-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EipJguw9n8E+GRnv084x61E+Rv4pvx1JVI+dp7U9l3XfADLtO1hgY0eupaWSIrIs fzmSK/X82TbBrvOUVcNbzA== 0000098537-99-000011.txt : 19991108 0000098537-99-000011.hdr.sgml : 19991108 ACCESSION NUMBER: 0000098537-99-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TODD SHIPYARDS CORP CENTRAL INDEX KEY: 0000098537 STANDARD INDUSTRIAL CLASSIFICATION: SHIP & BOAT BUILDING & REPAIRING [3730] IRS NUMBER: 911506719 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05109 FILM NUMBER: 99741408 BUSINESS ADDRESS: STREET 1: 1801 16TH AVE S W CITY: SEATTLE STATE: WA ZIP: 98134 BUSINESS PHONE: 2066231635 MAIL ADDRESS: STREET 1: P O BOX 3806 CITY: SEATTLE STATE: WA ZIP: 98124 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended October 3, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____ Commission File Number 1-5109 TODD SHIPYARDS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 91-1506719 (State or other jurisdiction of (IRS Employer I.D. No.) incorporation or organization) 1801- 16th AVENUE SW, SEATTLE, WASHINGTON 98134-1089 (Street address of principal executive offices - Zip Code) Registrant's telephone number: (206) 623-1635 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] There were 9,701,480 shares of the corporation's $.01 par value common stock outstanding at October 3, 1999. PART I - FINANCIAL INFORMATION "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements contained in this Report which are not historical facts or information are "forward-looking statements." Words such as "believe," "expect," "intend," "will," "should," and other expressions that indicate future events and trends identify such forward-looking statements. These forward-looking statements involve risks and uncertainties which could cause the outcome to be materially different than stated. Such risks and uncertainties include both general economic risks and uncertainties and matters discussed in the Company's annual report on Form 10-K which relate directly to the Company's operations and properties. The Company cautions that any forward-looking statement reflects only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove to be inaccurate or incomplete. The Company undertakes no obligation to update any forward- looking statement to reflect events or circumstances after the date on which the statement was made. ITEM 1. FINANCIAL STATEMENTS TODD SHIPYARDS CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (in thousands of dollars, except per share data) Quarter Ended Six Months Ended 10/03/99 9/27/98 10/03/99 9/27/98 Revenues $33,136 $19,485 $62,883 $46,481 Operating expenses: Cost of revenue 25,174 16,811 47,154 38,401 Administrative and manufacturing overhead expense 6,687 5,525 14,188 13,510 Contract reserve (785) (2,795) (1,778) (4,412) Total operating expenses 31,076 19,541 59,564 47,499 Operating income (loss) 2,060 (56) 3,319 (1,018) Investment and other income 658 170 1,110 820 Gain on sale of available for sale security - 315 126 315 Income before income taxes 2,718 429 4,555 117 Income tax expense 40 - 80 - Net income $2,678 $ 429 $ 4,475 $ 117 Basic EPS $ 0.28 $ 0.04 $ 0.46 $ 0.01 Diluted EPS $ 0.27 $ 0.04 $ 0.45 $ 0.01 Retained earnings at beginning of period $44,383 $27,817 $42,586 $28,129 Income for the period 2,678 429 4,475 117 Retained earnings at end of period $47,061 $28,246 $47,061 $28,246 The accompanying notes are an integral part of this statement. TODD SHIPYARDS CORPORATION CONSOLIDATED BALANCE SHEETS Periods Ended October 3, 1999 and March 28, 1999 (in thousands of dollars) 10/03/99 03/28/99 ASSETS: (Unaudited)(Audited) Cash and cash equivalents $5,759 $ 12,332 Restricted cash 2,860 5,507 Securities available for sale 45,201 23,823 Accounts receivable, less allowance for losses of $184 at October 3, 1999 and $184 at March 28, 1999: Government 6,054 2,977 Commercial and other 3,812 30,371 Costs and estimated profits in excess of billings on incomplete contracts 10,439 2,819 Inventories 2,233 2,270 Other 429 717 Total current assets 76,787 80,816 Property, plant and equipment, net of accumulated depreciation 17,900 19,026 Deferred pension asset 25,982 24,782 Other 4,862 4,832 Total assets $125,531 $129,456 LIABILITIES: Accounts payable and accruals $ 8,587 $ 7,849 Accrual for loss on contract 361 2,138 Payrolls and vacations 3,759 3,807 Income taxes 1,335 3,695 Billings in excess of costs and estimated profits on incomplete contracts 1,856 4,423 Taxes other than income taxes 1,022 1,348 Total current liabilities 16,920 23,260 Accrued post retirement health benefits 20,392 20,692 Environmental reserves 14,122 14,416 Total liabilities 51,434 58,368 STOCKHOLDERS' EQUITY: Common stock, $.01 par value - authorized 19,500,000 shares, issued 11,956,026 shares at October 3, 1999 and March 28, 1999, and outstanding 9,701,480 at October 3, 1999 and 9,910,180 at March 28, 1999 120 120 Additional paid-in capital 38,145 38,181 Retained earnings 47,061 42,586 Accumulated other comprehensive income 268 (182) Treasury stock (11,114) (9,617) Notes receivable from officers for common stock (383) - Total stockholders' equity 74,097 71,088 Total liabilities and stockholders' equity $125,531 $129,456 The