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, historically, has been engaged in the repair/overhaul, conversion and construction of commercial and military ships and vessels.
Throughout much of the Company's history, a substantial portion of its revenues and profits were attributable to long-term United States Government ("Government") contracts. However, in the late 1980's a significant decline in the annual shipbuilding budgets of the Department of the Navy (the "Navy") greatly reduced the Company's bidding opportunities for long-term Government contracts.
To offset the downturn in long-term Government contract opportunities, the Company entered into a major new construction project beginning in fiscal year 1995. During that year the Company contracted with the Washington State Ferry System ("Ferry System") to build three Jumbo Mark II Class ferries. This contract represented the Company's first new construction effort in 10 years. As the Company neared completion of the Mark II Ferry project in fiscal year 1999, it began a second new construction project with the construction of a floating electrical power plant (the "Margarita II"). The Margarita II was completed in fiscal year 2000.
With the completion of the Jumbo Mark II and Margarita II contracts in fiscal years 1999 and 2000, respectively, the Company shifted its main business focus to repair, maintenance and conversion business opportunities. This strategy resulted in the award of two major five year cost-type contracts for continuous maintenance work on three Navy aircraft carriers and six Navy surface combatant class vessels stationed in the Puget Sound area.
The work performed on the Navy aircraft carriers is referred to as the Planned Incremental Availability ("PIA") contract and has a notional value of approximately $100 million. Work on this contract began during the first quarter of fiscal year 2000. The work performed on the Navy surface combatant vessels is referred to as the Combatant Maintenance Team ("CMT") contract and has a notional value between $60 to $75 million. Work on this contract began in the second quarter of fiscal year 2001.
In addition to these two long-term multi-ship contracts, the Company completed negotiations with the Navy during the first quarter of fiscal year 2002 for the renewal of the existing Auxiliary Oiler Explosive ("AOE") contract on a sole source basis for an additional six years. This new contract represents the fourth consecutive, multi-year contract that the Company has been awarded by the Navy on the AOE class vessels. The notional value of this contract is expected to be approximately $180 million over a six-year period if all options are exercised. The three previous contracts, which were each five years in duration, were all awarded on a competitive basis. This cost type contract provides for phased maintenance repairs to four Navy AOE class supply ships stationed in the Puget Sound area.
In addition to the above mentioned contracts, the Company engages in commercial repair, overhaul and conversion work on other Navy vessels, U.S. Coast Guard vessels, ferries, container vessels, tankers, fishing vessels, cruise ships, barges, and tug supply vessels.
Management believes that the Company is well positioned to continue performing a substantial amount of the maintenance and repair work on commercial and Federal Government vessels engaged in various seagoing trade activities in the Pacific Northwest. This position should enable the Company to successfully pursue repair, maintenance, and conversion work for other vessel fleets operating on Puget Sound (near Seattle) and the Pacific Coast. These fleets include the U.S. Navy, the U.S. Coast Guard, the Washington State Ferry System, the Alaska Marine Highway System, other government owned vessels, passenger cruise ships, American-flagged cargo carriers, fishing fleets, tankers, and tug and barge operators. While the Company may selectively pursue new construction opportunities in the future, its primary focus will remain on repair, maintenance and conversion activities.
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 dry-docking of the vessel under repair. During the past decade, repair and overhaul business opportunities available to domestic, private-sector shipyards, have been impacted by the downsizing and relocation of the active Navy fleet. The impact has had both positive and negative effects on domestic shipyards depending on their proximity to the affected Navy fleet operations. Also affecting private shipyards is the impact of stationing vessels at Navy home ports, the availability and scheduling of maintenance and overhauls, the location of marine accidents 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.
The majority of the Company's Government ship repair and overhaul work is awarded on an option basis under one of the three cost-type contracts the Company has been awarded. 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 Company'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 also performs repair and overhaul work for the Navy on a fixed price basis through a formal bidding process.
The Company's commercial and Government repair and overhaul contracts contain customer payment terms that are determined by mutual agreement. Typically, the Company is periodically reimbursed through progress payments based on the achievement of certain agreed to benchmarks less a specified level of retention. Some vessel owners contracting for repair, maintenance, or conversion work also require some form and amount of performance and payment bonding, particularly state agencies.
Construction Operations The Company completed production work on its last new construction project during the first quarter of fiscal year 2000, with the delivery of the Margarita II, a 70 mega-watt floating electrical power plant. The Margarita II contract officially ended during the second quarter of fiscal year 2001 with the completion of the warranty period.
Since the delivery of the Margarita II in fiscal year 2000, the Company has not actively pursued new construction opportunities. While the Company may selectively pursue new construction opportunities in the future, its primary focus will remain on repair, maintenance and conversion activities.
Distribution of Work The approximate distribution of the Company's Shipyard revenues for each of the last three fiscal years are summarized as follows:
2002 2001 2000 Federal Government 79% 64% 72% Commercial 21% 36% 28% Total 100% 100% 100%
The distribution of the Company's revenues in fiscal year 2002 were significantly influenced by the increased volume of cost-type Government repair and maintenance work over fiscal year 2001 levels. It was also impacted by the completion in fiscal year 2001 of the MV Yakima, a $29 million commercial renovation project for the Washington State Ferry System.
The decrease in the percentage of Federal Government work in fiscal year 2001 when compared to fiscal year 2000 levels is due primarily to planned scheduling breaks in government cost-type overhaul and maintenance activities. In addition, the Company worked on the renovation of the MV Yakima throughout the majority of the fiscal year 2001. The MV Yakima contributed significantly to the increase in the percentage of commercial work in fiscal year 2001 when compared to fiscal year 2000.
The distribution of the Company's revenues in fiscal year 2000 were significantly influenced by the increased volume of cost-type Government repair and maintenance work over fiscal year 1999 levels. It was also impacted by the completion of the Margarita II, a commercial new construction project, during the first quarter of fiscal year 2000 and the absence of Mark II Ferry revenue, a commercial new construction project, which completed production related work in fiscal year 1999.
Future Operations The Company plans to actively pursue Government and commercial repair, maintenance and conversion opportunities. International construction and repair opportunities are limited because shipbuilders in foreign countries are often subsidized by their governments and in some cases enjoy significantly lower labor costs. 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 facilities, lower labor cost structures, or access to greater financial resources. The Company intends to capitalize on the advantages of its geographic location, the skills of its experienced workforce and production efficiencies developed over the past several years as it competes for repair, maintenance and conversion opportunities.
Employees The number of persons employed by the Company varies considerably from time to time depending primarily on the level of Shipyard activity. Employment averaged approximately 800 during fiscal year 2002 and totaled approximately 1,000 employees on March 31, 2002.
During fiscal year 2002 an average of approximately 660 of the Company's Shipyard employees were covered by a union contract that became effective during the third quarter of fiscal year 2000. At March 31, 2002 approximately 830 Company employees were covered under this contract.
Todd Pacific Shipyards and the Puget Sound Metal Trades Council (the bargaining umbrella for all unions at Todd Pacific Shipyards) continue to operate under a collective bargaining agreement ratified in fiscal year 2000. That contract will expire July 31, 2002. Discussions with the unions for a new collective bargaining agreement began on June 11, 2002. Management considers its relations with the various unions to be stable.
Availability of Materials The principal materials used by the Company in its Shipyard are steel and aluminum plate and shapes, pipe and fittings, paint and electrical cable and fittings. Management 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 those items that is deemed sufficient for emergency ship repairs.
Competition Competition in the domestic ship repair and overhaul industry is intense. 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 private sector shipyards, creating excess shipyard capacity and acute price competition. 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 foreign government subsidized facilities. Although not a market with which the Company has continued interest, 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 investments in productivity enhancing facilities.
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 its acts 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 $28.5 million as of March 31, 2002 for environmental and bodily injury 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 bodily injury 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 and bodily injury liabilities.
As of March 31, 2002, the Company has recorded an insurance receivable of $26.8 million, which mitigates a major portion of its accrued environmental and bodily injury liability. See Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 11 of the Notes to Consolidated Financial Statements for further information regarding the Company's environmental and bodily injury 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 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 Shipyard employees are required to attend regularly scheduled safety training meetings.
Backlog At March 31, 2002 the Company's backlog consists of approximately $46 million of repair, maintenance, and conversion work. This compares with backlogs of $30 million and $37 million at April 1, 2001 and April 2, 2000, respectively. The Company's current backlog is primarily attributable to firm repair, maintenance and conversion work scheduled for completion during fiscal year 2003.
Since work under the Company's three Navy phased maintenance contracts is at the option of the Navy, the Company cannot provide assurance as to the timing or level of work that may be performed under these contracts. Therefore, projected revenues from these contracts are not included in the Company's backlog until contract options are awarded.
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.
The Company continues to evaluate suitable investment opportunities, which it believes will appropriately utilize the Company's resources. During fiscal year 2002 the Company did not make any direct investments in other businesses, either related or unrelated to ship repair and overhaul activities.
ITEM 2.
ITEM 2. PROPERTIES
During the Company's fourth quarter of fiscal year 2001, the Puget Sound region experienced the effects of a moderate earthquake. The Company sustained damage to its physical plant that required certain emergency repairs to be made in fiscal year 2001. All remaining earthquake repairs, of a non- emergency nature were made during fiscal year 2002. These repairs, which totaled approximately $0.3 million more than established reserves are included in the Company's results from operations. The Company intends to pursue recoveries of its incurred earthquake related costs under its insurance coverage.
