives of the workforce on three
separate occasions. However, on each occasion, the agreement was
rejected by the Todd workforce. The new collective bargaining
agreement will terminate on July 31, 1999 and replaces the
previous contract which expired on July 31, 1996. Among other
things, the new labor agreement provided for a retroactive pay
adjustment of $0.60 per hour for qualifying employees and the
impact of this increase has been reflected in the fiscal 1998
year end financial results.
As a result of the binding arbitration process, on February 17,
1998, the Puget Sound Metal Trades Council (bargaining umbrella
for all unions at Todd Pacific) and Todd Pacific were sued in
Federal District Court for the Western District of Washington by
in excess of 200 employees contending that the collective
bargaining agreement entered into by Todd Pacific and the various
unions representing these employees had not been properly
ratified by the union membership. The lawsuit seeks a
declaratory judgment that the collective bargaining agreement be
found null and void. If plaintiffs were to prevail in this case
Todd Pacific and its unions would have to engage in bargaining
for a new collective bargaining agreement. It is too early in
the case to provide an estimate of the likelihood of a favorable
or unfavorable result in this case.
Over the past two fiscal years, the Company has invested heavily
in its labor relations efforts including the establishment of
labor/management committees and conflict resolution education for
all parties.
Availability of Materials
The principal materials used by the Company in its Shipyard are
steel and aluminum plate and shapes, pipe and fittings, and
electrical cable and fittings. The Company believes that each of
these items can presently be obtained in the domestic market from
a number of different suppliers. In addition, the Company
maintains a small on-site inventory of these items that is deemed
sufficient for emergency ship repairs.
Competition
Competition in the domestic shipyard industry is intense. The
Company competes for commercial and Government work with a number
of other shipyards, some of which have more advantageous cost
structures. The Company's competitors for overhaul/conversion
and repair work include non-union shipyards, shipyards with
excess capacity and government subsidized facilities. The
Company's competitors for new construction work include shipyards
on the gulf coast and east coast with lower wage structures,
substantial financial resources or significant recent investments
in productivity enhancing facilities. The reduced size of the
Government's active duty fleet has resulted in a significant
decline in the total amount of Government business available to
the private sector shipyards, has created excess shipyard
capacity, and has led to acute price competition.
Commercial ship construction and, and to a lesser extent, repair
work performed in certain foreign markets is less costly than
domestic ship construction and repair. Many contracts are
awarded pursuant to competitive bidding and profitability is
dependent upon effective cost controls, production efficiencies
and the ability to meet strict schedules, among other factors.
With respect to repair work, the location, availability and
technical capability of repair facilities are important factors.
Environmental Matters
The Company is subject to federal, state and local environmental
laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the
treatment, storage and disposal of toxic and hazardous wastes.
Fines and penalties may be imposed for non-compliance with these
laws. Such laws and regulations may expose the Company to
liability for acts of the Company which are or were in compliance
with all applicable laws at the time such acts were performed.
Recurring costs associated with the Company's environmental
compliance program are not material and are expensed as incurred.
Capital expenditures in connection with environmental compliance
are not material to the Company's financial statements. See Item
7, Management's Discussion and Analysis and Note 1 to the
Consolidated Financial Statements for further discussion of these
costs.
The Company has an accrued liability of $16.1 million as of March
29, 1998 for environmental matters. As assessments of
environmental matters and remediation activities progress, these
liabilities are reviewed periodically and adjusted to reflect
additional technical, engineering and legal information that
becomes available. The Company's estimate of its environmental
liabilities is affected by several uncertainties such as, but not
limited to, the method and extent of remediation of contaminated
sites, the percentage of material attributable to the Company at
the sites relative to that attributable to other parties, and the
financial capabilities of the other Potentially Responsible
Parties ("PRP") at most sites. The Company's estimate of its
environmental liabilities is also affected as additional
information becomes known regarding alleged damages from past
exposure to asbestos at Company facilities. The Company is
covered under its various insurance policies for some, but not
all, potential environmental liabilities. See Item 3. Legal
Matters, Item 7. Management's Discussion and Analysis and Note 11
of the Notes to Consolidated Financial Statements for further
information regarding the Company's environmental matters.
Safety Matters
The Company is also subject to the federal Occupational Safety
and Health Act ("OSHA") and similar state statutes. The Company
has an extensive health and safety program and employs a staff of
safety inspectors and industrial hygiene technicians, whose
primary functions are to develop Company policies that meet or
exceed the safety standards set by OSHA, train production
supervisors and make periodic inspections of safety procedures to
insure compliance with Company policies on safety and industrial
hygiene. All employees are required to attend routine periodic
safety training meetings.
Backlog
At March 29, 1998 the Company's backlog consists of approximately
$47 million of construction, repair and overhaul work. This
compares with backlogs of $85 million and $146 million at March
30, 1997 and March 31, 1996 respectively. The reduction in firm
backlog over the past several fiscal years represents the
Company's continued progress toward completion of the Mark II
Ferry project without additional firm long term contracts to
replace this work. The final two Mark II ferries are scheduled
for delivery in fiscal year 1999 which will substantially reduce
the amount of firm backlog work currently reported.
In May 1996, the Company was awarded a cost-type contract for
phased maintenance repairs to four Navy supply ships currently
scheduled over eleven availabilities in five years. The notional
value of the contract is $79 million of which, $22.6 million had
been recorded as revenue, cumulatively, as of March 29, 1998.
The Company can provide no assurance as to the timing or level of
remaining work that may be performed as part of the maintenance
contract. The Company is working to identify and win additional
construction and repair work that would match the Shipyard's
production capacity.
INVESTMENTS AND ACQUISITIONS
The Company has from time to time pursued opportunities to
diversify its business, in areas such as metal fabrication,
marine transportation, other marine industries and businesses
unrelated to the Shipyard.
In fiscal year 1998, the Company completed the sale of its radio
broadcasting stations, operated by Elettra Broadcasting, Inc.
(purchased in fiscal year 1996), for $5.3 million. The Company
reported a gain on this transaction of $1.0 million during fiscal
year 1998.
The Company continues to evaluate suitable investment
opportunities which it believes will appropriately utilize the
Company's resources.
ITEM 2. PROPERTIES
During fiscal year 1998 the Company purchased a fourth drydock
(YFB-23)which is stored at the Company's facility on Harbor
Island. The design capacities of the four drydocks, all of which
are located at the Shipyard, 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
4/15/01
YFD-54 1943 Wood 5,700
9/30/99
YFB-23 1945 Wood 10,400
- - - - -
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 United States Coast Guard
("Coast Guard") contracts. The Company's current certification
for the drydocks (excluding the recently purchased drydock which
is not presently in service) 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 Navy and all Coast Guard
vessels. The Company also maintains certification of its cranes.
The Company believes that its owned and leased properties at the
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
The Company is subject to federal, state and local environmental
laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the
treatment, storage and disposal of toxic and hazardous wastes.
Fines and penalties may be imposed for non-compliance with these
laws. Such laws and regulations may expose the Company to
liability for acts of the Company which are or were in compliance
with all applicable laws at the time such acts were performed.
The Company faces potential liabilities in connection with the
alleged presence of hazardous waste materials at certain of its
closed shipyards, at its Shipyard and at several sites used by
the Company for disposal of alleged hazardous waste.
The Company is identified as a PRP by the Environmental
Protection Agency ("EPA") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA," commonly
known as the "Superfund") in connection with matters pending at
five Superfund sites. Additionally, the Company has been named
as a PRP for three Superfund cases where the Company has asserted
that its liability was discharged when it emerged from bankruptcy
in 1990.
In addition to the five pending Superfund matters, the Company is
subject to suits, claims and proceedings brought by state
agencies and others seeking contribution towards remediation of
alleged environmental impairments at five additional sites.
Generally these environmental claims relate to sites used by the
Company for disposal of alleged hazardous waste, although one
matter relates to a site in which the allegations are predicated
upon the Company's prior ownership of a shipyard property. The
matters relating to the Harbor Island site, at which the
Company's Shipyard is located, are discussed below. Reference is
made to Note 11 of the Notes to the Consolidated Financial
Statements in Item 8 below for information with respect to all
pending suits, claims and proceedings, including four as to which
the Company believes it has no or only nominal liability.
Harbor Island Site
The Company and several other parties have been named as PRPs by
the EPA pursuant to CERCLA in connection with the documented
release or threatened release of hazardous substances, pollutants
and contaminants at the Harbor Island Superfund Site,(the "Harbor
Island Site"). Included in the Company's $16.1 million total
reserve for environmental matters is a reserve of $11.1 million
to address the Harbor Island Site.
To date, the EPA has separated the Harbor Island Site into three
operable units that affect the Company: the Soil and Groundwater
Unit (the "Soil Unit"), the Shipyard Sediments Operable Unit (the
"SSOU") and the Sediments Operable Unit (the "SOU"). The Company, along
with a number of other Harbor Island PRPs, received a Special
Notice Letter from the EPA on May 4, 1994 pursuant to section 122
(e) of CERCLA. The Company entered into a Consent Decree for the
Soil Unit in September 1994 under which the Company has agreed to
remediate the designated contamination on its property. Soil Unit
remediation is anticipated to begin in fiscal year 1999. The
Company and the EPA are currently negotiating the extent and
methodology of the Soil Unit remediation. The Company estimates
remediation of the Soil Unit will take approximately 12 to 24
months from the clean-up start date.
In the third quarter of the fiscal year 1997, the EPA issued its
Record of Decision ("ROD") for the SSOU. The ROD identifies four
alternative solutions for the SSOU remediation and identifies the
EPA's selected solution. The Company and the EPA are negotiating
the scope and extent of testing and evaluation necessary to
determine the extent of the clean-up of the SSOU. The parties
have not agreed to a remedial design for the SSOU. The Company
believes that the timing and cost of the SSOU clean up will
remain significantly uncertain until a remedial design has been
finalized with the EPA that identifies the scope of remediation
and the method of sediment disposal.
In January 1998, the Company was notified by the EPA that testing
would be required in the West Waterway of the Duwamish River
outside the borders of the SSOU as part of the SOU. The Company
in May 1998 entered into an Order of Consent to perform certain
limited testing as part of the SOU investigation. The testing is
scheduled to take place during Summer 1998. The EPA has further
notified the Company of its intention to issue a ROD on the SOU
at the end of calendar year 1998.
Other
The Company has been named as a defendant in civil actions by
parties alleging damages from past exposure to toxic substances,
generally asbestos, at closed former Company facilities. The
Company has approximately 114 cases involving 275 plaintiffs
pending against it, together with other ship builders and
repairers, ship owners, asbestos manufacturers, distributors and
installers and equipment manufacturers, involving injuries or
illnesses allegedly caused by exposure to asbestos or other toxic
substances. The Company and its insurers are vigorously
defending these actions. Most of these cases have been filed
since 1991 by heirs of retired employees or employees of
subcontractors who allegedly worked at Company sites, and allege
contact with asbestos for varying periods of time and allege that
such exposure caused illness and/or death. The cases are
generally filed with multiple claimants and multiple defendants
and are generally insured matters. Suits of this nature
generally seek amounts in excess of $100,000 on behalf of each
claimant as against all defendants and claims resolved to date
have been settled for immaterial amounts. By their very nature,
civil actions relating to toxic substances vary according to the
cases' fact patterns, jurisdiction and other factors.
Accordingly, the Company cannot predict the eventual number of
such cases or their eventual resolution. The Company has
included an estimate of its potential liability for these issues
in its environmental reserves.