accompanying notes are an integral part of this statement. TODD SHIPYARDS CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Month Periods Ended October 3, 1999 and September 27, 1998 (in thousands of dollars) Period Ended 10/03/99 9/27/98 Cash flows from operating activities: Net income $ 4,475 $ 117 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,412 1,474 Decrease (increase) in costs and estimated profits in excess of billings (7,620) 2,900 Contract reserve activity (1,777) (4,412) Decrease in accounts receivable 23,482 234 Increase (decrease) in accounts payable and accruals 690 (3,967) Increase in deferred pension asset (1,200) (668) Decrease in income taxes (2,360) (305) Decrease in other current assets 288 144 Decrease in environmental reserves (294) (169) Other, net (3,186) 2,533 Total adjustments 9,435 (2,236) Net cash generated (used) in operating activities 13,910 (2,119) Cash flows from investing activities: Purchases of marketable securities (26,973) (7,224) Sales of marketable securities 3,978 7,357 Maturities of marketable securities 2,000 1,500 Capital expenditures (286) (77) Other 67 (100) Net cash provided (used) by investing activities (21,214) 1,456 Cash flows from financing activities: Decrease in restricted cash 2,647 2,050 Purchase of treasury stock (1,916) - Net cash provided by financing activities 731 2,050 Net change in cash and cash equivalents (6,573) 1,387 Cash and cash equivalents at beginning of period 12,332 5,317 Cash and cash equivalents at end of period 5,759 6,704 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest 15 94 Income taxes $ 2,440 $ - Noncash investing and financing activities: Re-issue of treasure stock in exchange for notes rececivable 383 - The accompanying notes are an integral part of this statement. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Todd Shipyards Corporation (the "Company") filed its Consolidated Financial Statements for the fiscal year ended March 28, 1999 with the Securities and Exchange Commission on Form 10-K. That report should be read in connection with this Form 10-Q. 1. BASIS OF PRESENTATION The Company's policy is to end its fiscal year on the Sunday nearest March 31. In accordance with this policy, the Company's fiscal year 2000 will end on April 2, 2000, and include 53 weeks. Accordingly, the Company's quarter ending 10/3/99 contains 14 weeks. The accompanying Consolidated Financial Statements are unaudited but in the opinion of management reflect all adjustments necessary for a fair presentation of the Company's financial position and results of operations in accordance with generally accepted accounting principles applied on a consistent basis. 2. CONTRACTS Mark II Ferry Contract During the first quarter of this fiscal year, the Company reached a mediated settlement (the "settlement") with the Washington State Ferry System (the "Ferry System") relating to costs incurred in constructing three Jumbo Mark II Ferries. Under terms of the settlement, Todd and the Ferry System agreed to increase the total 3 ship contract value to $205.5 million from its original value of $182.0 million. The $23.5 million contract price increase arises from unpriced engineering and production changes issued by the Ferry System during the construction of the Jumbo Mark II Ferries, which began in 1995. The Company recognized the settlement in fiscal year 1999. During the second quarter of fiscal year 2000, the Company collected all remaining Mark II Ferry contract receivables from the Ferry System (recorded at approximately $23.5 million on June 27, 1999), plus the release of restricted cash of approximately $2.9 million. With respect to the settlement, the only contractual obligation remaining for the Company on the Mark II Ferry project is to perform repair work that may arise during the balance of the warranty period on the third ferry, the MV Puyallup, which expires on December 28, 1999. As of October 3, 1999, the Company anticipates that the remaining warranty work will not have a material effect on the Company's financial condition or operating results during the remaining warranty period. However, the Company will review its reserve estimates during the balance of the warranty period and may revise its warranty reserves as needed. Power Barge Contract In the second quarter of fiscal year 1999, the Company commenced work on a new construction contract with an estimated price of approximately $20.0 million. The contract called for the construction of a floating electrical power plant (the "Margarita II"), 206 feet long and capable of developing 70 mega-watts of electricity. During the first quarter of fiscal year 2000, the Margarita II was delivered to its owner. To maintain production schedule deadlines and perform customer directed change orders, the Company experienced significant contract cost growth in both labor hours and material. However, agreement was not reached between the Company and the owner regarding the potential increase in the contract price, if any, to compensate for these changes. At the time of delivery, the Company claimed it was owed approximately $3.5 million for customer directed change orders. In accordance with the terms of the contract, sufficient