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. Damage caused by the earthquake in fiscal year 2001 resulted in the Navy temporarily suspending its certifications of the Company's three drydocks.
After completing certain repairs, the Company's certification on drydock YFD- 70 was reinstated prior to the end of fiscal year 2001. The Company's certification on the Emerald Sea drydock was reinstated during the first quarter of fiscal year 2002 and drydock YFD-54 was reinstated during the second quarter of fiscal year 2002.
In addition, damage caused by the earthquake resulted in the Company making certain repairs to various cranes. Repairs to all cranes that are critical to Shipyard operations were made prior to the end of fiscal year 2001 and the Company obtained re-certification on those cranes.
The design capacities of the Company's three drydocks, all of which are located at the Shipyard, are as follows:
Year Type Max.Design Date of Lease Name Built Owned Leased Capacity(in tons) Expiration Emerald Sea 1970 Steel 40,000 - YFD-70 1945 Steel 17,500 4/15/06 YFD-54 1943 Wood 5,700 9/30/05
In fiscal year 2001, the Company extended the leases with the Navy on both of its leased drydocks for a period of five years. Under terms of the expiring leases, the Company was required to make annual lease payments, as well as perform a minimum amount of annual maintenance on each dock.
The new lease terms on drydock YFD-70 contain a nominal annual lease payment and an increase in the minimum amount of annual maintenance that the Company must perform. The new lease also includes minimum levels of maintenance that the Company must perform during the life of the lease. The new lease terms on drydock YFD-54 call for a continuation of both an annual lease payment and a certain minimum amount of annual maintenance to be performed by the Company.
The Company has included the nominal annual lease payment and the average annual maintenance cost that must be performed over the life of the lease on drydock YFD-70, as well as the annual lease payments that must be made on drydock YFD-54 in Note 9 of the Notes to the Consolidated Financial Statements in Item 8.
The Company's current Navy drydock certifications are less than the drydock's maximum design capacity, however they are sufficient to allow the Company to perform work on all non-nuclear Navy vessels homeported in Puget Sound, as well as all Coast Guard and Washington State Ferry vessels.
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.
During the fourth quarter of fiscal year 2001, the Company determined that such serviceability repairs would be required on the Emerald Sea to maintain Navy certification on a long-term basis. These repairs began during the first quarter of fiscal year 2002 and continued throughout the fiscal year and are included in the Company's results of operations.
During fiscal year 2002, the Company evaluated several alternative repair scenarios and management's plans for future operations and developed a comprehensive, multi-year refurbishment plan that will allow the Company to maintain certification into the future. This multi-year plan includes scheduled refurbishment periods so that repairs do not interfere with on-going shipyard operations. The Company will continue to assess this refurbishment plan as it progresses and make appropriate changes as needed to support Shipyard operations.
ITEM 3.
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 its Seattle 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 three Superfund sites. Additionally, the Company has been named as a PRP in three Superfund cases and has received information requests in two Superfund cases where the Company has asserted that its liability was discharged when it emerged from bankruptcy in 1990.
Generally these environmental claims relate to sites used by the Company for disposal of alleged hazardous waste. The Company has also been named as a defendant in a number of civil actions alleging damages from past exposure to toxic substances, generally asbestos, at closed former Company facilities.
At March 31, 2002, the Company maintained aggregate reserves of $28.5 million for pending claims and assessments relating to environmental matters, including $17.7 million associated with the Harbor Island Superfund Site (the "Harbor Island Site") and a reserve of $9.4 million for asbestos related claims.
Funding for costs and payments of claims represented by such reserves is expected to be provided to a significant extent by receivables due from insurance companies under policies and insurance in place agreements described below. At March 31, 2002, such receivables aggregated $26.8 million. Reference is made to Note 11 of the Notes to the Consolidated Financial Statements in Item 8. below and to the discussion under the heading "Environmental Matters and Contingencies" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7. below.
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").
Harbor Island Site Insurance
In the fourth quarter of fiscal year 2001, the Company entered into a 30-year agreement with an insurance company that will provide the Company with broad- based insurance coverage for the remediation of all of the Company's operable units at the Harbor Island Superfund Site.
The agreement provides coverage for the known liabilities in an amount exceeding the Company's current booked reserves of $17.7 million. Additionally, the Company has entered into a 15-year agreement for coverage of any new environmental conditions discovered at the Seattle shipyard property that would require environmental remediation.
The Company funded this insurance premium from cash reserves in two installments. The first payment was made in the Company's fourth quarter of fiscal year 2001 and the second payment was made in the first quarter of fiscal year 2002. The Company recorded a non-current asset in the form of an insurance receivable in accordance with its environmental accounting policies at the time it entered into this agreement. This transaction did not have a material effect on the Company's results of operations, nor did the transaction have a material effect on stockholders' equity.
Harbor Island Site History
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. Removal of floating petroleum product from the water table began in October 1998 and is anticipated to continue through fiscal year 2005. The Company and the EPA are currently negotiating the extent and methodology of the soil remediation.
During the third quarter of 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 remedy. During the third quarter of fiscal year 2000, the EPA expanded the boundaries of the SSOU issuing their Phase 1B Data Report and resulting Explanation of Significant Differences outlining the changes to the ROD. The Company evaluated what it believed was the financial impact of the EPA's actions and increased its reserves to $13.6 million for the remedial effort. This reserve increase resulted in a $5.5 million charge against fiscal year 2000 earnings. During the fourth quarter of fiscal year 2000, the Company and the EPA entered into an Administrative Order on Consent for the development of the remedial design for the SSOU. Management anticipates that during fiscal year 2003 agreement will be reached with the EPA on a remedial design that identifies the scope of remediation and the method of sediment disposal. Pursuant to the current schedule, remediation of the SSOU is expected to begin in the third quarter of fiscal 2004. Current environmental regulations limit the period of time during the year that dredging may occur. Given these limits, dredging in the SSOU will require several years to complete. The ultimate cost of the SSOU clean up will remain uncertain until agreement has been reached with the EPA during fiscal year 2003.
During 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. During May 1998, the Company entered into an Administrative Order on Consent to perform certain limited testing as part of the SOU investigation. After an evaluation of the results, the EPA issued a draft "no action" ROD on the SOU for public comment which if issued in final form would end the investigation of the SOU, requiring no remedial action. The public comment period closed during the Company's fourth quarter of fiscal year 2000 and the EPA has not yet announced the results.
During the Company's fiscal year 2000, several species of salmon in Washington State were designated under the Endangered Species Act. The potential impact the designation could have on the remedial efforts on the Harbor Island Superfund site is unknown at this time, although any related costs within aggregate policy limits will be covered by insurance purchased in January 2001. As of March 31, 2002, the Company believes that aggregate policy limits are currently adequate to cover this potential impact.
Asbestos Related Claims and Insurance
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. At March 31, 2002, the Company had approximately 377 cases involving approximately 570 plaintiffs pending against it and 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 assesses claims as they are filed and developed, analyzing them in two different categories based on severity of illness. Based on current fact patterns, certain diseases including mesothelioma, lung cancer and fully developed asbestosis are categorized by the Company as "malignant" claims. All others of a less medically serious nature are categorized as "non- malignant". The Company is currently defending approximately 35 "malignant" claims and approximately 535 "non-malignant" claims. The Company and its insurers are vigorously defending these actions.
The Company has entered into agreements with several of its insurers to provide coverage for a significant portion of settlements and awards related to these bodily injury claims. These agreements have aggregate limits on amounts to be paid overall and formulas for amounts of payment on individual claims. The two most significant agreements provide coverage applicable to claims of exposure to asbestos occurring between 1949 and 1976 and occurring between 1976 through 1987. Insurance coverage for exposures to asbestos was no longer available from the insurance industry after 1987. Due to changes in federal regulations in the 1970s which resulted in the swift decline in commercial and military application of asbestos and increased regulation over the handling and removal of asbestos, there exists minimal risk of claims arising from exposure after 1987. Contractual formulas are utilized to determine the amount of coverage from each agreement on each claim settled or litigated. Once the initial date of alleged exposure to asbestos is determined, all contractual years subsequent to that date participate in the settlement. Since all known claims involve alleged exposure prior to 1976, the 1976 through 1987 agreement will participate in the settlement or judgement of all outstanding claims that are settled or litigated. As a result, and as the years remaining calculation set forth below indicates, the 1976 through 1987 agreement will exhaust prior to the 1949 through 1976 agreement. Based on historical claims settlement data only, the Company projects that at March 31, 2002, the 1949 through 1976 agreement will provide coverage for an additional 20.6 years and the 1976 through 1987 agreement will provide coverage for an additional 5.2 years. At April 1, 2001, the Company projected that these agreements would provide coverage for an additional 23.7 years and 8.0 years, respectively. The increased declination of estimated coverage experienced from fiscal year 2001 to fiscal year 2002 was due to increased settlement activity on malignant cases including six cases that had been in inventory dating back as far as 1993. The Company resolved 20 malignant claims in 2002 compared with 16 in 2001 and 11 in 2000. If historical settlement patterns or the rate of filing for new cases change in future periods, these estimated coverage periods could be shorter or longer than anticipated. Moreover, if one or both of these coverages are exhausted at some future date, the Company's share of responsibility will increase for any subsequent claims' and legal expense previously covered by these insurance agreements. In addition to providing coverage for assessments or settlements of claims, the agreements also provide for costs of defending and processing such claims.