In February 1998, the Puget Sound Metal Trades Council
(bargaining umbrella for all unions at Todd Pacific) and Todd
Pacific were sued in Federal District Court for the Western
District of Washington by in excess of 200 employees contending
that the collective bargaining agreement entered into by Todd
Pacific and the various unions representing these employees had
not been properly ratified by the union membership. The lawsuit
seeks a declaratory judgment that the collective bargaining
agreement be found null and void. If plaintiffs were to prevail
in this case Todd Pacific and its unions would have to engage in
bargaining for a new collective bargaining agreement. It is too
early in the case to provide an estimate of the likelihood of a
favorable or unfavorable result in this case.
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 1998.
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
June 30, 1996 7.88 7.00
September 29, 1996 7.38 6.00
December 29, 1996 7.38 6.50
March 30, 1997 6.63 5.38
June 29, 1997 5.88 3.75
September 28, 1997 4.88 3.88
December 28, 1997 5.38 3.63
March 29, 1998 6.00 3.88
On June 12, 1998 the high and low prices of the Company's common
stock on the NYSE were $6.63 and $6.63, respectively.
At June 12, 1998 there were approximately 2,016 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)
March 29, March 30, March 31, April 2, April 3
1998 1997 1996 1995 1994
Revenue $109,537 $114,398 $101,687 $69,096 $68,552
Income (loss)
from operations (2) 3,197 (25,793) 1,017 (393) (6,958)
Income (loss)
before cumulative
effect of change
in accounting
principle (2)(3) 8,103 (21,253) 4,132 3,402 (2,714)
Cumulative effect
of change in
accounting
principle (1) - - - 438 -
Net income(loss) (2)(3) 8,103 (21,253) 4,132 3,840 (2,714)
Per share of common stock
Income (loss)
before cumulative
effect of change
in accounting
principle
Basic EPS 0.82 (2.14) 0.42 0.32 (0.24)
Diluted EPS 0.82 (2.14) 0.41 0.32 (0.24)
Cumulative effect of change
in accounting principle (1) - - - 0.04 -
Basic EPS 0.82 (2.14) 0.42 0.36 (0.24)
Diluted EPS 0.82 (2.14) 0.41 0.36 (0.24)
Financial position:
Working capital 44,400 33,245 48,880 50,704 52,337
Fixed assets 21,565 24,477 26,499 24,552 24,001
Total assets 116,873 115,789 120,571 110,924 111,447
Stockholders'
equity 56,813 47,940 67,380 62,433 63,740
(1) Effective April 4, 1994 the Company changed its method of
accounting for general and administrative costs from
recognizing these expenses as contract costs to recognizing
them as incurred. The change in method reflects the
change, over time, in the Company's business from
predominately longer term Department of Defense contracts to
predominately shorter term commercial and Government
contracts. This change has been applied to general and
administrative costs of prior years and resulted in a
cumulative effect credit of $438 thousand ($0.04 per share)
at the time of adoption.
(2) During fiscal year 1998, the Company reached agreement with an
insurance company regarding that carrier's obligations for property
damage occurring in previous fiscal years. This settlement contributed
$6.1 million to operating and net income. This settlement was offset
partially by an additional $.5 million operating charge to environmental
reserves.
(3) During fiscal year 1998, the Company received a federal income tax refund
of $1.5 million, which contributed a similar amount to net income. In
addition, the Company realized a $1.0 million gain on the sale of its
broadcasting stations, operated by Elettra Broadcasting, Inc.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Notes to Consolidated Financial Statements are an integral
part of Management's Discussion and Analysis of Financial
Condition and Results of Operations and should be read in
conjunction herewith. The following discussion and analysis of
financial condition and results of operations contains forward-
looking statements which involve risks and uncertainties. The
Company's actual results in future periods may differ
significantly from the results discussed in or anticipated by
such forward looking statements. Certain factors which may
impact results for future periods are discussed below under the
captions "Overview - Mark II Ferry Program," "Overview -
Profitability," and "Environmental Matters." Readers should also
consider the statements and factors discussed under the caption
"Operation Overview" in Item 1 of the Company's Form 10-K Annual
Report filed with the Securities and Exchange Commission for the
fiscal year ended March 29, 1998, and in the Notes to the
Company's Consolidated Financial Statements for the fiscal year
then ended.
Overview
During fiscal year 1998 the Company recorded operating profit of
$3.2 million on sales of $109.5 million. Operating profit for
the year was attributable to a $6.1 million gain related to an
insurance settlement that the Company reached with one of its
carriers during the fourth quarter of fiscal 1998. The
settlement relates to the carrier's obligations for property
damage occurring in previous fiscal years. The Company received
$3.5 million in the fourth quarter of fiscal 1998, with an
additional $1.0 million per year to be received over the next
three fiscal years. Without this non-recurring item the Company
would have posted an operating loss of $2.9 million for the
fiscal year as improved margins in commercial repair operations
were fully offset by additional Mark II Ferry loss reserves of
$6.5 million taken during fiscal year 1998.
In addition to this insurance settlement, the Company received a
federal income tax refund of $1.5 million in the fourth quarter
of fiscal year 1998. This refund resulted from a net operating
loss carryback that the Company elected to take during fiscal
year 1998 when filing fiscal year's 1997 federal income tax
return. This refund contributed an additional $1.5 million to
net income.
The $7.6 million contribution from these non-recurring items
along with $3.2 million of non-operating investment income, which
included a $1.0 million gain from the sale of the Company's radio
stations, resulted in net income for fiscal year 1998 of $8.1
million.
Mark II Ferry Program
The Company's Mark II Ferry program, awarded in fiscal year 1995,
is approximately 90% complete at March 29, 1998. The Company
delivered the first ferry, the MV Tacoma, during the second
quarter of fiscal year 1998; delivered the second ferry, the MV
Wenatchee, on May 27, 1998; and anticipates delivering the third
ferry, the MV Puyallup, by the end of fiscal year 1999.
As construction of the Mark II Ferries progresses, the Company
reviews and revises its estimates of long term contract sales
values and costs at completion. In fiscal year 1997 the Company
reversed a total of $3.6 million of previously recognized Mark II
Ferry program profit and established a program loss reserve of
$11.5 million. During fiscal year 1998, the Company continued to
estimate that it would incur contract costs in excess of the
current contract prices for the three ship program.
Specifically, the Company increased program loss reserves by $3.0
million in the first quarter of fiscal year 1998, $1.5 million in
the third quarter and an additional $2.0 million in the fourth
quarter. The fourth quarter reserve addition was due to
increased program costs partially attributable to customer
directed change orders. The Company is unable to recognize
additional revenue, if any, on these change orders until
negotiations with the Ferry System are completed. Accordingly,
the Company currently estimates that total contract costs will
exceed the current contract price by $18.0 million.
Mark II Ferry contract costs, which include direct and related
labor costs, direct material costs and allocated manufacturing
overhead costs, are expected to exceed contract price due to the
following factors: over 400 individual Ferry System directed
change orders, steel work overruns encountered on the first
vessel, higher than previously forecast program engineering
costs, and increased costs to complete the outfitting of the
vessels. Outfitting costs include installation of the joiner
work, piping and electrical systems, and painting costs.
The Company's construction cost estimates as of March 29, 1998
are based upon improved production techniques and better
utilization of modular shipbuilding practices in the construction
of the third ship compared to the first two ships. The Company
also has benefited from production efficiencies gained in the
experience of constructing the first and second ships (learning
curve efficiencies) and has incorporated these factors in its
construction cost estimates for the remaining work. However,
favorable or unfavorable variances to the estimated production
efficiencies could materially affect the Company's financial
results.
As construction of the ferries is completed, revisions in cost
and profit estimates for the contract will be made. Changes in
these estimates will be made based upon the facts then known to
the Company and may be a result of productivity factors, change
order pricing, overhead costs, material costs, production
schedules and levels of shipyard activity. Changes in these
factors could materially affect the Company's financial results.
The Company's ability to complete this contract within the
Company's current estimates of the costs to complete is not
presently determinable. If the Company is unable to complete
this contract within its current estimate of the costs to
complete, the Company could incur losses on this contract beyond
the $18.0 million recorded herein with a related adverse impact
on cash flow.
The Company believes that a substantial portion of the increased
contract costs relate to high levels of engineering and
production change orders directed by the Ferry System. These
customer-directed change orders, most of which have not been
settled, and have continued throughout the production process and
into the Company's fiscal year 1999, have caused production
rework, delays and disruption. These change orders have resulted
in increased production costs for the entire three ship ferry
construction project. The Company will pursue full recovery from
the Ferry System for both the direct cost and the impact of these
changes to the production schedule. The Company cannot predict
the outcome of any negotiations with the Ferry System.
Accordingly, the Company has not included estimates of such
settlements, if any, in its above mentioned Mark II Ferry program
loss reserve estimates.
Business Volume and Backlog
The Company's backlog at March 29, 1998 was approximately $47
million. This backlog consists primarily of Mark II Ferry work
to be performed. As the Company continues progress towards
completion of the Mark II Ferry project, the Company's firm
backlog position will continue to decline without the addition of
one or more long term contracts to replace this work. In May
1996, the Company was awarded a cost-type contract for phased
maintenance repairs to four Navy supply ships currently scheduled
over eleven availabilities in five-years. The notional value of
the contract is $79 million of which, $22.6 million had been
recorded as revenue, cumulatively, as of March 29, 1998. The
Company can provide no assurance as to the timing or level of
remaining work that may be performed as part of the maintenance
contract. The Company is working to identify and win additional
construction and repair work that would match the Shipyard's
production capacity.
Profitability
The Company's future profitability depends largely on the ability
of the Shipyard to maintain an adequate volume of ship repair,
overhaul and conversion business to augment its longer term
contracts. The variables affecting the Company's business volume
include public support provided to competing Northwest shipyards,
excess west coast and industry-wide shipyard capacity, foreign
competition, governmental legislation and regulatory issues,
activity levels of the U.S. Navy, competitors pricing behavior,
and Company labor efficiencies and work practices.
The Company continues to respond to the increasingly competitive
shipbuilding and repair industry. In addition to management's
focus on the profitability of existing Shipyard operations
through reduced operating costs and improved production
efficiencies and the pursuit of business volume, management
continues to evaluate options for deployment of assets with a
view to improving the Company's return on investment.
Year to year comparisons
1998 Compared with 1997
Net income for 1998 increased by $29.4 million from 1997 levels
as a result of the following components.
Revenues
Revenues for the fiscal year ended March 29, 1998 decreased $4.9
million (4%) compared to the prior fiscal year. The decrease in
fiscal year 1998 sales was primarily attributable to a $6.4
million decrease in Mark II revenue resulting from the completion
of the first vessel, the MV Tacoma.
Cost of Revenues
Cost of revenues for fiscal year 1998 decreased $3.2 million (3%)
from fiscal year 1997. The decrease is primarily attributable to
the reduction in business volume experienced in fiscal year 1998.
Administrative and Manufacturing Overhead
Administrative and manufacturing overhead expenses for the fiscal
year decreased $3.3 million (11%) from the previous fiscal year
as a result of the Company's continued efforts to reduce costs
and improve Shipyard efficiencies, and the sale of the Company's
radio stations, which resulted in a $1.5 million reduction in
administrative expense when compared to fiscal year 1997.
Contract Reserves Activity
In the fourth quarter of fiscal 1997 the Company estimated that
it would incur costs of approximately $11.5 million in excess of
the contract prices of the three Mark II Ferries and accordingly
established a loss reserve for these costs in fiscal 1997. In
fiscal year 1998, the Company increased the Mark II Ferry loss
reserves by $6.5 million, estimating that it would incur costs of
approximately $18.0 million in excess of the current contract
price.