funds were placed in an escrow trust account by the vessel's owner to secure the $3.5 million in non-negotiated customer directed change orders, as well as additional receivables owed the Company. During the second quarter of fiscal year 2000, the Company and the vessel owner negotiated approximately $0.4 million of customer directed change orders. The Company recognized the associated revenue from these changes during the quarter. In addition, the Company collected outstanding receivables that were held in escrow, at the time of delivery, that were not related to customer directed change orders. The Company does not currently anticipate that the remaining non-negotiated customer directed change orders will be resolved with the vessel owner without arbitration, which is provided under the terms of the contract. It is anticipated that a definitive arbitration schedule will be set during the Company's third quarter. Since the Company cannot reasonably predict the outcome of the arbitration with its customer, it has not included any estimates of possible recoveries in its contract revenue. Preservation Contract During the second quarter of fiscal year 2000 the Company was awarded a new overhaul contract with an estimated price of approximately $29 million. The contract calls for the overhaul of the Washington State Ferry, the MV Yakima. The project will begin in the Company's third quarter and is expected to be completed in approximately 15 months and employ an average of 150 workers. 3. INCOME TAXES The Company recognized $40,000 in income tax expense during the quarter ended October 3, 1999, after applying available business tax credits. During the first six month period then ended, the Company recognized $80,000 in income tax expense. During the same periods last fiscal year, the Company did not report net taxable income due to a net operating loss carryforward from fiscal year 1998. Accordingly, the Company did not recognize income tax expense during those periods. 4. ENVIRONMENTAL MATTERS As discussed in the Company's Form 10-K for fiscal year ended March 28, 1999, the Company faces significant potential liabilities in connection with the alleged presence of hazardous waste materials at certain of its closed shipyards, at its Seattle shipyard and at several sites used by the Company for disposal of alleged hazardous waste. The Company has been named as a defendant in civil actions by parties alleging damages from past exposure to toxic substances at Company facilities. Harbor Island Site As discussed further in the Company's Form 10-K for the year ending March 28, 1999, the Company and several other parties have been named as potential responsible parties by the Environmental Protection Agency ("EPA") pursuant to the Comprehensive Environmental, Response, Compensation, and Liability Act in connection with the documented release of hazardous substances, pollutants, and contaminants at the Harbor Island Superfund Site upon which the Seattle Shipyard is located. Other Environmental Matters The Company also is currently involved, together with other companies in some cases, in 12 other Superfund and Non-Superfund remediation sites and environmental legal issues. In certain instances, the Company's liability and proportionate share of costs have not been determined due to uncertainties as to the nature and extent of site conditions and the Company's involvement. Based on the Company's previous experience, its allocated share of multi- participant remediation sites has often been minimal, in certain instances less than 1 percent. The actual costs relating to environmental remediation and settlements will depend upon numerous factors, including the number of parties found liable at each environmental site, the method of remediation, outcome of negotiations with regulatory authorities, outcome of litigation, technological developments and changes in environmental laws and regulations. Todd Pacific was notified by the California Environmental Protection Agency that it may be considered a potentially responsible party for the cleanup of the Omega Chemical Corporation site ("Omega Site") in Whittier, California in September of 1994. It is alleged that the Los Angeles Division of Todd Pacific caused certain production wastes and by-products to be transported to this hazardous waste treatment and storage facility between 1976 and 1991. The California Department of Toxic Substances Control is pursuing the clean up of the Omega Site pursuant to state and federal regulations. The Company in the second quarter entered into a consent decree and settlement agreement with the agency to end its involvement with this site. The Company paid a cash amount, within the established reserve, as part of the settlement. The Company's financial statements as of October 3, 1999 reflect aggregate reserves for environmental matters of $14.1 million. The Company is negotiating with its insurance carriers and certain prior landowners and operators for past and future remediation costs. The Company has recorded a non-current asset of $2.7 million to reflect a contractual arrangement with an insurance company to share costs for certain environmental matters. No assurance can be given that the Company's reserves are adequate to cover all potential environmental costs the Company could incur. 