The following chart indicates numbers of claims filed and resolved in the past three fiscal years, including the number of claims yet to be resolved at the end of each fiscal year. (Resolution includes settlements, adjudications and dismissals). The claims are further categorized as either malignant or non- malignant.
Bodily Injury Claims Non- Malignant Malignant Total
Outstanding, March 28, 1999 29 362 391 Claims filed 17 167 184 Claims resolved (11) (14) (25) Outstanding, April 2, 2000 35 515 550 Claims filed 16 66 82 Claims resolved (16) (30) (46) Outstanding, April 1, 2001 35 551 586 Claims filed 20 52 72 Claims resolved (20) (68) (88) Outstanding, March 31, 2002 35 535 570
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, there can be no assurance that the current reserves will be adequate to cover the costs of resolving the existing cases. Additionally, the Company cannot predict the eventual number of cases to be filed against it or their eventual resolution and does not include in its reserve amounts for cases that may be filed in the future. However, it is probable that if future cases are filed against the Company it will result in additional costs arising either from its share of costs under current insurance in place arrangements or due to the exhaustion of such coverage. The Company reviews the adequacy of existing reserves periodically based upon developments affecting these claims, including new filings and resolutions, and makes adjustments to the reserve and related insurance receivable as appropriate.
As the Company is not able to estimate its potential ultimate exposure for filed and unfiled claims against the Company, it cannot predict whether the ultimate resolution of the bodily injury cases will have a material effect on the Company's results of operations or stockholders' equity.
ITEM 4.
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 2002.
PART II
ITEM 5.
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 indicating the high and low composite sales prices of the stock as reported by the NYSE.
Quarter Ended High Low July 2, 2000 8.50 6.63 October 1, 2000 8.31 7.06 December 31, 2000 7.94 6.44 April 1, 2001 8.00 6.38 July 1, 2001 8.11 6.79 September 30, 2001 9.55 7.70 December 30, 2001 9.05 7.70 March 31, 2002 11.00 8.80
On June 7, 2002 the high and low prices of the Company's common stock on the NYSE were $14.55 and $14.50, respectively.
At June 7, 2002 there were 1,763 holders of record of the outstanding shares of common stock. The Company has not paid cash dividends during the past two fiscal years and it does not presently anticipate the declaration of dividends.
During the first quarter of fiscal year 2002, the Company announced a tender offer for up to 4.0 million shares of the Company's Common Stock at a price of not in excess of $8.25 or less than $7.00 per share. The exact price was determined by a procedure commonly referred to as a "Dutch Auction". The Company elected to increase the number of shares to be purchased in order to avoid proration procedures otherwise applicable to the offer and purchased an aggregate of 4,136,124 shares at a price of $8.25 per share (See Item 7. Management's Discussion & Analysis of Financial Condition and Results of Operations and Note 14 of the Notes to Consolidated Financial Statements for additional information).
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (In thousands of dollars, except per share data)
The following table summarizes certain selected consolidated financial data of the Company, which should be read in conjunction with the accompanying consolidated financial statements of the Company included in Item 8.
March 31, April 1, April 2, March 28, March 29, 2002 2001 2000 1999 1998
Revenue $121,945 $116,545(2) $123,851 $106,189(6) $109,537 Income from operations 6,902 11,950(3) 5,610(5) 10,222 3,197(7) Net income 7,018 16,727 8,132 17,394 8,103(8)
Net income per share of common stock
Basic EPS 1.05 1.74 0.83 1.76 0.82 Diluted EPS 1.03 1.73 0.82 1.75 0.82
Financial position: Working capital 37,379(1) 60,873 65,339 55,009 44,400 Fixed assets 16,595 17,358 17,356 19,026 21,565 Total assets 133,680(1) 164,900(4) 139,209(4) 136,514(4) 124,295(4)
Stockholders' equity $ 65,997(1) $ 93,081 $ 76,185 $ 71,088 $ 56,813
(1) As discussed in greater detail in Item 7
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 - Profitability," and "Environmental Matters." Readers should also consider the statements and factors discussed under the caption "Operations Overview" in Item 1 and the discussion of environmental matters and related bodily injury claims set forth in Item 3 of the this Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2002, together with the Notes to the Company's Consolidated Financial Statements for the fiscal year then ended.
Overview
During fiscal year 2002, the Company recorded revenue of $121.9 million, which represents an increase of $5.4 million, or approximately 5%, over fiscal year 2001 reported revenue of $116.5 million. This revenue increase is primarily attributable to an increase in commercial and government repair and overhaul activities of $7.7 million, offset by a decrease in new construction revenue of $2.3 million. Increases in repair and overhaul activities are primarily due to the scheduling by ship owners of commercial and government overhaul activities. Decreases in new construction revenue are caused by the absence of new construction activities being performed by the Company in fiscal year 2002 and reflect the Company's decision to focus on repair and overhaul opportunities.
Fiscal year 2001 revenue benefited from the impact of two significant events. First, the Company reached an agreement with the U.S. Navy in the fourth quarter of fiscal year 2001 to share in certain environmental insurance costs. Under terms of the agreement, the Company was able to invoice and record revenue of $3.9 million in fiscal year 2001. This amount was reduced to $1.7 million in fiscal year 2002. Second, the Company received a favorable arbitration award on the Margarita II, a new construction project that was completed in fiscal year 2000. The award allowed the Company to recognize $1.9 million of revenue in the fourth quarter of fiscal year 2001.
Repair and overhaul activities represented approximately 100% and 98% of fiscal year 2002 and fiscal year 2001 revenues, respectively. The high concentration of repair and overhaul activities during the past two fiscal years reflects the Company's business strategy of emphasizing repair and overhaul activities, while discontinuing the pursuit of new construction opportunities. This strategy has been a central component of the Company's business plan since the completion of the Margarita II in fiscal year 2000.
During fiscal year 2002 the Company recorded operating income of $6.9 million on revenue of $121.9 million, or approximately 6% of revenue. This represents a decrease in operating income of $5.0 million, or approximately 42% from fiscal year 2001 operating income reported of $12.0 million.
Operating income for fiscal year 2001 was impacted favorably by the agreement reached with the U.S. Navy to share in certain environmental insurance costs, as well as the arbitration award on the Margarita II. In addition to the favorable impact of these two items, the Company recorded a net insurance settlement of $2.1 million, which was partially offset by a $1.5 million environmental and other reserve charge, resulting in a net increase to operating income of $0.6 million for the fiscal year.
The Company also recognized a net gain of $2.2 million from the sale of available-for-sale securities, and $1.8 million in non-operating investment income during fiscal year 2002. These amounts in addition to the operating income reported, resulted in fiscal year 2002 income before income tax expense of $10.9 million.
Auxiliary Oiler Explosive ("AOE") Contract
During the first quarter of fiscal year 2002, the Company was awarded a six- year, sole source cost-type contract for phased maintenance repairs to four Department of Navy AOE class supply ships. This contract represents the fourth consecutive, multi-year contract that the Company has been awarded by the Navy on the AOE class vessels. The notional value of this new contract is expected to be approximately $180 million if all options are exercised. Work on this contract is being performed primarily in the Company's Seattle shipyard.
Combatant Maintenance Team ("CMT") Contract
During the first quarter of fiscal year 2001, the Company was awarded, by the Department of the Navy on a sole source basis, a five year, cost-type contract for the repair and maintenance of six surface combatant class vessels (frigates and destroyers) stationed in the Puget Sound area. Although the Navy has not released a notional value of the maintenance work, the Company believes that the value may be approximately $60 million to $75 million if all options are exercised. Work on this contract is being performed primarily in the Company's Seattle shipyard.
Planned Incremental Availability ("PIA")
During the fourth quarter of fiscal year 1999, the Department of the Navy awarded the Company a five-year cost-type contract for phased maintenance on three CVN class aircraft carriers. The notional value for this five-year contract is approximately $100 million if all options are exercised. Work on this contract is currently being performed at the Puget Sound Naval Shipyard, located in Bremerton, Washington.
Preservation Contract (the "MV Yakima")
During the second quarter of fiscal year 2000, the Company was awarded a $29 million overhaul contract to renovate the Washington State Ferry, MV Yakima. Work on this project commenced during the third quarter of fiscal year 2000 and called for the replacement or renovation of the majority of the vessel's interior structures, including the replacement of steel plating, passenger area furniture, galley, fixtures, windows, and the removal of hazardous materials.
During the fourth quarter of fiscal year 2001, the Company successfully completed and delivered the vessel to the Washington State Ferry System ahead of the contractually scheduled delivery date. The Company earned financial incentives for the early delivery of the vessel and these incentives were recognized in fiscal year 2001 contract revenue.
Power Barge Contract (the "Margarita II")
In the second quarter of fiscal year 1999, the Company commenced work on a floating electrical power plant, the Margarita II. 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, at the time of vessel delivery, an agreement had not reached between the Company and the owner regarding the potential increase in the contract price to compensate for all of these changes.
In accordance with the terms of the contract, the Company and the vessel owner agreed to settle the remaining change orders through a formal arbitration process. Subsequent to the end of fiscal year 2001, the Company was awarded approximately $1.9 million, as well as interest and certain agreed expenses from the arbitration board. The Company recognized the award in fiscal year 2001.