Provision for Environmental Reserves and Other
In fiscal year 1998, the Company added $.5 million to its
environmental reserves for estimated clean-up costs. In fiscal
year 1997 the Company added $4.3 million to its environmental
reserves. The lower level of environmental reserve provisions
for 1998 contributed to the operating and net income increases
reported in fiscal year 1998 when compared to fiscal year 1997
results. In addition, the Company reached an agreement in fiscal
year 1998 with an insurance company regarding that carrier's
obligation for property damage occurring in previous fiscal
years. This settlement contributed $6.1 million to operating
income for fiscal year 1998.
Operating Results
Fiscal year 1998 operating income of $3.2 million represents a
change of $29.0 million when compared to the prior fiscal year
operating income loss of $25.8 million. The major contributors to
this change are the insurance settlement of $6.1 million reported
above for property damage occurring in previous fiscal years, the
$3.7 million reduction in environmental reserve additions, the
$5.0 million reduction in fiscal year 1998 Mark II Ferry loss
reserve additions, the reversal of $3.6 million of Mark II Ferry
profit in fiscal year 1997, as well as fiscal year 1998 improved
margins in commercial ship repair when compared to fiscal year
1997 losses incurred on commercial overhaul activity.
Investment and Other Income
Investment and other income in fiscal 1998 increased $0.4 million
from the previous fiscal year. This increase was primarily due
to the Company's sale of its broadcasting stations, operated by
Elettra Broadcasting, Inc.
Gain on Sale of available for sale security
Gains on sale of available for sale security decreased $1.5
million from the previous fiscal year's gain on sale of available
securities of $1.7 million.
Income Taxes
For fiscal year 1998, the Company recognized no income tax
expense as the expense was offset by a reduction in the deferred
tax valuation reserve and the utilization of net operating loss
carryforwards. In addition, the Company received a federal
income tax refund of $1.5 million in the fourth quarter of fiscal
year 1998, resulting from a net operating loss carryback that the
Company elected to take when filing fiscal year's 1997 federal
income tax return. The Company did not have taxable income for
fiscal year 1997, accordingly the Company recognized no income
tax expense.
1997 Compared with 1996
Net income for 1997 decreased by $25.4 million from 1996 levels
as a result of the following components.
Revenues
Revenues for the fiscal year ended March 30, 1997 increased $12.7
million (13%) compared to the prior fiscal year. The increase in
fiscal year 1997 sales was primarily attributable to the Mark II
Ferry construction program partially offset by lower Government
maintenance work.
Cost of Revenues
Fiscal year 1997 cost of revenues increased $22.3 million (31%)
compared to 1996 results as 1997 included higher Mark II
activity. Cost of revenues in fiscal year 1997 reflected
production and engineering difficulties encountered on the Mark
II Ferry project.
Administrative and Manufacturing Overhead
Administrative and manufacturing overhead expenses for the year
were up $1.5 million (5%) from prior year results due to
increased radio station activity and increased Shipyard volume.
Contract Reserves Activity
As discussed above, during the fourth quarter of fiscal year
1997, the Company estimated that it would incur costs of
approximately $11.5 million in excess of the contract prices of
the three Mark II Ferries and accordingly established a reserve
for these costs in fiscal year 1997. No contract loss reserves
were recognized in fiscal year 1996.
Provision for Environmental Reserves
In fiscal year 1997, the Company added $4.3 million to its
environmental reserves for estimated Sediments Unit clean-up
costs and other environmental matters. In fiscal year 1996, the
Company did not add to its environmental provision.
Operating Results
Fiscal year 1997 operating income decreased $26.8 million
compared to the prior fiscal year income of $ 1.0 million. The
decrease in operating income reflects the establishment of the
Mark II Ferry contract loss reserve, the reversal of $3.6 million
of previously recognized Mark II Ferry program profits, losses on
commercial overhaul activity and lower Government repair volume.
Operating results for fiscal year 1997 also include a $4.3
million environmental reserve established to address sediment
clean up at the Company's Seattle Shipyard.
Investment and Other Income
The Company's fiscal year 1997 investment and other income of
$2.8 million decreased $.3 million compared to fiscal year 1996
as fiscal year 1997's lower investment balances were partly
offset by the effect of higher interest rates.
Gain on sale of available-for-sale security
Fiscal year 1997 results include a $1.7 million gain from the
sale of an available-for-sale security.
Income Taxes
The Company did not have taxable income for fiscal year 1997,
accordingly the Company recognized no income tax expense and
recorded a net operating loss carryforward as described in Note 7
to the Consolidated Financial Statements. For fiscal year 1996,
the Company recognized no income tax expense as the expense was
offset by a reduction in the deferred tax valuation reserve.
Environmental Matters
Ongoing Operations
Recurring costs associated with the Company's environmental
compliance program are not material and are expensed as incurred.
Capital expenditures in connection with environmental compliance
are not material to the Company's financial statements.
Past Activities
The Company faces significant potential liabilities in connection
with the alleged presence of hazardous waste materials at certain
of its closed shipyards, at its Shipyard and at several sites
used by the Company for disposal of alleged hazardous waste. The
Company has been named as a defendant in civil actions by parties
alleging damages from past exposure to toxic substances at
Company facilities.
To date, the EPA has separated the Harbor Island Site into three
operable units that involve the Company: the Soil and Groundwater
Operable Unit (the "Soil Unit"), the Shipyard Sediments Operable
Unit (the "SSOU") and the Sediments Operable Unit (the "SOU").
The Company, along with a number of other Harbor Island Site
PRPs, received a Special Notice Letter from the EPA on May 4,
1994 pursuant to section 122 (e) of CERCLA. The Company entered
into a Consent Decree for the Soil Unit in September 1994 under
which the Company has agreed to remediate the designated
contamination on its property. That remediation is anticipated to
begin in 1999. The Company and EPA currently are negotiating the
extent and methodology of that remediation. The duration of the
Soil Unit remediation is expected to be approximately 12 to 24
months from the start date. The Company has accrued the EPA's
estimate of the cost of the Soil Unit clean-up in its below
stated environmental matters reserves.
During the quarter ended December 29, 1996, the EPA issued its
Record of Decision ("ROD") for the SSOU. The ROD identifies four
alternative clean-up remedies and specifies the EPA's selected
solution (the "Selected Solution"). The Selected Solution
requires sediment dredging, and installation of a clean sediment
cap and various monitoring efforts extending over ten years. The
Selected Solution includes dredging and disposal of approximately
116,000 cubic yards of material currently in the Duwamish River
and Elliott Bay surrounding the Shipyard. The Selected Solution
allows for two sediment disposal options: confined nearshore
disposal ("CND") and confined aquatic disposal. The Company
identified CND as its preferred disposal method if the Selected
Solution is implemented. In that regard, the Company has
initiated independent studies to estimate costs of a CND effort.
The EPA estimates the Company's portion of the remedial cost for
the Selected Solution including long term monitoring and
maintenance between $5.5 million and $7.9 million. The low end
of the EPA's estimated range reflects the Company's independent
cost estimate for CND of sediments on Company-owned property. The
high end of the EPA range reflects the average CND cost of other
Puget Sound CND dredging projects.
The estimated range does not include the cost of any potential
under-pier dredging or capping, should any be required. The
potential scope and costs of under-pier dredging and capping
remedies are currently indeterminable as the necessity and
magnitude of such efforts is strongly dependent on site-specific
conditions. The Company believes that the timing and the
eventual cost of the SSOU clean up will remain significantly
uncertain until a remedial design has been finalized with the EPA
that identifies the scope of remediation and the method of
sediment disposal. The Company has accrued an amount equal to
the high end of the EPA's estimated range, as the reasonably
expected cost of the SSOU clean-up in its below stated
environmental matters reserves. The Company entered into an
Order of Consent with the EPA covering solely the additional
sampling necessary for any remedial design. The proposed Order
of Consent does not include the remedial design itself.
The Company has approximately 109 cases involving 262 plaintiffs
pending against it, together with other ship builders and
repairers, ship owners, asbestos manufacturers, distributors and
installers and equipment manufacturers, involving injuries or
illnesses allegedly caused by exposure to asbestos or other toxic
substances. The Company and its insurers are vigorously
defending these actions. By their very nature, civil actions
relating to toxic substances vary according to the cases' fact
patterns, jurisdiction and other factors. Accordingly, the
Company cannot predict the eventual number of such cases or their
eventual resolution. The Company has included an estimate of its
potential liability for these issues in its environmental
reserves. Potential additional future expenses related to
alleged damages from past exposure to toxic substances is not
quantifiable due to uncertainties of the number of cases, the
extent of alleged damages, the population of claimants and size
of any awards and/or settlements.
The Company spent $.4 million in fiscal year 1998 for site
remediation and other matters. Most of these expenditures were
related to the Shipyard and for judgments and settlements of
civil matters relating to toxic substances. While the Company
expects to spend larger amounts in future years, the timing of
such expenditures is impossible to predict due largely to
uncertainties relating to remediation of the Harbor Island
facility.
During its fiscal year 1998, the Company was required by
Washington state environmental regulations to take action in
order to determine all known, available and reasonable methods of
prevention, control, and treatment ("AKART") for storm water
discharges from its shipyard. In accordance with its National
Pollution Discharge Elimination System permit, the Company
submitted its revised AKART analysis to the Washington State
Department of Ecology in May 1998. Potential future expense when
quantifiable will be recognized in the period incurred.
The Company's policy is to accrue costs for environmental matters
in the accounting period in which the responsibility is
established and the cost is estimable. The Company's estimates
of its liabilities for environmental matters are based on
evaluations of currently available facts with respect to each
individual situation and take into consideration factors such as
existing technology, presently enacted laws and regulations, and
the results of negotiations with regulatory authorities. The
Company does not discount these liabilities.
The Company's financial statements as of March 29, 1998 reflect
reserves of $16.1 million. The Company has recorded a non-
current asset of $3.7 million to reflect a contractual
arrangement with an insurance company to share costs for certain
environmental matters. The Company is negotiating with its
insurance carriers and certain prior landowners and operators for
past and future remediation costs. In addition, the Company
believes that the Government may be obligated to contribute to a
share of clean-up costs for certain sites.
Actual costs to address the Soil Unit, SSOU and SOU and other
environmental sites and matters 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 effect of resolution of environmental matters on results of
operations, liquidity, capital resources or on the consolidated
financial condition of the Company cannot be predicted due to the
uncertainty concerning both the amount and timing of future
expenditures. No assurance can be given that the Company's $16.1
million reserve as of March 29, 1998 is adequate to cover all
potential environmental costs the Company could incur.
Liquidity, Capital Resources and Working Capital
During fiscal year 1998, working capital increased by $11.2
million to $44.4 million at March 29, 1998 which includes
restricted and unrestricted cash, cash equivalents and marketable
securities of $41.9 million. The increase in working capital is
attributable to an $8.3 million increase in costs in excess of
billings, which is primarily associated with the Mark II Ferry
project for customer directed change orders that are expected to
be recoverable, a $2.9 million increase in cash & cash
equivalents and restricted cash, and a $2.1 million decrease in
accounts payable and accruals. Also contributing to the working
capital increase was the utilization of $6.1 million of the
previously recorded Mark II Ferry forward loss reserve.