5. SUPPLEMENTAL CASH FLOW DISCLOSURE During the quarter ending October 3, 1999, the Company paid $8,000 in interest and $110,000 in federal income tax. During the first six month period then ending, the Company paid $15,000 in interest and $2.4 million in federal income tax. For the quarter ending September 27, 1998, the Company paid $62,000 in interest. During the first six month period then ending, the Company paid $94,000 in interest. For the second quarter and first six month period ending September 27, 1998, the Company paid no federal income tax. 6. COMPREHENSIVE INCOME Comprehensive income was $2.8 million for the quarter ended October 3, 1999, which consisted of net income of $2.7 million and net unrealized gains on marketable securities of $0.1 million. For the six month period then ended, the Company reported comprehensive income of $5.0 million, which consisted of net income of $4.5 million and net unrealized gains on marketable securities of $0.5 million. During the same periods last fiscal year, the Company realized comprehensive losses of $1.3 million and $0.9 million, respectively. Comprehensive losses during these periods consisted of net income of $0.4 million and $0.1 million, respectively, and net unrealized losses on marketable securities of $1.7 million and $1.0 million, respectively. 7. TREASURY STOCK During the quarter ended October 3, 1999, the Company repurchased an aggregate of 278,700 shares of its Common Stock, for a consideration of $1.9 million, increasing the number of shares held as treasury stock to 2,339,546. On September 28, 1999, an aggregate of 85,000 shares of such treasury stock were reissued pursuant to the exercise of incentive stock options held by two officers of the Company. As permitted under the Company's Incentive Stock Plan in the discretion of the Compensation Committee of the Board of Directors, the consideration paid by the officers upon exercise of the options is in the form of secured full-recourse promissory notes in the aggregate amount of $382,500 bearing interest at 5.42% and due on September 28, 2001. The notes are reflected as deductions from shareholders' equity until paid. 8. EARNINGS PER SHARE Basic earnings per share are based upon the weighted average number of common shares outstanding during the interim period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the interim period plus the dilutive common equivalent shares applicable to the assumed exercise of outstanding stock options. Weighted average shares outstanding used in earnings per share computations were as follows: Quarter Ended Six Months Ended 10/3/99 9/27/98 10/3/99 9/27/98 Basic 9,726,880 9,910,180 9,811,030 9,910,180 Diluted 9,810,271 9,959,363 9,894,421 9,959,363 ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Notes to Consolidated Financial Statements are an integral part of Management's Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction herewith. OPERATING RESULTS All comparisons within the following discussion are with the corresponding periods in the previous year, unless otherwise stated. Revenue - The Company's second quarter revenue of $33.1 million reflects an increase of $13.6 million (70%) from last year's level of $19.5 million. This increase is primarily attributable to the Company's continued emphasis on commercial and government repair and overhaul activities. During the quarter, the Company's revenue from commerical and government repair and overhaul activities increased $16.8 million, while revenues from new construction activities decreased $3.2 million from the previously reported period last fiscal year. Revenue for the first half of fiscal year 2000 was $62.9 million which reflects an increase of $16.4 million (35%) from last year's level of $46.5 million. This increase is also attributable to the Company's commercial and government repair and overhaul activities. During the first six months of fiscal year 2000, the Company's revenues from repair and overhaul activities increased $24.9 million, while new construction activities decreased $8.5 million from the comparable prior year period. Cost of Revenue - Cost of revenue during the second quarter of fiscal year 2000 was $25.2 million, or 76% of revenue. Cost of revenue during the second quarter of fiscal year 1999 was $16.8 million, or 86% of revenue. Cost of revenue as a percentage of total revenue during the second quarter of fiscal year 2000 reflects improved margins on commercial and government repair and overhaul activities. The higher cost of revenue percentage reported during the second quarter of fiscal year 1999 reflects the lower margins experienced in completing the Jumbo Mark II Ferry project. Cost of revenue during the first six months of fiscal year 2000 was $47.2 million, or 75% of revenue. Cost of revenue during the second quarter of fiscal year 1999 was $38.4 million, or 83% of revenue. This reduction also reflects the improved margins on repair and overhaul activities and lower margins experienced last fiscal year in completing the Jumbo Mark II Ferry project. Administrative and manufacturing overhead