Critical Accounting Policies
The Company's established accounting policies are outlined in the footnotes to the Consolidated Financial Statements (contained in Part II, Item 8. of this Form 10-K) entitled "Principal Accounting Policies." As part of its reporting responsibilities, management continually evaluates and reviews the adequacy of its accounting policies and methods as new events occur. Management believes that its policies are applied in a consistent manner that provides the user of the Company's financial statements with a current, accurate and complete presentation of information in accordance with generally accepted accounting principles generally accepted in the United States.
The preparation of financial statements requires the use of judgments and estimates. The Company's critical accounting policies are described below to provide a better understanding of how these judgments and estimates can impact the Company's financial statements. A critical accounting policy is one that management believes may contain difficult, subjective or complex estimates and assessments and is fundamental to the Company's results of operation. The Company has identified its most critical accounting policies which relate to: 1) Revenue Recognition and 2) Environmental Remediation, Bodily Injury, Other Reserves, and Insurance Receivable. This discussion and analysis should be read in conjunction with our consolidated statements and related notes included elsewhere in this report.
Revenue Recognition The Company recognizes revenue, contract costs, and profit on the percentage- of completion method based upon direct labor hours incurred. Using the percentage-of-completion method requires the Company to make certain estimates of the total cost to complete a project, estimates of project schedule and completion dates, estimates of the percentage of which the project is complete, estimates of annual overhead rates and estimates of amounts of any probable unapproved claims and/or change orders. These estimates are continuously evaluated and updated by experienced project office and accounting personnel assigned to manage these activities, and senior management also reviews them on a periodic basis. When adjustments in contract value or estimated costs are determined, any changes from prior estimates are generally reflected in revenue in the current period.
The Company has considerable experience in managing multiple projects simultaneously and in preparing accurate cost estimates, schedules and project completion dates. However, many factors, including but not limited to weather, fluctuations in material prices, labor shortages, and timely availability of materials can affect the accuracy of these estimates and may impact our future revenues either favorably or unfavorably.
U.S. Government procurement standards are followed relative to assessing the allowability as well as the allocability of costs charged to Government contracts. Costs incurred and allocated to contracts with the U.S. Government are closely scrutinized for compliance with underlying regulatory standards by Todd Pacific Shipyards' personnel, and are subject to audit by the Defense Contract Audit Agency.
Environmental Remediation, Bodily Injury, Other Reserves and Insurance Receivable The Company faces potential liabilities in connection with the alleged presence of hazardous waste materials at its Seattle shipyard and at several sites used by the Company for disposal of alleged hazardous waste. The Company has also been named as a defendant in a number of civil actions alleging damages from past exposure to toxic substances, generally asbestos, at former Company facilities that are now closed. At March 31, 2002, the Company maintained aggregate reserves of $28.5 million for pending claims and assessments relating to these environmental matters, including $17.7 million associated with the Company's Seattle shipyard site and $9.4 million for asbestos or bodily injury related claims.
The Company has various insurance policies and agreements that provide coverage on the costs to remediate these environmental sites and for the defense and settlement of bodily injury claims. At March 31, 2002, the Company had recorded an insurance receivable of $26.8 million relating to these environmental and bodily injury matters, including $17.7 million associated with the Company's Seattle shipyard site and $7.1 million for bodily injury related claims.
The Company reviews these matters on a continual basis and revises its estimates of known liabilities and insurance recoveries when appropriate. The Company follows guidance provided in Statement of Position 96-1, "Environmental Remediation Liabilities" for recording its environmental liabilities and recoveries. The Company accounts for bodily injury liabilities in accordance with Financial Accounting Standards Board No. 5, "Accounting for Contingencies."
Estimating environmental remediation liabilities requires judgments and assessments based upon independent professional knowledge, the experience of Company management and our legal counsel. Environmental liabilities are based on judgments that include calculating the cost of alternative remediation methods and disposal sites, changes in the boundaries of the remediation sites, and the impact of regulatory changes. Bodily injury liabilities are based on judgments that include the number of outstanding claims, the expected most likely outcome of any claim litigation and anticipated settlement amounts for open claims based on historical experience. The Company does not accrue liabilities for unknown bodily injury claims that may be asserted in the future due to uncertainties of the number of cases that may be filed and the extent of alleged damages.
The development of liability estimates that support both environmental remediation and bodily injury reserves involve complex matters that include the development of estimates and the use of judgments. The actual outcome of these matters may differ from Company estimates. To the extent not covered by insurance, increases to environmental remediation and bodily injury liabilities would unfavorably impact future earnings.
The Company's insurance recoveries for environmental remediation and bodily injury claims are estimated independently from the associated liabilities and are based on insurance coverages or contractual agreements negotiated with its former insurance companies. These policies and agreements are primarily with two insurance companies. Based upon the current credit rating of both of these companies, the Company anticipates that both insurance companies will be able to satisfy their respective obligations under the policy or agreement. However, if this assumption is incorrect and either of these companies is unable to meet its future financial commitments, the Company's financial condition and results of operation could be adversely affected.
Business Volume and Backlog
At March 31, 2002 the Company's backlog consists of approximately $46 million of repair, maintenance, and conversion work. This compares with backlogs of $30 million and $37 million at April 1, 2001 and April 2, 2000, respectively. The Company's current backlog is primarily attributable to firm repair, maintenance and conversion work scheduled for completion during fiscal year 2003.
Since work under the Company's three Navy phased maintenance contracts is at the option of the Navy, the Company cannot provide assurance as to the timing or level of work that may be performed under these contracts. Therefore, projected revenues from these contracts are not included in the Company's backlog until contract options are awarded.
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. Other factors that can contribute to future profitability include the amounts of annual expenditures needed to ensure continuing seviceability of the Company's owned and leased machinery and equipment.
The Company continues to respond aggressively 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, 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
2002 Compared with 2001
Net income for fiscal year 2002 decreased by $9.7 million from fiscal year 2001 levels. This decrease was primarily attributable to the impact of the following four significant events:. 1) In fiscal year 2001, the Company reached a settlement with the U.S. Navy to share in certain environmental insurance costs, which resulted in the Company recognizing $3.9 million in revenue. The amount the Company was able to recognize in fiscal year 2002 under terms of this agreement decreased to $1.7 million. 2) In fiscal year 2001, the Company received an arbitration award on the Margarita II, which contributed approximately $2.3 million in revenue, interest income and reimbursed expenses. 3) In fiscal year 2002, the Company recognized $3.9 million in federal income tax expense while in fiscal year 2001 it recorded a federal income tax benefit of $0.2 million resulting from the elimination of its deferred tax asset valuation reserve. This change resulted in a $4.1 million increase in federal income tax expense in fiscal year 2002 when compared to fiscal year 2001. 4) In fiscal year 2002, the Company's pension income decreased $3.2 million when compared to fiscal year 2001 (see Note 7 of the Notes to Consolidated Financial Statements for more details). Net income for fiscal year 2002 was also influenced as a result of the following components:
Revenues The Company recorded revenue of $121.9 million during fiscal year 2002, which represents an increase of $5.4 million, or approximately 5% over fiscal year 2001 revenue. All revenue recorded by the Company in fiscal year 2002 was attributable to repair and overhaul activities compared to $114.2 million in repair and overhaul revenue recorded in fiscal year 2001. This increase in repair and overhaul activities of $7.7 million was offset by a decrease in new construction revenue in fiscal year 2002 of $2.3 million. Increases in repair and overhaul activities are primarily due to the scheduling by ship owners of commercial and government overhaul activities. New construction revenue recorded in fiscal year 2001 was attributable to the Margarita II arbitration settlement. The absence of new construction revenue in fiscal year 2002 is due to the Company's primary business strategy of focusing on repair, maintenance and conversion activities.
Cost of Revenues Cost of revenues for fiscal year 2002 increased by $7.4 million, or approximately 10% from fiscal year 2001. Cost of revenues as a percentage of revenues was 70% and 66% for fiscal years 2002 and 2001, respectively. The increase in cost of revenues as a percentage of revenue in fiscal year 2002 is primarily attributable to the $3.9 million in revenue the Company recognized on the agreement with the U.S. Navy to share in certain environmental insurance costs and the $1.9 million recognized on the Margarita II arbitration award in fiscal year 2001. Costs associated with these revenues were either incurred in prior years or are not categorized as cost of revenues, which effectively lowered the cost of revenues as a percentage of revenues in fiscal year 2001. If these amounts were excluded from revenue the resulting cost of revenues as a percentage of revised revenue would have been 70% in fiscal year 2001.
Administrative and Manufacturing Overhead Administrative and manufacturing overhead increased $2.9 million, or approximately 11% from fiscal year 2001. This increase was attributable to increased production volumes during the fiscal year. As a percentage of revenue, administrative and manufacturing overhead was approximately 25% of revenue in fiscal year 2002. Administrative and manufacturing overhead as a percentage of revenue was 24% in fiscal year 2001, but would have been 25% if revenues were adjusted to exclude the favorable impacts to revenue that occurred that year.
Provision for Environmental Reserves and Other During fiscal year 2002, the Company estimated that the expected remediation costs associated with the Company's operable units at the Harbor Island Superfund Site increased by approximately $3.2 million. This increase in environmental reserves was offset by a similar increase in the Company's insurance receivable. The recognition of these increases did not impact the Company's financial results or stockholders' equity.
Also, in fiscal year 2002, the Company received reimbursement from a certain Harbor Island potentially responsible party for certain past environmental costs incurred by the Company. This reimbursement in the amount of $0.5 million is reflected in Other insurance settlements in the financial results reported at March 31, 2002.