Expenditures for property, plant and equipment in fiscal year
1998 were $1.2 million compared to $1.8 million for the prior
fiscal year and were attributable to Shipyard equipment
purchases. The decrease in capital expenditures reflects a
continuing trend in capital expenditure reductions which started
in fiscal year 1996 when the Company completed substantial
investments in Shipyard modifications to accommodate the Mark II
Ferry construction project. These expenditures are in addition
to ongoing repair and maintenance expenditures in the Shipyard of
$2.4 million, $3.2 million, and $4.6 million in fiscal years
1998, 1997 and 1996, respectively.
The Company is required on some of its projects to provide
customers with performance, contract and payment bonds. On
December 28, 1994 Todd Pacific entered into an agreement with a
surety pursuant to which the surety provided a contract bond for
the Mark II Ferry contract. The contract bond is secured by Todd
Pacific's machinery, equipment, inventory and trade accounts
receivable on certain bonded jobs. The surety has also issued
bonds totaling $1.4 million for current commercial repair jobs.
Todd Pacific established an annually renewable $3.0 million
revolving credit facility secured by a first lien on certain
trade receivables. Outstanding borrowings under the credit
facility may not exceed certain percentages of Todd Pacific's
trade receivables. Total outstanding borrowings as of March 29,
1998 were $1.1 million.
The Company received $5.4 million of special project revenue
bonds ("Revenue Bonds")from the Board of Trustees of the
Galveston Wharves ("Galveston Wharves") upon the December 1993
sale of its Galveston shipyard facilities. The Revenue Bonds
bear interest at the rate of eight percent payable semiannually
and are secured by a lien on the shipyard property and a
subordinate lien on the revenues of the Galveston Wharves. The
bonds contain provisions for annual principal payments of $216
thousand beginning on January 1, 1995 with a balloon payment of
$3.5 million due on January 1, 2004. As of March 29, 1998, the
Company has received four annual principal payments. The Company
is recognizing the gain on the sale of the facility as payments
are received.
Based upon its cash position described above and anticipated
fiscal year 1999 cash flow, the Company believes it has
sufficient liquidity to fund operations for fiscal year 1999.
Year 2000
The Company's comprehensive Year 2000 initiative is being managed
by a team of internal staff. The team's activities are designed
to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers,
suppliers, and financial institutions are fully supported.
While the Company believes its planned efforts are adequate to
address its Year 2000 concerns, there can be no guarantee that
the systems of other companies on which the Company's systems and
operations rely will be converted on a timely basis and will not
have a material effect on the Company's operation. The cost of
the Year 2000 initiatives is not expected to be material to the
Company's results of operation or financial position.
The following specific efforts are currently underway:
Information Systems
The Company has determined that it will need to modify or upgrade
portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and
beyond. Efforts are underway to upgrade non-compliant software
and operating systems. The VAX mini-computer hardware and
operating system are Year 2000 ready as well as the accounting
software. The payroll system upgrades are planned for June 1998
with custom program upgrades and server operating system upgrades
to follow. Discussions with third-party software vendors will
begin in June 1998.
Services
The Company will initiate by the second quarter of fiscal year
1999 discussions with its significant suppliers, large customers,
financial institutions and utilities to insure that those parties
have appropriate plans to remediate Year 2000 issues where their
systems interface with the Company's systems or otherwise impact
operations. The expected completion is late in the 1998 calendar
year. The Company is assessing the extent to which its
operations are vulnerable should those organizations fail to
remediate properly their computer systems.
Equipment
The Company is currently evaluating the Year 2000 readiness of
its equipment with a comprehensive inventory of monitoring and
control devices for the plant which may be at risk. Vendors are
being contacted in regard to Year 2000 compliance and compliance
letters are being collected.
Labor Relations
In February 1998, the Puget Sound Metal Trades Council
(bargaining umbrella for all unions at Todd Pacific) and Todd
Pacific were sued in Federal District Court for the Western
District of Washington by in excess of 200 employees contending
that the collective bargaining agreement entered into by Todd
Pacific and the various unions representing these employees had
not been properly ratified by the union membership. The lawsuit
seeks a declaratory judgment that the collective bargaining
agreement be found null and void. If plaintiffs were to prevail
in this case Todd Pacific and its unions would have to engage in
bargaining for a new collective bargaining agreement. It is too
early in the case to provide an estimate of the likelihood of a
favorable or unfavorable result in this case.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See following page.
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Todd Shipyards Corporation
We have audited the accompanying consolidated balance sheets of
Todd Shipyards Corporation and subsidiaries (the "Company") as of
March 29, 1998 and March 30, 1997 and the related consolidated
statements of operations, cash flows and stockholders' equity,
for each of the three years in the period ended March 29, 1998.
Our audits also included the financial statement schedule listed
on the index at item 14(a). The financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statements presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to
above present fairly, in all, material respects, the consolidated
financial position of Todd Shipyards Corporation and subsidiaries
at March 29, 1998 and March 30, 1997 and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended March 29, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statements schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
/s/Ernst & Young LLP
Seattle, Washington
May 29, 1998
TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 29, 1998 and March 30, 1997
(In thousands of dollars)
1998 1997
ASSETS
Cash and cash equivalents $ 5,317 $ 4,233
Restricted cash 7,011 5,210
Securities available-for-sale 29,524 37,878
Accounts receivable, less allowance for
losses of $662 and $861, respectively
U.S. Government 2,930 2,696
Other 4,203 3,701
Costs and estimated profits in excess of
billings on incomplete contracts 16,193 7,865
Inventories 1,308 1,323
Other 292 251
Total current assets 66,778 63,157
Property, plant and equipment, net 21,565 24,477
Deferred pension asset 21,786 19,564
Other 6,744 8,591
Total assets $116,873 $115,789
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accruals $ 7,304 $ 9,453
Payrolls and vacations 4,090 4,535
Accrual for loss on contract 5,444 11,500
Billings in excess of costs and estimated
profits on incomplete contracts 2,351 982
Taxes other than income taxes 1,345 1,436
Income taxes 1,844 2,006
Total current liabilities 22,378 29,912
Environmental reserves 16,065 15,900
Accrued post retirement health benefits 21,617 22,037
Total liabilities 60,060 67,849
Stockholders' equity:
Common stock $.01 par value-authorized
19,500,000 shares, issued 11,956,033
shares at March 29, 1998 and March 30, 1997,
and outstanding 9,910,180 at March 29, 1998
and at March 30, 1997 120 120
Additional paid-in capital 38,181 38,181
Retained earnings 28,129 19,256
Less treasury stock 9,617 9,617
Total stockholders'equity 56,813 47,940
Total liabilities and stockholders'
equity $116,873 $115,789
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 29, 1998, March 30, 1997, and March 31, 1996
(In thousands of dollars, except per share amounts)
1998 1997 1996
Revenues $109,537 $114,398 $101,687
Operating Expenses:
Cost of revenues 90,818 93,982 71,674
Administrative and
manufacturing overhead 27,168 30,459 28,996
Contract reserve (6,056) 11,500 -
Provision for environmental
reserves 536 4,250 -
Other - Insurance (6,126) - -
Subtotal 106,340 140,191 100,670
Operating Income (Loss) 3,197 (25,793) 1,017
Investment and other income 3,239 2,802 3,139
Gain (Loss) on sale of securities 190 1,738 (24)
Income (Loss)Before
Income Tax 6,626 (21,253) 4,132
Income Tax Benefit (1,477) - -
Net Income (Loss) $ 8,103 $(21,253) $ 4,132
Net Income (Loss) per Common Share:
Basic EPS $ 0.82 $ (2.14) $ 0.42
Diluted EPS $ 0.82 $ (2.14) $ 0.41
Weighted Average Number of Shares
(thousands)
Basic EPS 9,910 9,910 9,925
Diluted EPS 9,919 9,910 9,991
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 28, 1998, March 30, 1997, and March 31, 1996
(in thousands of dollars)
1998 1997 1996
OPERATING ACTIVITIES:
Net income (loss) $ 8,103 $(21,253) $ 4,132
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 3,479 3,589 3,208
Increase (decrease) in contract
loss reserves (6,056) 11,500 -
Decrease (increase) in costs
and estimated profits in
excess of billings on
incomplete contracts (8,328) 7,198 (8,671)
Increase in environmental
reserves 166 4,813 2,664
Decrease (increase) in accounts
receivable (736) 2,633 (2,264)
Increase (decrease) in accounts
payable and accruals (2,149) (2,378) 4,755
Increase in deferred pension
asset (2,222) (2,363) (1,637)
Increase in other assets 1,847 (426) (2,360)
Other 359 629 (428)
Total adjustments (13,640) 25,195 (4,733)
Net cash provided by (used in)
operating activities (5,537) 3,942 (601)
Cash flows from investing
activities:
Purchases of marketable securities (10,742) (14,365) (19,774)
Maturities of marketable
securities 3,117 7,580 22,959
Sales of marketable securities 17,799 3,607 6,721
Capital expenditures (1,198) (1,835) (4,954)
Acquisition - - (3,850)
Other (554) 416 16
Net cash provided by (used in)
investing activities 8,422 (4,597) 1,118
Cash flows from financing
activities:
Increase in cash restricted
to secure bid and performance
bonds (1,801) (3,664) (1,233)
Purchases of treasury stock - - (2,698)
Net cash provided by (used in)
financing activities (1,801) (3,664) (3,931)
Net increase (decrease) in cash
and cash equivalents 1,084 (4,319) (3,414)
Cash and cash equivalents at
beginning of period 4,233 8,552 11,966
Cash and cash equivalents at
end of period $ 5,317 $ 4,233 $ 8,552
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 73 $ 27 $ 3
Income taxes 56 291 541
Noncash financing activities:
Treasury stock purchases payable - - -
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 29, 1998, March 30, 1997, and March 31, 1996
(in thousands of dollars)
Additional
Common Paid-in Retained Treasury Total
Stock Capital Earnings Stock Equity
Balance at
April 2, 1995 $ 120 $38,181 $33,576 $(9,444) $62,433
Purchase of common
shares for treasury (173) (173)
Unrealized gains on
marketable securities
available-for-sale,
net of tax 988 988
1996 net income 4,132 4,132
Balance at
March 31, 1996 120 38,181 38,696 (9,617) 67,380
Unrealized gains on
marketable securities
available-for-sale,
net of tax 1,813 1,813
1997 net loss (21,253) (21,253)
Balance at
March 30, 1997 120 38,181 19,256 (9,617) 47,940
Unrealized gains on
marketable securities
available-for-sale,
net of tax 770 770
1998 net income 8,103 8,103
Balance at
March 29, 1998 $ 120 $38,181 $28,129 $(9,617) $56,813
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 29, 1998, March 30, 1997, and March 31, 1996
1. PRINCIPAL ACCOUNTING POLICIES
(A) Basis of Presentation - The Consolidated Financial
Statements include the accounts of Todd Shipyards Corporation
(the "Company") and its wholly owned subsidiaries Todd Pacific
Shipyards Corporation ("Todd Pacific"), TSI Management, Inc.
("TSI") and Elettra Broadcasting, Inc. ("Elettra") prior to being
sold on October 9, 1997 (see Note 15). All intercompany
transactions have been eliminated. The Company's policy is to
end its fiscal year on the Sunday nearest March 31. Certain
reclassifications of amounts in the Consolidated Financial
Statements have been made to conform to the current year
presentation.
(B) Business - The Company's primary business is shipbuilding,
conversion and repair for the United States Government (the
"Government"), state ferry systems, and domestic and
international commercial customers. Substantially all of the
Company's work is performed at its Seattle, Washington facility
(the "Shipyard") by a unionized production workforce.