expense - Overhead costs for administrative and manufacturing activities were $6.7 million, or 20% of revenue for the second quarter of fiscal year 2000 and $5.5 million, or 28% of revenue for the second quarter of fiscal year 1999. This percentage reduction in administrative and manufacturing overhead expense is the result of the Company's continued emphasis on productivity gains and overhead cost controls, as well as increased business volumes. Administrative and manufacturing overhead costs for the first six months of fiscal year 2000 were $14.2 million, or 23% of revenue. During the same period last fiscal year, administrative and manufacturing overhead costs were $13.5 million, or 29% of revenue. This percentage reduction in administrative and manufacturing overhead expense during the first six months of fiscal year 2000, reflects the Company's emphasis on productivity gains and overhead cost controls, as well as increased business volumes. Contract reserve activity - During the second quarter of fiscal year 2000 the Company utilized $0.8 million of previously recorded contract and warranty loss reserves associated with both the Jumbo Mark II and Power Barge contracts. During the second quarter of fiscal year 1999, the Company utilized $2.8 million in previously recorded Jumbo Mark II forward loss reserves. During the first six months of fiscal year 2000 the Company utilized $1.8 million of previously recorded contract and warranty loss reserves associated with both the Jumbo Mark II and Power Barge contracts. During the first six months of fiscal year 1999, the Company utilized $4.4 million in previously recorded Jumbo Mark II forward loss reserves. Investment and other income - Investment and other income for the second quarter of fiscal year 2000 was $0.7 million. During the first six months of fiscal year 2000 the Company recorded $1.1 million in investment and other income. Investment and other income for fiscal year 1999 second quarter and for the first six months were $0.2 million and $0.8 million, respectively. Gain on sale of available-for-sale security - During the second quarter and first six months of fiscal year 2000, the Company reported gains from the sale of an available-for-sale security of $0 and $0.1 million, respectively. During the second quarter and first six months of fiscal year 1999, the Company reported a gain from the sale of an available for sale security of $0.3 million. Income taxes - The Company recognized $40,000 in income tax expense during the quarter ended October 3, 1999, after applying available business tax credits. During the first six month period then ended, the Company recognized $80,000 in income tax expense. During the same periods last fiscal year, the Company did not report net taxable income due to a net operating loss carryforward from fiscal year 1998. Accordingly, the Company did not recognize income tax expense during those periods. LIQUIDITY AND CAPITAL RESOURCES Working capital - Working capital during the first six months of fiscal year 2000 improved slightly from the beginning of the fiscal year. Working capital for the period ending October 3, 1999 was $59.9 million, which represents an increase of $2.3 million (4%) from the working capital reported at the end of fiscal year 1999. Unbilled receivables - As of October 3, 1999 unbilled items on completed contracts totaled $1.0 million compared with $1.6 million at the end of the second quarter of fiscal year 1999 and $1.1 million at the beginning of fiscal year 2000. Capital Resources - Capital expenditures for the second quarter of fiscal year 2000 were $0.2 million compared to $0.1 million in the second quarter of fiscal year 1999. Capital expenditures for the first six months of fiscal year 2000 were $0.5 million compared to $0.3 million in the first six months of fiscal year 1999. The increase in capital expenditures during the second quarter and first six months of fiscal year 2000 when compared to fiscal year 1999 results from the timing of certain projects which were scheduled to start earlier in the fiscal year. The Company's capital expenditures for the past several years have remained relatively constant, having achieved completion of capital improvements necessary to complete the Mark II Ferry project. Fiscal year 2000 capital expenditures are expected to be relatively consistent with last year's level. Stock Repurchase - During the quarter ended October 3, 1999, the Company repurchased an aggregate of 278,700 shares of its Common Stock, for a consideration of $1.9 million, increasing the number of shares held as treasury stock to 2,339,546. The shares repurchased during the quarter were acquired at an average price of $6.65 per share. The Company has previously engaged in stock repurchases when management considers the market value relative to the fundamental value of the Company to be favorable. During the past several years the Company was unable to take advantage of these market conditions since working capital reserves were needed to fund cost overruns experienced in completing the Jumbo Mark II Ferry contract. However, with the recent mediated settlement with the Washington State Ferry System, the Company was able to