During fiscal year 2001, the Company provided $1.5 million in additional environmental and other reserves. The reserve increase was fully offset by a net insurance settlement of $2.1 million realized by the Company during the fourth quarter of fiscal year 2001.
Investment and Other Income Investment and other income in fiscal year 2002 decreased by $2.1 million when compared to fiscal year 2001. This decrease reflects the reduction in available funds for investment purposes as a result of the Company's repurchase of 4.1 million shares in July 2002 through its Dutch Auction tender offer. The share repurchase decreased available funds for investment purposes by approximately $34.1 million.
Gain on Sale of available-for-sale securities Gain on sale of available-for-sale securities increased $1.5 million when compared to fiscal year 2001. This increase reflects favorable market conditions associated with certain securities which were sold by the Company.
Income Taxes In fiscal year 2002, the Company recognized federal income tax expense of $3.9 million. This represents an increase of $4.1 million in federal tax expense when compared to fiscal year 2001. In fiscal year 2001, the Company recognized a federal income tax benefit of $0.2 million after applying all remaining net operating loss carryforwards and business tax credits and the elimination of its deferred tax asset valuation allowance.
2001 Compared with 2000
Net income for fiscal year 2001 increased by $8.6 million from fiscal year 2000 levels. This increase was primarily due to the impact of the settlement reached with the U.S. Navy to share in certain environmental insurance costs which resulted in the Company recognizing $3.9 million in revenue and the arbitration award on the Margarita II which contributed approximately $2.3 million in revenue, interest income and reimbursed expenses. Net income for fiscal year 2000 was impacted unfavorably by a net environmental and other reserve charge of $4.7 million, which contributed to the comparative increase shown in fiscal year 2001. Net income for fiscal year 2001 was also influenced as a result of the following components:
Revenues The Company recorded revenue of $116.5 million during fiscal year 2001, which represents a decrease of $7.3 million, or 6%, over fiscal year 2000 revenue. The Company recorded revenue of $114.2 million from repair and overhaul activities during fiscal year 2001 compared to $120.6 million in fiscal year 2000. In addition to the $6.4 million decrease in repair and overhaul activities, revenues from new construction decreased $0.9 million, resulting in the net decrease of in fiscal year 2001 revenue of $7.3 million.
Cost of Revenues Cost of revenues for fiscal year 2001 decreased $8.6 million, or approximately 10% from fiscal year 2000. Cost of revenues as a percentage of revenues was 66% and 69% for fiscal years 2001 and 2000, respectively. The decrease in cost of revenues as a percentage of revenue in fiscal year 2001 was primarily attributable to the $3.9 million in revenue the Company recognized on the agreement with the U.S. Navy to share in certain environmental insurance costs and the $1.9 million recognized on the Margarita II arbitration award. Costs associated with these revenues were either incurred in prior years or were not categorized as cost of revenues. If these amounts were excluded from revenue the resulting cost of revenues as a percentage of revised revenues would be 70%.
Administrative and Manufacturing Overhead Administrative and manufacturing overhead increased $0.3 million, or 1%, in fiscal year 2001 when compared to fiscal year 2000. As a percentage of revenue, administrative and manufacturing overhead was 24% of revenue in fiscal year 2001. This percentage increased to 25% if revenues were adjusted to exclude the favorable impacts to revenue that occurred in fiscal year 2001. Administrative and manufacturing overhead costs as a percentage of revenue in fiscal year 2000 was 22%. The increase in these costs as a percentage of revenue in fiscal year 2001 was primarily attributable to plant utility costs, contract acquisition costs, financial system implementation costs and costs associated with earthquake repairs.
Provision for Environmental Reserves and Other During fiscal year 2001, the Company provided $1.5 million in additional environmental and other reserves. In fiscal year 2000, the Company provided $5.6 million in additional environmental and other reserves associated with the remediation of Harbor Island.
The reserve increase of $1.5 million in fiscal year 2001 was fully offset by a net insurance settlement of $2.1 million realized by the Company during the fourth quarter of fiscal year 2001.
Investment and Other Income Investment and other income in fiscal year 2001 increased by $0.8 million, or 26% when compared to fiscal year 2000. Contributing to this increase was approximately $0.3 million in interest income that the Company recognized as a result of the Margarita II arbitration award.
Gain on Sale of available-for-sale securities Gain on sale of available-for-sale securities increased $0.6 million in fiscal year 2001 when compared to fiscal year 2000.
Income Taxes In fiscal year 2001, the Company recognized a $0.2 million federal income tax benefit after applying available net operating loss carryforwards and business tax credits. This represented a decrease of $0.9 million in income tax expense when compared to fiscal year 2000.
The fiscal year 2001 tax benefit is the result of the Company recording its net deferred tax asset on the balance sheet based on its ability to utilize this net asset in future years.
Environmental Matters and Other Contingencies
The Company has provided total aggregate reserves of $28.5 million as of March 31, 2002 for the forgoing contingent environmental and bodily injury liabilities. Due to the complexities and extensive history of the Company's environmental and bodily injury matters, the amounts and timing of future expenditures is uncertain. As a result, there can be no assurance that the ultimate resolution of these environmental and bodily injury matters will not have a material adverse effect on the Company's financial position, cash flows or results of operations.
The Company has various insurance policies and agreements that provide coverage on the costs to remediate environmental sites and for the defense and settlement of bodily injury cases. These policies and agreements are primarily with two insurance companies. Based upon the current credit rating of both of these companies, the Company anticipates that both parties will be able to perform under their respective policy or agreement. As of March 31, 2002, the Company has recorded an insurance receivable of $26.8 million to reflect the contractual arrangements with several insurance companies to share costs for certain environmental and other matters.
The Company continues to negotiate 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 a share of clean-up costs for certain sites and any such recoveries may be subrogated, in whole or in part, in favor of the Company's insurers. The Company has not recorded any receivables for any amounts that may be recoverable from such negotiations or other claims.
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 its Seattle shipyard (the "Harbor Island Site") and at several sites used by the Company for disposal of alleged hazardous waste. The Company has also been named as a defendant in civil actions by parties alleging damages from past exposure to toxic substances at Company facilities. Information with respect to these contingencies and claims is provided in Item 3 in this report.
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.
In fiscal year 2002, the Company directly spent $0.2 million for environmental site remediation. All of these costs are reimbursable to the Company through its insurance coverages. An additional $1.1 million in environmental site remediation was spent by third party vendors under the direction of the Company's management. These costs were paid directly to the third party vendors under the Company's insurance policies. Most of these expenditures were related to the Harbor Island Site.
In fiscal year 2001 and 2000, the Company spent approximately $0.2 million and $0.5 million on environmental site remediation, respectively. Of these amounts, approximately $0.1 million and $0.2 million were reimbursable to the Company under the Company's insurance policies.
In addition to environmental site remediation costs, the Company spent $0.5 million for bodily injury cases after reimbursement under the Company's insurance policies in fiscal year 2002. In fiscal year 2001 and 2000, the Company spent $0.4 million and $0.1 million, respectively for bodily injury cases after reimbursement under the Company's insurance policies.
Actual costs to address the Harbor Island Site 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. In fiscal 2000, the Company evaluated the financial impact of EPA actions changing the EPA's selected remedy relating to dredging affecting the "Shipyard Sediments Operable Unit" at the Harbor Island Site and increased its reserves through a charge to fiscal year 2000 earnings in the amount of $5.5 million. The Company anticipates that estimates of the cost of remediation will remain significantly uncertain until agreement on the selected remedy is reached. Such agreement is currently anticipated to occur in fiscal 2003.
Remediation costs at the Harbor Island Site may also be impacted by recent designation of several species of salmon under the Endangered Species Act.
In the fourth quarter of fiscal year 2001, the Company entered into a 30-year agreement with an insurance company that will provide the Company with broad- based insurance coverage for the remediation of the Company's operable units at the Harbor Island Superfund Site.
The agreement provides coverage for the known liabilities in an amount exceeding the Company's current booked reserves of $17.7 million. Additionally, the Company has entered into a 15-year agreement for coverage of any new environmental conditions discovered at the Seattle shipyard property that would require environmental remediation.
The Company funded this insurance premium from cash reserves in two installments. The first payment was made in the Company's fourth quarter of fiscal year 2001 and the second payment was made in the first quarter of fiscal year 2002. The Company recorded a non-current asset in the form of an insurance receivable in accordance with its environmental accounting policies at the time it entered into this agreement. This transaction did not have a material effect on the Company's results of operations, nor did the transaction have a material effect on stockholders' equity.
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. At March 31, 2002, the Company had approximately 377 cases involving approximately 570 plaintiffs pending against it and 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 assesses claims as they are filed and developed, analyzing them in two different categories based on severity of illness. The Company and its insurers are vigorously defending these actions. The Company's policy is to record accruals for bodily injury liabilities when it is probable that a liability has been incurred and the amount of liability can be reasonably estimated based on the known facts. Accordingly, potential expenses for claims that may be filed in the future related to alleged damage from past exposure to toxic substances are not estimable and are not included in the Company's reserves. Accruals for bodily injury liabilities are adjusted periodically as new or updated information becomes available.