(C) Depreciation and Amortization - Depreciation and
amortization are determined on the straight-line method based
upon estimated useful lives or lease periods; however, for income
tax purposes, depreciation is determined on both the straight-
line and accelerated methods, and on shorter periods where
permitted.
(D) Revenues - Revenues consist of the estimated realizable
value of work performed under construction, repair and conversion
contracts. Profits on major contracts, those in excess of $3
million or six months duration, are recorded on the percentage-of-
completion method (determined based on direct labor hours).
Losses on contracts are reported in the period when first
estimated. Revisions to contract estimates are recorded as the
estimating factors are refined. The effect of these revisions is
included in income in the period the revisions are made.
(E) Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(F) Income Taxes - Income taxes are determined in accordance
with an asset and liability approach for financial accounting and
reporting of income taxes. A valuation allowance is recorded to
reduce deferred tax assets when realization of the tax benefit is
uncertain.
(G) Inventories - Inventories, consisting of materials and
supplies, are valued at lower of cost (principally average) or
replacement market. The Company has many available sources of
supply for its commonly used materials.
(H) Cash and Cash Equivalents - The Company considers all highly
liquid debt instruments with a maturity of three months or less
to be cash equivalents. Cash equivalents consist primarily of
money market instruments, investment grade commercial paper and
Government securities. The carrying amounts reported in the
balance sheet are stated at cost which approximates fair value.
(I) 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 Government securities, investment
grade commercial paper and equities and are valued based upon
market quotes.
Company management determines the appropriate classification of
debt and equity securities at the time of purchase and
reevaluates such designation as of each balance sheet date. All
of the Company's investments are classified as available-for-sale
as of the balance sheet date and are reported at fair value, with
unrealized gains and losses, net of tax, recorded as a component
of stockholders' equity.
(J) Stock Based Compensation - The Company has elected to apply
the disclosure only provisions of Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based
Compensation". Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations under APB No.
25, whereby compensation cost for stock options is measured as
the excess, if any, of the fair value of the Company's common
stock at the date of grant over the stock option price.
(K) Environmental Accounting - The Company accounts for
environmental liabilities in accordance with Statement of
Position 96-1, "Environmental Remediation Liabilities," which
provides the accounting and reporting standards for the
recognition and disclosure of environmental remediation
liabilities.
For current operating activities, costs of complying with
environmental regulations are immaterial and expensed as
incurred. Environmental costs are capitalized if the costs
extend the life of the property and/or increase its capacity.
For matters associated with past practices and closed operations,
accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of the
liability can be reasonably estimated, based upon the projected
scope of the remediation, current law and existing technologies.
These accruals are adjusted periodically as assessment and
remediation efforts progress or as additional technical or legal
information becomes available. Such accruals are classified in
the balance sheet as long term obligations at undiscounted
amounts. As applicable, accruals include the Company's share of
the following costs: engineering costs to determine the scope of
the work and the remediation plan, testing costs, project
management costs, removal of contaminated material, disposal of
contaminated material, treatment of contaminated material,
capping of affected areas and long term monitoring costs.
Accruals for environmental liabilities exclude legal costs and
claims, if material, for recoveries from insurance or other third
parties. Accruals for environmental liabilities also exclude
legal costs to defend against claims of other parties. Accruals
for insurance or other third party recoveries for environmental
liabilities are recorded separately from the associated liability
in the financial statements when it is probable that a claim will
be realized.
(L) Net Income Per Share - In 1997, the Financial Accounting
Standards Board (FASB) issued Statement No. 128, "Earnings per
Share" (FAS 128). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported earnings per share.
All earnings per share amounts for all periods have been
presented to conform with FAS No. 128. As a result of the
adoption of FAS No. 128, the Company's previously reported net
income per share changed from $0.42 to $0.41 on a diluted basis
for the year ending March 31, 1996.
(M) Recent Accounting Pronouncements - The FASB issued Statement
No. 130, "Reporting Comprehensive Income" (FAS 130) and Statement
No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 established standards for
reporting comprehensive income in annual and interim financial
statements. FAS 131 established standards for the way a public
business enterprise reports information about operating segments
in annual financial statements and requires that those
enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products
services, geographic areas and major customers. FAS 130 and 131
are effective for financial statements having fiscal years
beginning after December 15, 1997. The adoption of FAS 130 and
131 is not expected to have a significant impact on the Company's
consolidated results of operations, financial position or cash
flow.
2. RESTRICTED CASH AND SURETY LINE
On December 28, 1994 Todd Pacific entered into an agreement with
a surety pursuant to which the surety will provide a contract
bond for a contract to build three Jumbo Mark II class ferries
("Mark II Ferries") for the Washington State Ferry System ("Ferry
System"). The contract bond is secured by Todd Pacific's
machinery, equipment, inventory and trade accounts receivable on
certain bonded jobs. The surety has also issued bonds totaling
$1.4 million for current commercial repair jobs. Restricted cash
includes retention relating to Mark II Ferry construction
progress payments pursuant to contract terms.
3. SECURITIES AVAILABLE FOR SALE
The following is a summary of available-for-sale securities:
Amor- Gross Gross Estimated
tized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
March 29, 1998
U.S. Treasury securities
and agency obligations $ 2,002 $ 10 $ - $ 2,012
U.S. corporate
securities 15,860 41 (39) 15,862
Foreign Stock 623 57 - 680
Mortgage-backed
securities 623 - (2) 621
Total debt securities 19,108 108 (41) 19,175
Equity securities 7,532 2,817 - 10,349
$26,640 $2,925 $ (41) $29,524
March 30, 1997
U.S. Treasury securities
and agency obligations $ 7,979 $ - $ (119) $ 7,860
U.S. corporate
securities 15,948 4 (94) 15,858
Mortgage-backed
securities 3,875 - (25) 3,850
Total debt securities 27,802 4 (238) 27,568
Equity securities 7,963 2,347 - 10,310
$35,765 $2,351 $ (238) $37,878
The Company had gross realized gains of $190 thousand on sales of
available-for-sale securities for the fiscal year ending March
29, 1998. The Company had gross realized gains of $1.8 million
on sales of available-for-sale securities for the fiscal year
ending March 30, 1997 and no gross realized gains on sales of
available-for-sale securities for the fiscal year ending March
31, 1996.
The Company had no gross realized losses on sales of available-
for-sale securities for the fiscal year ending March 29, 1998.
The Company had gross realized losses of $48 thousand and $24
thousand on sales of available-for-sale securities during fiscal
years 1997 and 1996, respectively.
The amortized cost and estimated fair value of the Company's
available-for-sale debt, mortgage-backed and equity securities
are shown below:
Estimated
Amortized Fair
(In thousands) Cost Value
March 29, 1998
Due in one year or less $ 7,555 $ 7,526
Due after one year through three years 10,307 10,348
17,862 17,874
Mortgage-backed securities 623 621
Equity securities 8,155 11,029
$26,640 $29,524
March 30, 1997
Due in one year or less $ 3,166 $ 3,165
Due after one year through three years 20,761 20,553
23,927 23,718
Mortgage-backed securities 3,875 3,850
Equity securities 7,963 10,310
$35,765 $37,878
4. CONTRACTS
Mark II Ferry Contract
The Company has a $181 million contract to construct three Jumbo
Mark II Ferries for the Ferry System. The Mark II Ferries are
designed to transport 218 automobiles and 2,500 passengers each
and will be the largest ferries in the Ferry System fleet. The
Mark II Ferry program, awarded in fiscal year 1995, is
approximately 90% complete at March 29, 1998. The Company
delivered the first ferry, the MV Tacoma, during the second
quarter of fiscal year 1998; delivered the second ferry, the MV
Wenatchee, on May 27, 1998; and anticipates delivering the third
ferry, the MV Puyallup, by the end of fiscal year 1999.
As construction of the Mark II Ferries progresses, the Company
reviews and revises its estimates of long term contract sales
values and costs at completion. In fiscal year 1997 the Company
reversed a total of $3.6 million of previously recognized Mark II
Ferry program profit and established a program loss reserve of
$11.5 million. During fiscal year 1998, the Company continued to
estimate that it would incur contract costs in excess of the
contract prices for the three ship program. Specifically, the
Company increased program loss reserves by $3.0 million in the
first quarter of fiscal year 1998, $1.5 million in the third
quarter and an additional $2.0 million in the fourth quarter.
The fourth quarter reserve addition was due to increased program
costs partially attributable to customer directed change orders.
The Company is unable to recognize additional revenue, if any, on
these change orders until negotiations with the Ferry System are
completed. Accordingly, the Company currently estimates that
total contract costs will exceed the current contract price by
$18.0 million.
Mark II Ferry contract costs, which include direct and related
labor costs, direct material costs and allocated manufacturing
overhead costs, are expected to exceed contract price due to the
following factors: over 400 individual Ferry System directed
change orders, steel work overruns encountered on the first
vessel, higher than previously forecast program engineering
costs, and increased costs to complete the outfitting of the
vessels. Outfitting costs include installation of the joiner
work, piping and electrical systems, and painting costs.
The Company's construction cost estimates as of March 29, 1998
are based upon improved production techniques and better
utilization of modular shipbuilding practices in the construction
of the third ship compared to the first two ships. The Company
also has benefited from production efficiencies gained in the
experience of constructing the first and second ships (learning
curve efficiencies) and has incorporated these factors in its
construction cost estimates for the remaining work. However,
favorable or unfavorable variances to the estimated production
efficiencies could materially affect the Company's financial
results.
As construction of the ferries is completed, revisions in cost
and profit estimates for the contract will be made. Changes in
these estimates will be made based upon the facts then known to
the Company and may be a result of productivity factors, change
order pricing, overhead costs, material costs, production
schedules and levels of shipyard activity. Changes in these
factors could materially affect the Company's financial results.
The Company's ability to complete this contract within the
Company's current estimates of the costs to complete is not
presently determinable. If the Company is unable to complete
this contract within its current estimate of the costs to
complete, the Company could incur losses on this contract beyond
the $18.0 million recorded herein with a related adverse impact
on cash flow.
The Company believes that a substantial portion of the increased
contract costs relate to high levels of engineering and
production change orders directed by the Ferry System. These
customer-directed change orders, most of which have not been
settled, and have continued throughout the production process and
into the Company's fiscal year 1999, have caused production
rework, delays and disruption. These change orders have resulted
in increased production costs for the entire three ship ferry
construction project. The Company will pursue full recovery from
the Ferry System for both the direct cost and the impact of these
changes to the production schedule. The Company cannot predict
the outcome of any negotiations with the Ferry System.
Accordingly, the Company has not included any estimates of such
settlements, if any, in its above mentioned Mark II Ferry program
loss reserve estimates.
Unbilled Receivables - Certain unbilled items on completed
contracts included in accounts receivable were approximately $1.3
million at March 28, 1998 and $2.0 million at March 30, 1997.
Retainages - Costs and estimated profits in excess of billings on
incomplete contracts include $4.4 million in retainages at March
29, 1998 and $5.2 million at March 30, 1997. Retainages are
generally due upon completion or acceptance of the contracted
work and completion of related warranty periods. Retainage at
March 29, 1998 is predominantly related to the Mark II Ferry
project. Mark II Ferry retainage will be released as each ship
is accepted by the Ferry System.