repurchase shares during the second quarter of fiscal year 2000. The Company does not anticipate additional stock repurchases during the near term, but as part of its overall investment strategy will consider repurchasing shares when such purchases are accretive to earnings and book value. Based upon its current cash position described above and anticipated fiscal year 2000 cash flow, the Company believes it has sufficient liquidity to fund operations for this fiscal year. Accordingly, shipyard capital expenditures are expected to be financed out of working capital. A change in the composition or timing of projected work could cause capital expenditures and repair and maintenance expenditures to increase. YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits, rather than four, to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If not addressed, the direct result of the year 2000 issue could be a system failure or miscalculations, causing disruption of operations, including a temporary inability to process customer transactions, order parts and supplies, accurately track inventory and revenue, or engage in similar normal business activities. The Company believes that all of its financial, manufacturing and material procurement systems and embedded chip technology in its' various operating equipment are Year 2000 compliant, and expects that its total costs to make all its systems Year 2000 compliant will be less than $150,000. The Company has contacted its major inventory suppliers plus other vendors and suppliers with which its systems interface and exchange data or upon which it business depends, such as banks, power and communications providers, maintenance providers and other service suppliers. These efforts are designed to minimize the extent to which the Company's business will be vulnerable in the event of the failure of these third parties to remedy their own Year 2000 issues. While initial testing (following program modifications) has shown that the Company's hardware and software to be Year 2000 compliant, additional testing will continue for the balance of the calendar year to ensure that all systems remain in a ready state. Management believes that sourcing from alternative vendors that are Year 2000 compliant will minimize any potential interruption in product, if one or more vendors are not able to deliver product in accordance with terms of any purchase order. The local power companies servicing the facilities where the Company operates have acknowledged Year 2000 compliance. During the second quarter of fiscal year 2000, the Company completed work on its contingency plans in the event of unforseen system disruptions that may occur at the beginning of the new calendar year. Such plans include, but are not limited to: 1) power disruption (the Company has determined that its back- up generators cannot provide a sufficient secondary source of power), 2) vendor replacement, 3) communication alternatives, 4) manual processes for temporary delays resulting from programming changes to correct unforeseen Year 2000 problems. No major Information Technology projects have been deferred due to Y2K compliance activities. Costs of the Year 2000 project and the estimated completion date are based on management's best estimates, which are derived utilizing numerous assumptions. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from the estimates. Specific factors that might cause material differences include, but are not limited to, the availability and cost of outside programmers and computer consultants. The Company's failure to implement its Year 2000 corrections in a timely fashion or in accordance with its current cost estimates, or the failure of third-party vendors to correct their Year 2000 problems, could have a material adverse effect on the Company's business, financial condition and operating results. ENVIRONMENTAL MATTERS On Going Operations - Recurring costs associated with the Company's environmental compliance program are not material and are expensed as incurred. Capital expenditures in connection with environmental compliance are not material to the Company's financial statements. Past Activities - The Company faces significant potential liabilities in connection with the alleged presence of hazardous waste materials at some of its closed shipyards, at its Harbor Island shipyard, and at several sites used by the Company to dispose of alleged hazardous waste. The Company has been named as defendant in civil actions by parties alleging damages from past exposure to toxic substances at Company facilities. The nature of environmental investigation and clean up activities makes it difficult to determine the timing and amount of any estimated future cash flows that may be required for remedial efforts. The Company reviews these matters and accrues for costs associated with remediation of environmental pollution when it becomes probable that a liability has been incurred and when the amount of the Company's liability (or the Company's proportionate share of the amount) can be reasonably estimated. Todd Pacific was notified by the California Environmental Protection Agency that it may be considered a potentially responsible party for