The Company has entered into agreements with several of its insurers to provide coverage for a significant portion of settlements and awards related to these bodily injury claims. These agreements have aggregate limits on amounts to be paid overall and formulas for amounts of payment on individual claims. The two most significant agreements provide coverage applicable to claims of exposure to asbestos occurring between 1949 and 1976 and occurring between 1976 through 1987. Insurance coverage for exposures to asbestos was no longer available from the insurance industry after 1987. Due to changes in federal regulations in the 1970s which resulted in the swift decline in commercial and military application of asbestos and increased regulation over the handling and removal of asbestos, there exists minimal risk of claims arising from exposure after 1987. Contractual formulas are utilized to determine the amount of coverage from each agreement on each claim settled or litigated. Once the initial date of alleged exposure to asbestos is determined, all contractual years subsequent to that date participate in the settlement. Since all known claims involve alleged exposure prior to 1976, the 1976 through 1987 agreement will participate in the settlement or judgement of all outstanding claims that are settled or litigated. As a result, and as the years remaining calculation set forth below indicates, the 1976 through 1987 agreement will exhaust prior to the 1949 through 1976 agreement. Based on historical claims settlement data only, the Company projects that at March 31, 2002, the 1949 through 1976 agreement will provide coverage for an additional 20.6 years and the 1976 through 1987 agreement will provide coverage for an additional 5.2 years. At April 1, 2001, the Company projected that these agreements would provide coverage for an additional 23.7 years and 8.0 years, respectively. The increased declination of estimated coverage experienced from fiscal year 2001 to fiscal year 2002 was due to increased settlement activity on malignant cases including six cases that had been in inventory dating back as far as 1993. The Company resolved 20 malignant claims in 2002 compared with 16 in 2001 and 11 in 2000. If historical settlement patterns or the rate of filing for new cases change in future periods, these estimated coverage periods could be shorter or longer than anticipated. Moreover, if one or both of these coverages are exhausted at some future date, the Company's share of responsibility will increase for any subsequent claims' and legal expense previously covered by these insurance agreements. At March 31, 2002, the Company has recorded a bodily injury liability reserve of $9.4 million and a bodily injury insurance receivable of $7.1 million. At April 1, 2001, the Company recorded a bodily injury liability reserve of $10.6 million and a bodily injury insurance receivable of $7.8 million. These bodily injury liabilities and receivables are classified within the Company's Consolidated Balance Sheets as environmental and other reserves, and insurance receivables, respectively.
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, there can be no assurance that the current reserves will be adequate to cover the existing cases. Additionally, the Company cannot predict the eventual number of cases to be filed against the Company or their eventual resolution and does not include in its reserve amounts for cases that may be filed in the future. However, it is probable that if future cases are filed against the Company it will result in additional costs arising either from its share of costs under current insurance in place arrangements or due to the exhaustion of such coverage. The Company reviews the adequacy of existing reserves periodically based upon developments affecting these claims, including new filings and resolutions, and makes adjustments to the reserve and related insurance receivable as appropriate.
As the Company is not able to estimate its potential ultimate exposure for filed and unfiled claims against the Company, it cannot predict whether the ultimate resolution of the bodily injury cases will have a material effect on the Company's results of operations or stockholders' equity.
Liquidity, Capital Resources and Working Capital
At March 31, 2002, the Company's cash, cash equivalents and securities available-for-sale balances were $17.8 million and $13.8 million, respectively, for a total of $31.6 million. At April 1, 2001 the Company's cash, cash equivalents and securities available for sale balances were $11.9 million and $46.1 million, respectively, for a total of $58.0 million.
Fiscal year 2002 cash, cash equivalents and securities available-for-sale balances were impacted primarily by the Company's repurchase of approximately 4.1 million shares of its common stock through its "Dutch Auction" tender offer during the second quarter of fiscal year 2002. Upon completion, this offer reduced the Company's current cash, cash equivalents and securities available-for-sale balances by approximately $34 million. Also impacting cash, cash equivalents and securities available-for-sale balances was the payment made in the first quarter of fiscal year 2002, for insurance coverage relating to the remediation of all of the Company's operable units at the Harbor Island Superfund Site.
The Company anticipates that its remaining cash, cash equivalents and marketable securities position, anticipated fiscal year 2003 cash flow, access to credit facilities and capital markets, taken together, will provide sufficient liquidity to fund operations for fiscal year 2003. 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.
Net Cash Provided by Operating Activities Net cash provided by operating activities was $10.6 million for the year ended March 31, 2002 and was primarily attributable to fiscal year net income adjusted for depreciation and deferred taxes.
Net cash provided by operating activities was $8.3 million for the year ended April 1, 2001. Net cash provided by operating activities was primarily attributable to fiscal year net income, an increase in accounts payable, offset by an increase in insurance receivables.
Investing Cash Flows Net cash provided by investing activities was $29.8 million for the year ended March 31, 2002 and consisted primarily of maturities and sales of marketable securities offset partially by purchases of marketable securities and capital expenditures.
Net cash provided by investing activities was $0.4 million for the year ended April 1, 2001 and consisted primarily of maturities and sales of marketable securities offset by purchases of marketable securities and capital expenditures.
Capital Expenditures During fiscal year 2002, the Company spent approximately $2.2 million on new capital assets. This represents a decrease of $0.9 million from the $3.1 million spent in fiscal year 2001. This decrease is primarily attributable to the installation of a new Enterprise Resource Planning ("ERP") system that was completed in the fourth quarter of fiscal year 2001. The implementation of the ERP system accounted for approximately $1.0 million in fiscal year 2001 capital expenditures.
These capital expenditures are in addition to ongoing repair and maintenance expenditures in the Shipyard of $3.9 million, $3.6 million, and $3.3 million in fiscal years 2002, 2001 and 2000, respectively.
Financing Activities Net cash used in financing activities for fiscal year 2002 was $34.4 million. Cash used in financing activities during fiscal year 2002 consisted primarily of purchases of treasury stock resulting from the Company's Dutch Auction that was completed during the second quarter of fiscal year 2002.
Net cash used in financing activities for the fiscal year ended April 1, 2001 was $2.4 million. Cash used in financing activities during fiscal year 2001 consisted primarily of purchases of treasury stock.
Credit Facility During the first quarter of fiscal year 2002, Todd Pacific Shipyards Corporation, a wholly owned subsidiary of the Company, negotiated a $10.0 million revolving credit facility. The credit facility, which is renewable on a bi-annual basis, will provide Todd Pacific with greater flexibility in funding its operational cash flow needs. Todd Pacific had no outstanding borrowings as of March 31, 2002. Todd Pacific did not have a credit facility in place during fiscal year 2001 and therefore, had no outstanding borrowings as of April 1, 2001.
Commitments The Company is subject to certain minimum operating lease payments on two of its dry docks that are charged to expense. These operating lease payments contain renewal options and minimum amounts of annual maintenance clauses. These minimum lease commitments are summarized in Note 9. of the Notes to Consolidated Financial Statements.
A surety company has issued contract bonds totaling $5.4 million for current repair, maintenance and conversion jobs as of March 31, 2002. Todd Pacific's trade accounts receivable on certain bonded jobs secure these various contract bonds.
Stock Repurchase During the first quarter of fiscal year 2002, the Company announced a tender offer for up to 4.0 million shares of the Company's Common Stock at a price of not in excess of $8.25 or less than $7.00 per share. The exact price was determined by a procedure commonly referred to as a "Dutch Auction." This offer to repurchase up to 4.0 million shares from existing stockholders was approximately 42.7% of the total number of shares outstanding at that time.
Following verification of the tenders and receipt of shares tendered subject to guarantees of delivery, an aggregate of 4,136,124 shares were validly tendered at a price of $8.25 per share. The Company elected to increase the number of shares to be purchased in order to avoid proration procedures otherwise applicable to the offer, resulting in an aggregate purchase price of $34.1 million. The Company incurred expenses in connection with this offer of approximately $0.5 million. The Company utilized available cash and proceeds from available-for-sale securities to fund the share repurchases completed through the offer.
During the fourth quarter of fiscal year 2002, 30,000 shares of treasury stock were reissued pursuant to the exercise of stock options held by an officer of the Company. The number of shares held as treasury stock as of March 31, 2002, is 6,672,811.
During fiscal year 2001, the Company repurchased an aggregate of 358,800 shares of its Common Stock, at an average price per share of $7.00. The shares were repurchased at per share prices ranging from $6.56 to $7.75, for a total consideration of $2.5 million.
Labor Relations Todd Pacific Shipyards and the Puget Sound Metal Trades Council (the bargaining umbrella for all unions at Todd Pacific Shipyards) continue to operate under a collective bargaining agreement ratified in fiscal year 2000. That contract will expire July 31, 2002. Discussions with the unions for a new collective bargaining agreement began on June 11, 2002. Management considers its relations with the various unions to be stable.
Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has analyzed the impact of these statements and does not expect the adoption of either will have an impact on its financial statements.
In October 2001, the FASB, issued Statements of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective for fiscal years beginning after December 15, 2001, with transition provisions for certain matters. The FASB's new rules on asset impairment supersedes FASB Statement No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and provides a single accounting model for long-lived assets to be disposed of. The Company is currently analyzing the impact of this statement but does not expect the adoption will have a material impact on its financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company does not own any derivative financial instruments as of March 31, 2002, nor does it presently plan to in the future. However, the Company is exposed to interest rate risk. The Company's interest income is most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Company's cash equivalents and certain marketable securities. The Company's marketable securities are also subject to the inherent financial market risks and exposures of the related debt and equity securities in both U.S. and foreign markets. The Company employs established policies and procedures to manage its exposure to changes in the market risk of its marketable securities. The Company believes that the risk associated with interest rate and market fluctuations related to these marketable securities is not a material risk.