Customers - Revenues from the Government were $20.3 million
(18%), $11.0 million (10%) and $35.5 million (35%) in fiscal
years 1998, 1997 and 1996, respectively. Revenues from the Ferry
System were $60.4 million (55%), $66.8 million (59%) and $40.7
million (40%) in fiscal year 1998, 1997 and 1996, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, accumulated depreciation and
accumulated amortization at March 29, 1998 and March 30, 1997
consisted of the following:
1998 1997
Land $ 1,151 $ 1,151
Buildings 11,353 11,244
Piers, shipways and drydocks 22,705 22,304
Machinery and equipment 31,909 32,114
Total plant and equipment, at cost $67,118 $66,813
Less accumulated depreciation 45,553 42,336
Plant, property and equipment, net $ 21,565 $24,477
The Company recognized $3.5 million of depreciation expense in
fiscal years 1998 and 1997. The Company recognized no
amortization expense in fiscal 1998 and less than $0.1 million in
fiscal year 1997.
6. EMPLOYEE BENEFIT PLANS
Union Pension Plans - Operating Shipyard - The Company
participates in several multi-employer plans, which provide
defined benefits to the Company's collective bargaining employees
at its Shipyard. The expense for these plans totaled $3.3
million, $3.1 million and $2.5 million, for fiscal years 1998,
1997 and 1996, respectively.
Union Pension Plans - Previously Operated Shipyards - The Company
is a sponsor of several union pension plans due to the prior
operation of other shipyards. The ongoing operation and
management of these plans is the responsibility of boards of
trustees made up of equal numbers of Company and union
representatives.
Nonunion Pension Plans - The Company sponsors the Todd Shipyards
Corporation Retirement System (the "Retirement System"), a
noncontributory defined benefit plan under which substantially
all nonunion employees are covered. The benefits are based on
years of service and the employee's compensation before
retirement. The Company's funding policy is to fund such
retirement costs as required to meet allowable deductibility
limits under current Internal Revenue Service regulations. New
membership in the Retirement System was frozen on July 1, 1993.
The components of net periodic pension benefit for the Retirement
System defined benefit plan in fiscal years 1998, 1997 and 1996
are as follows (in thousands):
1998 1997 1996
Service cost during the time period $ 279 $ 258 $ 195
Interest cost on projected benefit
obligation 2,201 2,077 2,184
Actual return on plan assets (10,036) (3,862) (5,583)
Net amortization and deferral 4,189 (1,913) 342
Net periodic pension benefit before
OBRA '90 (3,367) (3,440) (2,862)
Transfer of assets for payment of
retiree medical benefits
(401(h) Plan) 1,145 1,077 1,225
Net periodic pension benefit $(2,222) $(2,363) $(1,637)
Significant assumptions used in determining pension obligations,
and the related pension expense, include a weighted-average
discount rate of 7.0% at March 29, 1998, 7.5% at March 30, 1997
and 7.25% at March 31, 1996, an assumed rate of increase in
future compensation of 4.5% at March 29, 1998, March 30, 1997 and
March 31, 1996, and an estimate of expected long-term rate of
return on plan assets of 7.5% at March 29, 1998 and 7.0% at March
30, 1997 and March 31, 1996. The decrease in the discount rate
reflects the decrease in long-term interest rates at March 29,
1998.
The following table sets forth the Retirement System plan's
funded status and amounts recognized in the Company's
consolidated balance sheets at March 29, 1998 and March 30, 1997
for the Retirement System defined benefit plan (in thousands):
1998 1997
Actuarial present value of benefit obligation:
Accumulated benefit obligations,
fully vested $28,854 $28,874
Projected benefit obligation $30,746 $30,504
Plan's assets at fair value 59,824 52,983
Plan's assets in excess of projected
benefit obligation 29,078 22,479
Unrecognized net loss (48) 6,743
Unrecognized net transition asset being
recognized over 15 years (7,244) (9,658)
Deferred pension asset $21,786 $19,564
The Retirement System plan assets consist principally of common
stocks and Government and corporate obligations.
Under a provision of the Omnibus Budget Reform Act of 1990 ("OBRA
'90") the Company transferred approximately $1.1 million in
excess pension assets from its Retirement System into a fund to
pay fiscal year 1998 retiree medical benefit expenses. OBRA '90
was modified by the Retirement Protection Act of 1994 to extend
annual excess asset transfers through the fiscal year ending
March 2001.
Savings Investment Plan - The Company sponsors a Savings
Investment Plan (the "Savings Plan"), under Internal Revenue Code
Section 401, covering substantially all non-union employees.
Under the Savings Plan, the Company at its sole discretion can
contribute an amount up to 6% of each participant's annual salary
depending on the participant's Savings Plan contributions, and
the Company's profits and performance. The Company has made no
contributions to the Savings Plan during the last four years.
Post Retirement Group Health Insurance Program - The Company
sponsors a defined benefit retirement health care plan that
provides post retirement medical benefits to former full-time
exempt employees, and their spouses, who met specified criteria.
The Company terminated post retirement health benefits for any
employees retiring subsequent to May 15, 1988. The retirement
health care plan contains cost-sharing features such as
deductibles and coinsurance. These benefits are funded monthly
through the payment of group health insurance premiums.
The actuarially calculated components of net periodic post
retirement health care benefit cost for the defined benefit plan
in fiscal years 1998, 1997 and 1996 are as follows (in
thousands):
1998 1997 1996
Interest cost on projected
benefit obligation $1,219 $1,214 $1,180
Net amortization of gain (305) (336)
(276)
Net period postretirement benefit
cost 914 878 904
Current year plan contributions $1,185 $1,118 $1,274
Because 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.
The weighted average discount rates for fiscal years 1998, 1997
and 1996 were 7.0%, 7.0% and 6.5%, respectively. The weighted
average 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 was 6.0% for fiscal year 1998. The rate of increase
used in fiscal 1997 and 1996 was 8% grading down to 5% over 20
years. Retirement health care plan gains or losses exceeding 10%
of the benefit obligation are amortized over the beneficiaries
average remaining life expectancy. The health care cost trend
rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated post
retirement health benefit obligation as of March 29, 1998 by $1.2
million and the interest cost component of net periodic post
retirement benefit cost for 1998 by $0.1 million.
The following table sets forth the amounts recognized in the
Company's consolidated balance sheet at March 29, 1998 and March
30, 1997 for the post retirement health benefit obligation (in
thousands):
1998 1997
Accumulated post retirement health benefit
obligation $14,580 $18,000
Plan assets - -
Accumulated post retirement health benefit
obligation in excess of plan assets 14,580 18,000
Unrecognized net gain 8,302 5,153
Accrued post retirement health benefits 22,882 23,153
Less estimated current portion of obligations
classified as accrued expenses 1,265 1,116
Long-term portion of accrued post retirement
health benefits $21,617 $22,037
7. INCOME TAXES
The provision for income taxes differs from the amount of tax
determined by applying the federal statutory rate for the
following reasons (in thousands):
1998 1997 1996
Tax provision (benefit) at
federal statutory tax rate $ 2,319 $(7,439) $ 1,446
Increase (decrease) in valuation
allowance (4,224) 7,501 (829)
Expired Business Credits 1,870 - -
Net Operating Loss Carryback (1,477) - -
Tax effect of adjustment of
contingent liabilities (56) (291) (541)
Other - net 91 229 (76)
$(1,477) $ - $ -
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred income tax assets and liabilities at March 29, 1998,
March 30, 1997 and March 31, 1996 were as follows (in thousands):
1998 1997 1996
Deferred income tax assets:
Business credit carryforwards $5,391 $7,261 $7,269
Net operating loss carryforwards 720 5,878 -
Alternative minimum tax credit
carryforwards 3,319 3,091 2,874
Accrued employee benefits 9,031 9,031 9,214
Environmental reserve 4,344 4,226 2,490
Contract deferrals - 1,062 1,115
Deferred gain on sale of facility 548 575 601
Securities available-for-sale - - -
Reserve for doubtful accounts 231 301 179
Other 873 202 1,087
Total deferred income tax assets 24,457 31,627 24,829
Valuation reserve for deferred
tax assets (11,674) (19,923) (13,872)
Net deferred tax assets 12,783 11,704 10,957
Deferred income tax liabilities:
Deferred pension income 7,625 6,847 6,020
Accelerated depreciation 3,329 4,036 4,739
Securities available-for-sale 1,009 739 124
Contract deferrals 642 - -
Other 178 82 74
Total deferred income tax liabilities 12,783 11,704 10,957
Net deferred taxes $ - $ - $ -
The Company records its deferred tax assets on the balance sheet
net of a valuation reserve due to the lack of reasonable
assurance that they will be realized.
The Company had, for federal income tax purposes, net operating
loss carryforwards of $.7 million at March 29, 1998 and $5.9
million at March 30, 1997. In addition, the Company had tax
credit carryforwards of $5.4 million at March 29, 1998, and $7.3
million at March 30, 1997 and March 31, 1996. If not utilized,
the net operating loss carryforwards will expire in fiscal year
2012 and the tax credit carryforwards will expire in fiscal years
1999 through 2001.
In addition, the Company has paid approximately $3.3 million of
alternative minimum taxes on alternative minimum taxable income
from fiscal years 1988 through 1992, which will be allowed as a
credit carryforward against regular federal income taxes in
future years in the event regular federal income taxes exceed the
alternative minimum tax.
8. LEASES
Operating lease payments charged to expense were $1.1 million,
$1.0 million, and $.9 million for fiscal years 1998, 1997 and
1996, respectively. Certain leases contain renewal options and
escalation clauses. Minimum lease commitments at March 29, 1998
are summarized below (in thousands):
Operating
Leases
1999 $ 190
2000 185
2001 180
2002 73
2003 73
Thereafter 364
Total minimum lease commitments $ 1,065
9. 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, employee relations, union
proceedings, environmental protection and Government procurement
regulations. Only a portion of these risks and legal proceedings
involving the Company are covered by insurance, because the
availability and coverage of such insurance generally has
declined or the cost has become prohibitive.
10. FINANCING ARRANGEMENTS
Todd Pacific utilizes an annually renewable $3.0 million
revolving credit facility secured by a first lien on certain
trade receivables. Outstanding borrowings under the credit
facility may not exceed certain percentages of Todd Pacific's
trade receivables. As of March 29, 1998 Todd Pacific had
outstanding borrowings against the line of credit in the amount
of $1.1 million, at an interest rate of 9.1%, and is reported in
Accounts Payable and Accruals on the Balance Sheet. The loan
agreement contains certain restrictive covenants including the
maintenance of certain minimum financial ratios. Todd Pacific
was out of compliance with certain ratio at March 29, 1998.
However, Todd Pacific has obtained a waiver. The Company had no
borrowings outstanding against the line of credit as of March 30,
1997.
11. ENVIRONMENTAL MATTERS
The Company faces potential liabilities in connection with the
alleged presence of hazardous waste materials at certain of its
closed shipyards, at the Shipyard and at several sites used by
the Company for disposal of alleged hazardous waste. The Company
continues to analyze environmental matters and associated
liabilities for which it may be responsible. No assurance can be
given as to the existence or extent of any environmental
liabilities until such analysis has been completed. The eventual
outcome of all environmental matters cannot be determined at this
time, however, the analysis of some matters have progressed
sufficiently to warrant establishment of reserve provisions in
the accompanying consolidated financial statements.
Harbor Island Site
The Company and several other parties have been named as
potentially responsible parties ("PRPs") by the Environmental
Protection Agency (the "EPA") pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"
also known as "Superfund") in connection with the documented
release or threatened release of hazardous substances, pollutants
and contaminants at the Harbor Island Superfund Site (the "Harbor
Island Site"), upon which the Shipyard is located.