the cleanup of the Omega Chemical Corporation site ("Omega Site") in Whittier, California in September of 1994. It is alleged that the Los Angeles Division of Todd Pacific caused certain production wastes and by-products to be transported to this hazardous waste treatment and storage facility between 1976 and 1991. The California Department of Toxic Substances Control is pursuing the clean up of the Omega Site pursuant to state and federal regulations. The Company in the second quarter entered into a consent decree and settlement agreement with the agency designed to end its involvement with this site. The Company paid a cash amount, within the established reserve, as part of the settlement. The Company's financial statements as of October 3, 1999 reflect aggregate reserves for environmental matters of $14.1 million. The Company is negotiating with its insurance carriers and certain prior landowners and operators for past and future remediation costs. The Company has recorded a non-current asset of $2.7 million to reflect a contractual arrangement with an insurance company to share costs for certain environmental matters. No assurance can be given that the Company's reserves are adequate to cover all potential environmental costs the Company could incur. Actual costs to address environmental matters in which the Company is involved will depend on numerous factors, including the number of parties found liable at each environmental site, the method of remediation, outcome of negotiations with regulatory authorities, outcome of litigation, technological developments, and changes in environmental laws and regulations. BACKLOG At October 3, 1999 the Company's firm shipyard backlog consists of approximately $54 million of repair and overhaul work. The Company's repair and overhaul work generally is of short duration with little advance notice. The Company's backlog at September 27, 1998 was approximately $37 million. LABOR RELATIONS The Company's current collective bargaining agreement with the Puget Sound Metal Trades Council was scheduled to expire on July 31, 1999. However, prior to expiration, the parties entered into an extension of that agreement to allow for continued negotiations to achieve a new agreement. The extension may be terminated by either party with 72 hours notice. FUTURE SHIPYARD OPERATIONS The Company's future profitability depends largely on the ability of the shipyard to maintain an adequate volume of repair, overhaul and new construction business. The Company competes with other northwest and west coast shipyards, some of which have more advantageous cost structures. The Company's competitors include non-union shipyards, shipyards with excess capacity and government subsidized facilities. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders (the "Meeting") was held on September 17, 1999 in Seattle, Washington. At the meeting the stockholders elected seven directors, each of whom will serve until the next Annual Meetng of Shareholders or until his respective successor shall have been elected and qualified or until his earlier resignation or removal. The Board of Directors elected at the Meeting and the votes cast in favor of their election (with the votes cast in favor of their election out of a total of 9,882,680 entitled to vote) are as follows: Brent D. Baird (9,487,822); Steven A. Clifford (9,488,816); Paterick W.E. Hodgson (9,487,816); Joseph D. Lehrer (9,488,826); Philip N. Robinson (9,488,826); John D. Weil (9,488,822); and Stephen G. Welch (9,488,168). The shareholders ratified the appointment of Ernst & Young LLP as the Company's independent public accountants by a vote of 9,498,090 to 15,815 with 10,700 abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule. (b) Exhibit 99 - Additional Exhibits. (c) Reports on Form 8-K. The Company has filed the following reports on Form 8-K during the second quarter of its fiscal year ended October 3, 1999: Form 8-K dated September 24, 1999 submitting the press release issued by the Company regarding the Company's award of the M.V. Yakima Preservation contract by the Washington State Ferry System. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TODD SHIPYARDS CORPORATION Registrant By:_______________________________ Scott H. Wiscomb Chief Financial Officer and Treasurer November 4, 1999 3 EX-27 2
5 7-MOS MAR-26-2000 OCT-03-1999 8619 45201 10050 184 12672 76787 68025 50124 125531 16920 0 0 0 120 73977 125531 33136 33136 25174 31076 0 0 8 2718 40 2678 0 0 0 2678 0.28 0.27