The Company is also exposed to potential interest rate risk on its revolving credit facility. Interest charged on the Company's credit facility is based on the prime lending rate, which may fluctuate based on financial market risks. Increases in the prime lending rate could increase the Company's borrowing costs under its existing credit facility. The Company believes that the risk associated with interest rate fluctuations related to its credit facility is not a material risk.
ITEM 8.
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 31, 2002 and April 1, 2001 and the related consolidated statements of income, cash flows and stockholders' equity, for each of the three years in the period ended March 31, 2002. Our audits also included the financial statement schedule listed in 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 auditing standards generally accepted in the United States. 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 statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Todd Shipyards Corporation and subsidiaries at March 31, 2002 and April 1, 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement 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.
Seattle, Washington /s/Ernst & Young LLP May 16, 2002
TODD SHIPYARDS CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 2002 and APRIL 1, 2001 (In thousands of dollars) 2002 2001 ASSETS Cash and cash equivalents $ 17,795 $ 11,901 Securities available-for-sale 13,841 46,112 Accounts receivable, less allowance for doubtful accounts of $150 and $100 U.S. Government 12,738 8,100 Other 3,086 8,045 Costs and estimated profits in excess of billings on incomplete contracts 5,648 9,619 Inventory 1,489 1,531 Deferred taxes 126 - Other current assets 428 360 Total current assets 55,151 85,668
Property, plant and equipment, net 16,595 17,358
Restricted cash 2,990 2,538 Deferred pension asset 30,823 30,758 Insurance receivable 26,798 26,102 Other long-term assets 1,323 1,266 Deferred taxes - 1,210 Total assets $133,680 $164,900
LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accruals $ 9,156 $ 18,847 Accrued payroll and related liabilities 2,438 1,348 Billings in excess of costs and estimated profits on incomplete contracts 2,864 1,633 Deferred taxes - 391 Taxes payable other than income taxes 1,397 922 Income taxes payable 1,917 1,654 Total current liabilities 17,772 24,795
Environmental and other reserves 28,467 27,730 Accrued post retirement health benefits 17,404 18,187 Deferred taxes 2,646 - Other non-current liabilities 1,394 1,107 Total liabilities 67,683 71,819
Commitments and contingencies
Stockholders' equity: Common stock $.01 par value-authorized 19,500,000 shares, issued 11,956,033 shares at March 31, 2002 and April 1, 2001, and outstanding 5,283,222 at March 31, 2002 and 9,362,680 at April 1, 2001 120 120 Paid-in capital 38,295 38,186 Retained earnings 74,463 67,445 Accumulated other comprehensive income 922 1,271 Treasury stock (47,803) (13,526) Notes receivable from officers for common stock - (415) Total stockholders' equity 65,997 93,081 Total liabilities and stockholders' equity $133,680 $164,900
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION CONSOLIDATED STATEMENTS OF INCOME Years Ended March 31, 2002, April 1, 2001, and April 2, 2000 (in thousands, except per share amounts)
2002 2001 2000 Revenues $121,945 $116,545 $123,851 Operating Expenses: Cost of revenues 84,787 77,411 86,058 Administrative and manufacturing overhead 30,721 27,801 27,532 Provision for environmental and other reserves - 1,501 5,569 Other - insurance settlements (465) (2,118) (918) Subtotal 115,043 104,595 118,241 Operating income 6,902 11,950 5,610
Investment and other income 1,816 3,889 3,077 Gain on sale of securities 2,216 713 136
Income before income tax expense 10,934 16,552 8,823 Income tax (expense) benefit (3,916) 175 (691)
Net income $ 7,018 $ 16,727 $ 8,132
Net income per Common Share:
Basic $ 1.05 $ 1.74 $ 0.83 Diluted $ 1.03 $ 1.73 $ 0.82
Weighted Average Shares Outstanding Basic 6,677 9,587 9,765 Diluted 6,827 9,676 9,861
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, 2002, April 1, 2001, and April 2, 2000 (in thousands of dollars) 2002 2001 2000 OPERATING ACTIVITIES: Net income $ 7,018 $16,727 $ 8,132 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,020 3,017 3,237 Environmental and other reserves 737 633 4,887 Deferred pension asset (65) (3,276) (2,700) Post retirement health benefits (783) (1,395) (1,110) Deferred income taxes 3,339 (819) - Decrease (increase) in operating assets: Costs and estimated profits in excess of billings on incomplete contracts 3,971 2,917 (9,717) Inventory 42 322 417 Accounts receivable 321 (3,146) 20,349 Insurance receivable (696) (15,447) 657 Other (net) 6 358 122 Increase (decrease) in operating liabilities: Accounts payable and accruals (9,691) 11,511 (2,651) Accrued payroll and related liabilities 1,377 (2,397) 1,045 Billings in excess of costs and estimated profits on incomplete contracts 1,231 (207) (2,583) Income taxes payable 263 (76) (2,133) Other (net) 475 (397) 139 Net cash provided by operating activities 10,565 8,325 18,091
INVESTING ACTIVITIES: Purchases of marketable securities (9,491) (16,836) (35,127) Sales of marketable securities 35,863 6,164 4,375 Maturities of marketable securities 5,550 14,465 6,298 Capital expenditures (2,171) (3,084) (1,567) Other - (260) 63 Net cash provided by (used in) investing activities 29,751 449 (25,958)
FINANCING ACTIVITIES: Restricted cash (452) 5 4 Purchase of treasury stock (34,631) (2,511) (1,916) Proceeds from exercise of stock options 246 120 - Notes receivable from officers for common stock 415 - - Net cash used in financing (34,422) (2,386) (1,912)
Net increase (decrease) in cash and cash equivalents 5,894 6,388 (9,779) Cash and cash equivalents at beginning of period 11,901 5,513 15,292 Cash and cash equivalents at end of period $ 17,795 $ 11,901 $ 5,513
Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 5 $ - $ 33 Income taxes 319 1,400 2,822
Noncash investing and financing activities: Exercise of stock options in exchange for notes receivable from officers - - 383 The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 2002, April 1, 2001, and April 2, 2000 (in thousands of dollars)
Accumulated Other Notes Common Paid-in Retained Comprehensive Treasury From Total Stock Capital Earnings Income Stock Officers Equity Balance at March 28, 1999 $120 $38,181 $42,586 $(182) $(9,617) $ - $71,088 Purchase of treasury stock - - - - (1,916) - (1,916) Exercise of stock options in exchange for notes receivable - (36) - - 419 (383) - Accrued interest notes - - - - - (10) (10) Comprehensive income: Net income for the year ended April 2, 2000 - - 8,132 - - - 8,132 Net change in unrealized gains (losses) on available- for-sale securities - - - (1,109) - - (1,109) Total comprehensive income 7,023 Balance at April 2, 2000 $120 $38,145 $50,718 $(1,291) $(11,114) $(393) $76,185 Purchase of treasury stock - - - - (2,511) - (2,511) Stock based compensation - 20 - - - - 20 Proceeds from exercise of stock options - 21 - - 99 - 120 Accrued interest notes - - - - - (22) (22) Comprehensive income: Net income for the year ended April 1, 2001 - - 16,727 - - - 16,727 Net change in unrealized gains (losses) on available- for-sale securities, (net, tax of $685) - - - 2,562 - - 2,562 Total comprehensive income 19,289
Balance at April 1, 2001 $120 $38,186 $67,445 $ 1,271 $ (13,526) $(415) $93,081
Purchase of treasury stock - - - - (34,631) - (34,631) Stock based compensation - 217 - - - - 217 Proceeds from exercise of stock options - (108) - - 354 - 246 Notes receivable from officers for common stock - - - - - 415 415 Comprehensive income: Net income for the year ended March 31, 2002 - - 7,018 - - - 7,018 Net change in unrealized gains (losses) on available- for-sale securities, (net, tax of $188) - - - (349) - - (349) Total comprehensive income 6,669 Balance at March 31, 2002 $120 $38,295 $74,463 $ 922 $ (47,803) $ - $65,997
The accompanying notes are an integral part of this statement.
TODD SHIPYARDS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended March 31, 2002, April 1, 2001, and April 2, 2000
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") and TSI Management, Inc. ("TSI"). All inter-company transactions have been eliminated. The Company's policy is to end its fiscal year on the Sunday nearest March 31. In accordance with this policy, the Company's fiscal year 2002, 2001 and 2000 included 52, 52, and 53 weeks, respectively. Certain reclassifications of prior year amounts in the Consolidated Financial Statements have been made to conform to the current year presentation, including the recording of certain other reserves and the related insurance receivable.
(B) Business - The Company's primary business is ship overhaul, conversion and repair for the United States Government, state ferry systems, and domestic and international commercial customers. The majority of the Company's work is performed at either its Seattle, Washington facility (the "Shipyard") or at the Puget Sound Naval Shipyard in Bremerton, Washington, by a unionized production workforce.