To date, the EPA has separated the Harbor Island Site into three
operable units that involve the Company: the Soil and Groundwater
Operable Unit (the "Soil Unit"), the Shipyard Sediments Operable
Unit (the "SSOU") and the Sediments Operable Unit (the "SOU").
The Company, along with a number of other Harbor Island PRPs,
received a Special Notice Letter from the EPA on May 4, 1994
pursuant to section 122 (e) of CERCLA. The Company entered into
a Consent Decree for the Soil Unit in September 1994 under which
the Company has agreed to remediate the designated contamination
on its property. That remediation is anticipated to begin in
1999. The Company and EPA currently are negotiating the extent
and methodology of that remediation. The duration of the Soil
Unit remediation is expected to be approximately 12 to 24 months
from the start date. The Company has accrued the EPA's estimate
of the cost of the Soil Unit clean-up in its below stated
environmental matters reserves.
During the quarter ended December 29, 1996, the EPA issued its
Record of Decision ("ROD") for the SSOU. The ROD identifies four
alternative clean-up remedies and specifies the EPA's selected
solution (the "Selected Solution"). The Selected Solution
requires sediment dredging, and installation of a clean sediment
cap and various monitoring efforts extending over ten years. The
Selected Solution includes dredging and disposal of approximately
116,000 cubic yards of material currently in the Duwamish River
and Elliott Bay surrounding the Shipyard. The Selected Solution
allows for two sediment disposal options: confined nearshore
disposal ("CND") and confined aquatic disposal. The Company
identified CND as its preferred disposal method if the Selected
Solution is implemented. In that regard, the Company has
initiated independent studies to estimate costs of a CND effort.
The EPA estimates the Company's portion of the remedial cost for
the Selected Solution including long term monitoring and
maintenance between $5.5 million and $7.9 million. The low end
of the EPA's estimated range reflects the Company's independent
cost estimate for CND of sediments on Company-owned property. The
high end of the EPA range reflects the average CND cost of other
Puget Sound CND dredging projects.
The estimated range does not include the cost of any potential
under-pier dredging or capping, should any be required. The
potential scope and costs of under-pier dredging and capping
remedies are currently indeterminable as the necessity and
magnitude of such efforts is strongly dependent on site-specific
conditions. The Company believes that the timing and the
eventual cost of the SSOU clean up will remain significantly
uncertain until a remedial design has been finalized with the EPA
that identifies the scope of remediation and the method of
sediment disposal. The Company has accrued an amount equal to
the high end of the EPA's estimated range, as the reasonably
expected cost of the SSOU clean-up in its below stated
environmental matters reserves. The Company entered into an
Order of Consent with the EPA covering solely the additional
sampling necessary for any remedial design. The proposed Order
of Consent does not include the remedial design itself.
In January 1998, the Company was notified by the EPA that testing
would be required in the West Waterway of the Duwamish River
outside the boundaries of the SSOU as part of the SOU. The
Company in May 1998 entered into an Order of Consent to perform
certain limited testing as part of the SOU investigation. The
testing is scheduled to take place during Summer 1998.
In January 1990, the Company was notified that it was a PRP in an
action brought by the National Oceanic and Atmospheric
Administration ("NOAA") for alleged damages caused to the coastal
and marine natural resources in the Duwamish River and Elliott
Bay off the Harbor Island Site. Subsequent to this notification,
NOAA brought suit against the City of Seattle and the
Governmental agency responsible for sewage treatment in the
Seattle area ("Metro") for their contributions of hazardous
materials to the Duwamish River and Elliott Bay. This litigation
was settled between the parties. While NOAA, the City of Seattle
and Metro retain the right to bring suit against all the other
named PRPs, including the Company, the Company has not been
contacted since the January 1990 notification. The Company does
not know the scope of the alleged damages caused to the coastal
and marine natural resources or the methods of measuring these
alleged damages. For these reasons, the Company does not believe
that any estimate of any potential liability relating to these
actions can be made at this time.
Other Environmental Matters
The Company entered into a Consent Decree with the EPA for the
clean up of the Casmalia Resources Hazardous Waste Management
Facility in Santa Barbara County, California under the Resource
Conservation and Recovery Act. The Company has included an
estimate of the potential liability for this site in its below
stated reserves. Payments, expected to be immaterial, began in
fiscal year 1997 and will extend for up to ten years.
In June 1989, the Company was notified by the City of Hoboken,
New Jersey (the "City") that a volume of oil had been discovered
on the surface of the property that had been owned and operated
as the Hoboken Division of the Company. In June 1992, the City
and the Company were named as PRPs by the State of New Jersey
(the "State"). The City has undertaken a clean-up of the
property. The State has issued a Notice of Violation against the
Company pursuant to the New Jersey Spill Act ("Spill Act"). The
City and the State allege that the Company abandoned three
underground storage tanks in 1969 when the property was sold to
the City and that the discovered surface oil spilled from those
tanks. In April 1994 the City of Hoboken initiated a civil
action against the Company entitled City of Hoboken v. Todd et
al. for contribution under the Spill Act seeking reimbursement
for all monies expended for the cleanup of the Hoboken property.
Also named in the suit is the developer who allegedly trespassed
onto the property and caused the oil spill and several insurance
companies who allegedly issued comprehensive general liability
insurance policies in favor of the City of Hoboken covering the
property. The Company is vigorously defending this action. The
Company has included an estimate of the potential liability for
the site in its below stated reserves. The trial date for this
case is anticipated for Spring of calendar year 1999.
Todd Pacific was notified by the California Environmental
Protection Agency that it may be considered a PRP for the cleanup
of the Omega Chemical Corporation site ("Omega Site") in
Whittier, California in September of 1994. It is alleged that
the Los Angeles Division of Todd Pacific caused certain
production wastes and by-products to be transported to this
hazardous waste treatment and storage facility between 1976 and
1991. The California Department of Toxic Substances Control is
pursuing the clean up of the Omega Site pursuant to state and
federal regulations. The Company has included an estimate of the
potential liability for the site in its below stated reserves.
In November 1987, the Company was identified as a PRP by the EPA
in conjunction with the cleanup of the Operating Industries, Inc.
("OII") hazardous materials disposal site at Monterey Park,
California. In September 1995, the Company entered into a
Partial Consent Decree with the EPA to contribute $.6 million as
its partial share of remediation costs at the OII site which
encompasses all costs assessed to date. Payment was made to the
EPA in July 1996. A proposed final consent decree for site
remediation is not expected from the EPA until late calendar year
1998. The cost of the partial settlement and future final
consent decree settlement is included in the below stated
reserve.
During its fiscal year 1998, the Company was required by
Washington state environmental regulations to take action in
order to determine all known, available and reasonable methods of
prevention, control, and treatment ("AKART") for storm water
discharges from its shipyard. In accordance with its National
Pollution Discharge Elimination System permit, the Company
submitted its revised AKART analysis to the Washington State
Department of Ecology in May 1998. Potential future expense when
quantifiable shall be recognized in the period incurred.
The Company has been named as a defendant in civil actions by
parties alleging damages from past exposure to toxic substances,
generally asbestos, at closed former Company facilities. These
cases are generally filed with multiple claimants and multiple
defendants and are generally insured matters. In certain
jurisdictions, the laws are structured to allow the heirs of
former employees to sue for gross negligence and to seek punitive
damages in addition to compensatory awards. The Company is not
fully insured for these matters. Costs to date to administer and
settle these cases have not been material. Estimation of
eventual potential liability, if material, is not possible as the
Company has no means to quantify the number of potential cases,
the timing of such cases, the jurisdiction or what judgments or
settlements, if any, would result. The Company and its insurers
are vigorously defending these actions. The Company has included
its current estimate of the potential liability for known issues
in its below stated reserves.
During fiscal year 1997, the Company recognized a $4.3 million
charge against earnings that includes $7.9 million for
anticipated costs associated with the Company's portion of the
Selected Solution, a decrease to the Soil Unit reserve and
adjustments to other environmental matters. The Company has also
reclassified a previously established $1.0 million siltation
dredging reserve to the Selected Solution reserve as the efforts
will be performed concurrently. These adjustments increase the
Company's environmental reserves for the entire Harbor Island
Site to $11.1 million. The Company has provided total aggregate
reserves of $16.1 million for the above described contingent
environmental liabilities. The Company is negotiating with its
insurance carriers and prior landowners and operators for past
and future remediation costs. The Company has recorded a non-
current asset of $3.7 million to reflect a contractual
arrangement with an insurance company to share costs for certain
environmental matters. In addition, the Company reached an
agreement in fiscal year 1998 with an insurance company regarding
the carrier's obligation for property damage occurring in
previous fiscal years. This settlement contributed $6.1 million
to operating income for fiscal year 1998. No assurance can be
given that the Company's reserves are adequate to cover all
potential environmental costs the Company could incur.
12. COLLECTIVE BARGAINING AGREEMENT
During fiscal year 1998, the Company and the Puget Sound Metal
Trades Council (representing the Pacific Coast Metal Trades
District Council and its member unions) submitted their final
collective bargaining contract positions to binding arbitration
in accordance with the provisions set forth in the Mark II Ferry
project agreement in force between the parties. Subsequent to
and in keeping with the arbitrator's ruling, the parties executed
a new labor agreement effective November 24, 1997. Prior to the
arbitration process, the Company had reached unanimous agreement
with the bargaining representatives of the workforce on three
separate occasions. However, on each occasion, the agreement was
rejected by the Todd workforce. The new collective bargaining
agreement will terminate on July 31, 1999 and replaces the
previous contract which expired on July 31, 1996. Among other
things, the new labor agreement provided for a retroactive pay
adjustment of $0.60 per hour for qualifying employees and the
impact of this increase has been reflected in the fiscal 1998
year end results.
As a result of the binding arbitration process, on February 17,
1998, the Puget Sound Metal Trades Council (bargaining umbrella
for all unions at Todd Pacific) and Todd Pacific were sued in
Federal District Court for the Western District of Washington by
in excess of 200 employees contending that the collective
bargaining agreement entered into by Todd Pacific and the various
unions representing these employees had not been properly
ratified by the union membership. The lawsuit seeks a
declaratory judgment that the collective bargaining agreement be
found null and void. If plaintiffs were to prevail in this case,
Todd Pacific and its unions would have to engage in bargaining
for a new collective bargaining agreement. It is too early in
the case to provide an estimate of the likelihood of a favorable
or unfavorable result in this case.
Over the past two fiscal years, the Company has invested heavily
in its labor relations efforts including the establishment of
labor/management committees and conflict resolution education for
all parties.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter for the fiscal years ended March 29,
1998 and March 30, 1997 are as follows. Each quarter is 13 weeks
in length (in thousands):
Net
Income
Operating Net (loss)
income income Per Share
Revenues (loss) (loss) Diluted
1st Qtr 1998 $ 33,462 $ (3,066) $ (2,401) $ (0.24)
2nd Qtr 1998 28,042 559 918 0.09
3rd Qtr 1998 27,177 1,480 3,016 0.30
4th Qtr 1998 20,856 4,224 6,570 0.67
1st Qtr 1997 30,231 (2,528) 31 0.00
2nd Qtr 1997 26,627 (2,240) (1,643) (0.17)
3rd Qtr 1997 27,215 (5,873) (5,067) (0.51)
4th Qtr 1997 $ 30,325 $(15,151) $(14,574) $ (1.47)
The first, third, and fourth quarters of fiscal year 1998 reflect
$3.0 million, $1.5 million, and $2.0 million additions
respectively to the loss reserve established for the Mark II
Ferry project. In addition, the fourth quarter of fiscal year
1998 reflects an insurance settlement of $6.1 million and a
federal income tax refund of $1.5 million.