EX-99 3 VIA FACSIMILE CONTACT: CAROL LOUIE DRUXMAN SHAREHOLDER RELATIONS (206)623-1635 Ext.106 TOTAL PAGES - 3 SEATTLE, WASHINGTON...October 28, 1999...Todd Shipyards Corporation (the "Company") announced financial results for the second quarter ended October 3, 1999. For the quarter, the Company reported net income of $2.7 million or $0.27 per diluted share on revenue of $33.1 million. For the six month period then ended, the Company reported net income of $4.5 million or $0.45 per diluted share on revenue of $62.9 million. In the prior year second quarter ending September 27, 1998, the Company reported net income of $0.4 million or $0.04 per diluted share. For the six month period then ended, the Company reported net income of $0.1 million or $0.01 per diluted share on revenue of $46.5 million. The Company's second quarter revenue of $33.1 million reflects an increase of $13.6 million (70%) from 1999 fiscal year second quarter levels. Fiscal year 2000 six month revenue of $62.9 million reflects an increase of $16.4 million (35%) from last year. Revenue increases for both the second quarter and year to date reflect the Company's continued emphasis on commercial and government repair and overhaul activities. During the second quarter and first six months, the Company's revenues from commercial and government repair and overhaul activities increased $16.8 million and 24.9 million, respectively, while new construction revenue decreased $3.2 million and 8.5 million, respectively from the comparable prior year periods. For the second quarter ending October 3, 1999, the Company reported operating income of $2.1 million. For the six month period then ended, the Company reported operating income of $3.3 million. In the prior year periods ending September 27, 1998, the Company reported an operating loss of $0.1 million for the second quarter and a six month operating loss of $1.0 million. Operating income results for the second quarter and first six months ending October 3, 1999, are primarily attributable to improved margins on commercial and government repair and overhaul activities. Operating income results for the same periods ending September 27, 1998 were due primarily to lower margins experienced in completing the Jumbo Mark II program. For the second quarter and first six months ending October 3, 1999, the Company reported net gains on the sale of available for sale securities, investment income and other income of $0.7 million and $1.2 million, respectively. During the same periods ending September 27, 1998, the Company reported net gains on the sale of available for sale securities, investment income and other income of $0.5 million and $1.1 million, respectively. In the second quarter and first six months ending October 3, 1999, the Company recorded $40,000 and $80,000, respectively, in federal income tax expense after applying available business tax credits. During the same periods last fiscal year the Company did not report taxable income. Accordingly, the Company did not recognize income tax expense during these periods. During the quarter ended October 3, the Navy awarded the Company approximately $25 million in work options on several previously awarded contracts. Approximately $16 million in awarded work options will be performed on the USS Carl Vinson at the Puget Sound Naval Shipyard located in Bremerton, Washington, with the remaining $9 million in work options being performed on the USS Rainier at the Company's facilities in Seattle. The results of operations and balance sheet are as follows: TODD SHIPYARDS CORPORATION UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS Periods ended October 3, 1999 and September 27, 1998 (in thousands of dollars, except per share data) Quarter Ended Six Months Ended 10/3/99 9/27/98 10/3/99 9/27/98 Revenue $33,136 $19,485 $62,883 $46,481 Operating expenses: Cost of Revenue 25,174 16,811 47,154 38,401 Administrative and manufacturing overhead expense 6,687 5,525 14,188 13,510 Contract Reserve (785) (2,795) (1,778) (4,412) Total operating expenses 31,076 19,541 59,564 47,499 Operating income (loss) 2,060 (56) 3,319 (1,018) Investment and other income 658 170 1,110 820 Gain on sales of available-for-sale security 1 315 126 315 Income before income taxes 2,719 429 4,555 117 Income tax expense 40 - 80 - Net income $2,679 $ 429 $4,475 $ 117 Income per common share: $ 0.27 $0.04 $ 0.45 $0.01 Diluted Number of shares used in the calculation of earnings per share (thousands) 9,810 9,910 9,894 9,910 A copy of the Company's financial statements for the quarter ended October 3, 1999 will be filed with the Securities & Exchange Commission as part of its quarterly report on Form 10-Q. The Company's Form 10-Q should be read in conjunction with this earnings report. TODD SHIPYARDS CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET Periods ended October 3, 1999 and March 28, 1999 (in thousands of dollars) Period Ended 10/3/99 3/28/99 ASSETS Cash and cash equivalents $ 8,619 $ 17,839 Securities available-for-sale 45,201 23,823 Accounts receivable, net 9,866 33,348 Other 13,101 5,806 Total Current Assets 76,787 80,816 Property, plant and equipment, net 17,900 19,026 Deferred pension asset 25,982 24,782 Other 4,862 4,832 Total Assets $125,531 $129,456 LIABILITIES AND STOCKHOLDERS EQUITY Accounts payable and accruals including tax $ 14,042 $ 17,489 Other 2,878 5,771 Total Current Liabilities 16,920 23,260 Environmental reserves 14,122 14,416 Accrued postretirement benefits 20,392 20,692 Total Liabilities 51,434 58,368 Total stockholders equity 74,097 71,088 Total liabilities and stockholders equity $125,531 $129,456 A copy of the Company's financial statements for the quarter ended October 3, 1999 will be filed with the Securities & Exchange Commission as part of its quarterly report on Form 10-Q. The Company's Form 10-Q should be read in conjunction with this earnings report. -----END PRIVACY-ENHANCED MESSAGE-----