The third quarter of fiscal year 1997 includes a $4.3 million
environmental provision. The fourth quarter of fiscal year 1997
reflects a $11.5 million loss reserve established for the Mark II
Ferry project and the reversal of $2.4 million of previously
recognized Mark II Ferry profit.
14. Income (loss) per share
The following table sets forth the computation of basic and
diluted income (loss) per share:
March 29, March 30, March 31,
1998 1997 1996
(in thousands, except per share amount)
Numerator:
Numerator for basic and diluted
income (loss ) per share
net income (loss) $ 8,103 $(21,253) $4,132
Denominator:
Denominator for basic income per
share - weighted average
common shares 9,910 9,910 9,925
Effect of dilutive securities:
Stock options based
on the treasury stock method using
average market price 9 - 66
Convertible preferred stock - - -
Denominator for diluted income per share 9,919 9,910 9,991
Basic income (loss) per share $ 0.82 $(2.14) $ 0.42
Diluted income (loss) per share $ 0.82 $(2.14) $ 0.41
15. Sale of Elettra Assets.
The radio stations operated by Elettra Broadcasting, Inc., were
sold on October 9, 1997 for $5.3 million, resulting in a $1.0
million gain in fiscal year 1998.
16. Stock Based Compensation
The Company's Incentive Stock Compensation Plan (the "Plan")
provides for the granting of incentive stock options, non-
qualified stock options, and restricted stock or any combination
of such grants to directors, officers and key employees of the
Company to purchase shares of the Class A Common Stock of the
Company. An aggregate of 500,000 shares of common stock has been
authorized for issuance under the Plan. Options issued under the
Plan vest ratably over three years and expire not more than ten
years from the date of grant and are granted at prices equal to
the fair value on the date of grant. There were 160,000 options
available for future grant under the Plan at March 29, 1998.
A summary of stock option transactions for the years ended March
29, 1998, March 30, 1997, and March 31, 1996 is as follows:
Number Option Price
of Shares Per Share
Outstanding, April 2, 1995 210,000 $4.25 to $4.50
Granted 100,000 6.00
Outstanding, March 31, 1996 310,000 4.25 to 6.00
Forfeited (25,000) 6.00
Outstanding, March 30, 1997 285,000 4.25 to 6.00
Granted 55,000 4.38 to 4.56
Outstanding, March 29, 1998 340,000 4.25 to 6.00
Exercisable, March 29, 1998 266,664 $4.25 to $6.00
As described in Note 1, the Company has elected to account for
stock-based compensation expense in accordance with APB 25.
Accordingly, no compensation expense has been recognized for
stock-based compensation since the grant price equaled the
estimated fair value of the stock on the date of grant. Applying
the fair value methodology of Statement No. 123 to the Company's
stock option plans results in net income which is not materially
different from amounts reported.
Todd Shipyards Corporation
Schedule II - Valuation and Qualifying Reserves
For years ending March 29, 1998, March 30, 1997 and March 31,
1996
(in thousands)
Reserves deducted from assets to which they apply - Allowance for
doubtful accounts:
Year Year Year
ended ended ended
March 29, March 30, March
31,
1998 1997 1996
Balance at beginning of period $ 861 $ 511 $ 548
Charged to costs and expenses - 350 68
Deductions from reserves (1) (199) - (105)
Balance at close of period $ 662 $ 861 $ 511
Notes:
(1) Deductions from reserves represent uncollectible accounts
written off less recoveries
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, and
is incorporated by reference to, the 1998 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 filed no reports on Form 8-K during the fourth
quarter ended March 29, 1998.
TODD SHIPYARDS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
Report of Ernst & Young LLP Independent Auditors............... *
Consolidated Balance Sheets at March 29, 1998
and March 30, 1997........................................... *
Consolidated Statements of Operations
For the years ended March 29, 1998,
March 30, 1997 and March 31, 1996............................. *
Consolidated Statements of Cash Flows
For the years ended March 29, 1998,
March 30, 1997 and March 31, 1996............................. *
Consolidated Statements of Stockholders Equity
For the years ended March 29, 1998,
March 30, 1997 and March 31, 1996............................. *
Notes to Consolidated Financial Statements
For the years ended March 29, 1998,
March 30, 1997 and March 31, 1996............................. *
Supplementary Information:
Quarterly Financial Data (unaudited)......................... *
Consolidated Financial Statement Schedule:
II-Valuation and Qualifying Reserves......................... *
* No page numbers are included in EDGAR version.
TODD SHIPYARDS CORPORATION INDEX TO EXHIBITS
Item 14(a)3
Exhibit
Number
3-1 Certificate of Incorporation of the Company *
dated November 29, 1990 filed in the Company's
Form 10-K Report for 1997 as 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 YFD-70 dated *
April 16, 1996 between the Company and NAVSEA,
filed in the Company's Form 10-K Report for 1996
as Exhibit 10-1.
10-2 Lease Agreement of floating drydock YFD-54 dated *
April 1, 1987 between the Company and NAVSEA and
amendments thereto filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-2.
10-3 Collective Bargaining Agreement between Todd #
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 November 24, 1997.
10-4 Project Agreement between Todd 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 August
1994 filed in the Company's Form 10-K Report for
1995 as Exhibit 10-4.
10-5 Unsigned executed copy of Harbor Area Lease *
Agreement No. HA-2202 dated March 21, 1985 between
the Company and the State of Washington Dept. of
Natural Resources filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-5.
10-6 Harbor Area Lease Agreement No. 2590 dated *
December 13, 1982 between the Company and the State
of Washington Dept. of Natural Resources filed in the
Company's Form 10-K Report for 1995 as Exhibit 10-6.
10-7 Harbor Area Lease Agreement No. 22-090038 dated *
September 1, 1986 between the Company and the State
of Washington Dept. of Natural Resources filed in the
Company's Form 10-K Report for 1995 as Exhibit 10-7.
10-8 Harbor Area Lease Agreement No. 22-090039 dated *
September 1, 1986 between the Company and the State
of Washington Dept. of Natural Resources filed in the
Company's Form 10-K Report for 1995 as Exhibit 10-8.
10-9 Savings Investment Plan of the Company effective *
April 1, 1989 filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-9.
10-10 Todd Shipyards Corporation Retirement System Plan *
and Amendments thereto filed in the Company's Form
10-K Report for 1995 as Exhibit 10-10.
10-13 Purchase and Sale Agreement and Deed of Trust *
relating to the sale of the Company's Galveston
facility to the Galveston Wharves dated December
16, 1993 filed in the Company's Form 10-K
Annual Report for 1994 as Exhibit 10-14.
10-14 Employment contract between Todd Pacific and Roland *
H. Webb dated December 27, 1994 filed in the Company's
Form 10-K Report for 1995 as Exhibit 10-14.
10-14(a) Amendment to employment contract between Todd Pacific #
and Roland H. Webb dated December 17, 1997.
10-15 Contract between Todd Pacific and the Washington *
State Ferries, a division of the Washington State
Department of Transportation for the construction of
one Jumbo Mark II Class Ferry dated January 30, 1995
filed in the Company's Form 10-K Report for 1995 as
Exhibit 10-15.
10-15(a) Change Order Estimate from the Washington State *
Ferries, amending Exhibit 10-15 and exercising its
Option for the construction of the second and third
Jumbo Mark II Class Ferries dated June 14, 1995,
filed in the Company's Form 10-K Report for 1996
as Exhibit 10-15(a).
10-16 Contract No. N000024-91-C-8503 between Todd Pacific *
and the Department of the Navy for the maintenance
and repair of supply ships filed in the Company's Form
10-K Report for 1995 as Exhibit 10-16.
10-16(a) Contract No. N000024-96-R-8500 between Todd Pacific *
and the Department of the Navy for the maintenance
and repair of supply ships dated May 20, 1996 filed in
the Company's Form 10-K Report for 1997 as Exhibit 10-
16(a).
10-17 Documents pertaining to the bonding arrangements of *
Todd Pacific relating to the Ferry Contract (Exhibit
10-16): Underwriting and Continuing Indemnity Agreement,
Security Agreement, Pledge Agreement, Intercompany
Credit Agreement, Preferred Mortgage of vessel
EMERALD SEA, UCC-1 Financing Statement, and UCC-2
Fixture Statement filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-17.
10-18 Documents pertaining to revolving line of credit *
agreement between Todd Pacific and U.S. Bank of
Washington, National Association: Security Agreement,
Commercial Guaranties, Corporate Resolution to Borrow,
Corporate Resolutions to Guaranty/Grant Collateral,
Business Loan Agreement, Disbursement Request and
Authorization Agreement, Accounts Receivable Collateral
Parameters Agreement, Promissory Note, and UCC-1
Financing Agreement filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-18.
10-19 Todd Shipyards Corporation Incentive Stock *
Compensation Plan effective October 1, 1993, approved
by the shareholders of the Company at the 1994 Annual
Meeting of Shareholders filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-19.
10-20 Grant of Nonqualified Stock Option dated *
June 24, 1994 to Patrick W.E. Hodgson pursuant
to the Incentive Stock Compensation Plan
(Exhibit 10-19) filed in the Company's Form 10-K
Report for 1995 as Exhibit 10-20.
10-21 Grant of Incentive Stock Option dated June 24, 1994 *
to Roland H. Webb pursuant to the Incentive
Stock Compensation Plan (Exhibit 10-19) filed in the
Company's Form 10-K Report for 1995 as Exhibit 10-21.
10-22 Grant of Incentive Stock Option dated September 29, *
1994 to Stephen G. Welch pursuant to the Incentive
Stock Compensation Plan (Exhibit 10-19) filed in the
Company's Form 10-K Report for 1995 as Exhibit 10-22.
10-23 Grant of Incentive Stock Option dated September 29, *
1994 to Michael G. Marsh pursuant to the Incentive
Stock Compensation Plan (Exhibit 10-19) filed in the
Company's Form 10-K Report for 1995 as Exhibit 10-23.
10-25 Form of Grant of Non-Qualified Stock Options dated *
July 17, 1995 to Patrick W.E. Hodgson pursuant
to the Incentive Stock Compensation Plan
(Exhibit 10-19).
10-26 Form of Grant of Incentive Stock Options dated *
July 17, 1995 to certain key employees pursuant to
the Incentive Stock Compensation Plan (Exhibit 10-19).
10-27 Employment contract between the Company and Stephen G. #
Welch dated September 30, 1997.
18-1 Letter dated 8/17/94 from Ernst & Young, LLP *
regarding changes in accounting principles, filed in
the Company's Form 10-K for 1996 as Exhibit 18-1.
22-1 Subsidiaries of the Company. #
27 Financial Data Schedule. #
Note: All Exhibits are in SEC File Number 1-5109.
* Incorporated herein by reference.
# Filed herewith.
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/ Scott H. Wiscomb
Scott H. Wiscomb
Chief Financial Officer,
Principal Financial Officer,
Principal Accounting Officer,
and Treasurer
June 12, 1998
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 12, 1998 June 12, 1998
/s/ Patrick W.E. Hodgson /s/ Joseph D. Lehrer
Patrick W.E. Hodgson, Joseph D. Lehrer, Director
Chairman, June 12, 1998
and Director
June 12, 1998
/s/ Philip N. Robinson /s/ John D. Weil
Philip N. Robinson, Director John D. Weil, Director
June 12, 1998 June 12, 1998
/s/ Stephen G. Welch
Stephen G. Welch
Chief Executive Officer
June 12, 1998