(C) Property, Plant and Equipment - Property, plant and equipment is carried at cost, net of accumulated depreciation. The Company capitalizes certain major repair activities when such activities are determined to increase the useful life or operating capacity of the asset. Depreciation and amortization are determined on the straight-line method based upon estimated useful lives (5-31 years) 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) Revenue Recognition - The Company recognizes revenue, contract costs, and profit on construction contracts in accordance with Statement of Position No. 81-1 (SOP No. 81-1), "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". Revenue, contract costs, and profit on contracts are recognized on the percentage-of-completion method (determined based on direct labor hours). Revenue, contract costs, and profits on time- and-material contracts are recorded based upon direct labor hours at fixed hourly rates and cost of materials as incurred. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is recorded. 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 accounting principles generally accepted in the United States 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) Inventory - 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 at the time acquired to be cash equivalents. Cash equivalents consist primarily of money market instruments, investment grade commercial paper and U.S. Government securities. The carrying amounts reported in the balance sheet are stated at cost, which approximates fair value.
(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 U.S. 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. Realized gains and losses are recorded based on historical cost.
(J) Stock Based Compensation - The Company has elected to apply the disclosure only provisions of Financial Accounting Standards Board Statement No. 123 (FAS 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 (APB 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 Remediation, Bodily Injury, Other Reserves, and Insurance Receivable - The Company accounts for environmental remediation 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. 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 are not discounted and exclude legal costs to defend against claims of other parties. Insurance or other third party recoveries for environmental liabilities are recorded separately at undiscounted amounts in the financial statements as insurance receivables when it is probable that a claim will be realized.
The Company accounts for bodily injury liabilities and other reserves in accordance with Financial Accounting Standards Board No.5, "Accounting for Contingencies". Accruals for bodily injury liabilities are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on the known facts. Civil actions relating to toxic substances vary according to the case's fact patterns, jurisdiction and other factors. Accordingly, any potential expenses for claims that may be filed in the future related to alleged damages from past exposure to toxic substances is not estimable and as such are not included in the Company's reserves.
Accruals for bodily injury liabilities are adjusted periodically as new information becomes available. Such accruals are included in the environmental and other reserves at undiscounted amounts and exclude legal costs to defend against claims of other parties. Insurance or other third party recoveries for bodily injury liabilities are recorded undiscounted in the financials statements as insurance receivables when it is probable that a claim will be realized.
(L) Earnings per Share - Basic earnings per share is computed based on weighted average shares outstanding. Diluted earnings per share includes the effect of dilutive securities (options and warrants) except where their inclusion is antidilutive.
(M) Comprehensive Income - Unrealized gains or losses on the Company's available-for-sale securities, are reported as other comprehensive income (loss) in the Consolidated Balance Sheets and Statement of Stockholders' Equity.
(N) Long-lived Assets - The Company's policy is to recognize impairment losses relating to long-lived assets based on several factors, including, but not limited to, management's plans for future operations, recent operating results and projected cash flows. To date no such impairment has been indicated.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has analyzed the impact of these statements and does not expect the adoption of either will have an impact on its financial statements.
In October 2001, the FASB, issued Statements of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective for fiscal years beginning after December 15, 2001, with transition provisions for certain matters. The FASB's new rules on asset impairment supersedes FASB Statement No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and provides a single accounting model for long-lived assets to be disposed of. The Company is currently analyzing the impact of this statement but does not expect the adoption will have a material impact on its financial statements.
3. RESTRICTED CASH AND SURETY LINE
A surety company has issued contract bonds totaling $5.4 million for current repair, maintenance and conversion jobs as of March 31, 2002. Todd Pacific's trade accounts receivable on certain bonded jobs secure these various contract bonds.
Included in Cash and Cash Equivalents is $0.2 million and $1.6 million as of March 31, 2002 and April 1, 2001, respectively, of short-term restricted cash. This short-term restricted cash is generally released upon completion or acceptance of the contracted work and completion of related warranty periods and consists primarily of amounts related to work for the Washington State Ferry System.
The long-term restricted cash relates primarily to the Harbor Island Superfund site clean up and will be released upon the Company satisfying certain remediation provisions.
4. 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 31, 2002 Debt securities U.S. Treasury securities and agency obligations $ 1,015 $ 6 $ - $ 1,021
U.S. corporate securities 2,333 41 - 2,374
Mortgage-backed securities 5,386 34 (26) 5,394
Total debt securities 8,734 81 (26) 8,789
Equity securities U.S. securities 2,832 1,185 (1) 4,016 Foreign stock 856 203 (23) 1,036 Total equity securities 3,688 1,388 (24) 5,052
Total securities $12,422 $1,469 $ (50) $13,841
April 1, 2001 Debt securities U.S. Treasury securities and agency obligations $ 6,987 $ 153 $ - $ 7,140
U.S. corporate securities 26,671 647 - 27,318
Mortgage-backed securities 4,986 58 - 5,044
Total debt securities 38,644 858 - 39,502
Equity securities U.S. securities 4,949 1,439 (323) 6,065 Foreign stock 563 38 (56) 545 Total equity securities 5,512 1,477 (379) 6,610
Total securities $44,156 $2,335 $ (379) $46,112
The Company had gross realized gains of $2.4 million, $1.4 million and $163 thousand on sales of available-for-sale securities for fiscal years 2002, 2001 and 2000 respectively.
The Company had gross realized losses of $0.2 million, $0.7 million and $27 thousand on sales of available-for-sale securities for fiscal year 2002, 2001 and 2000, 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 31, 2002
Available-for-sale debt: Due in one year or less $ 1,334 $ 1,335 Due after one year through three years 2,014 2,060 Subtotal 3,348 3,395
Mortgage-backed securities 5,386 5,394 Equity securities 3,688 5,052 Total $ 12,422 $ 13,841
April 1, 2001
Available-for-sale debt: Due in one year or less $ 9,744 $ 9,807 Due after one year through three years 23,914 24,651 Subtotal 33,658 34,458
Mortgage-backed securities 4,986 5,044 Equity securities 5,512 6,610 Total $ 44,156 $ 46,112
5. CONTRACTS
Auxiliary Oiler Explosive ("AOE") Contract During the first quarter of fiscal year 2002, the Company was awarded a six- year, sole source cost-type contract for phased maintenance repairs to four Department of Navy AOE class supply ships. This contract represents the fourth consecutive, multi-year contract that the Company has been awarded by the Navy on the AOE class vessels. The notional value of this new contract is expected to be approximately $180 million if all options are exercised. Work on this contract is being performed primarily in the Company's Seattle shipyard.
Combatant Maintenance Team ("CMT") Contract During the first quarter of fiscal year 2001, the Company was awarded, by the Department of the Navy on a sole source basis, a five year, cost-type contract for the repair and maintenance of six surface combatant class vessels (frigates and destroyers) stationed in the Puget Sound area. Although the Navy has not released a notional value of the maintenance work, the Company believes that the value may be approximately $60 million to $75 million if all options are exercised. Work on this contract is being performed primarily in the Company's Seattle shipyard.
Planned Incremental Availability ("PIA") During the fourth quarter of fiscal year 1999, the Department of the Navy awarded the Company a five-year cost-type contract for phased maintenance on three CVN class aircraft carriers. The notional value for this five-year contract is approximately $100 million if all options are exercised. Work on this contract is currently being performed at the Puget Sound Naval Shipyard, located in Bremerton, Washington.
Preservation Contract (the "MV Yakima") During the second quarter of fiscal year 2000, the Company was awarded a $29 million overhaul contract to renovate the Washington State Ferry, MV Yakima. Work on this project commenced during the third quarter of fiscal year 2000 and called for the replacement or renovation of the majority of the vessel's interior structures, including the replacement of steel plating, passenger area furniture, galley, fixtures, windows, and the removal of hazardous materials.
During the fourth quarter of fiscal year 2001, the Company successfully completed and delivered the vessel to the Washington State Ferry System ahead of the contractually scheduled delivery date. The Company earned financial incentives for the early delivery of the vessel and these incentives were recognized in fiscal year 2001 contract revenue.
Power Barge Contract (the "Margarita II") In the second quarter of fiscal year 1999, the Company commenced work on a floating electrical power plant, the Margarita II. 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, at the time of vessel delivery, an agreement had not reached between the Company and the owner regarding the potential increase in the contract price to compensate for all of these changes.
In accordance with the terms of the contract, the Company and the vessel owner agreed to settle the remaining change orders through a formal arbitration process. Subsequent to the end of fiscal year 2001, the Company was awarded approximately $1.9 million, as well as interest and certain agreed expenses from the arbitration board. The Company recognized the award in fiscal year 2001.
Unbilled Receivables - Certain unbilled items on completed contracts included in accounts receivable were approximately $1.2 million at March 31, 2002 and $6.8 million at April 1, 2001. The $5.6 million decrease in unbilled items on completed contracts in fiscal year 2002 is primarily attributable to two significant fiscal year 2001 events. First, the Company recognized $3.9 million in revenue under terms of an agreement reached with the Navy on certain environmental insurance costs. Second, the Company recorded $1.9 million in revenue when it was notified of a favorable arbitration award on the Margarita II contract. These amounts totaling $5.8 million were recorded in fiscal year 2001 as unbilled items and subsequently invoiced and collected in fiscal year 2002.
Customers - Revenues from the U.S. Government were $96.1 million (79%), $74.5 million (64%), and $89.3 million (72%) in fiscal years 2002, 2001 and 2000, respectively. Revenues from the Washington State Ferry System were $10.3 million (8%), $25.0 million (21%), and $18.4 million (15%) in fiscal year 2002, 2001 and 2000, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment and accumulated depreciation at March 31, 2002 and April 1, 2001 consisted of the following (in thousands):
2002 2001 Land $ 1,151 $ 1,151 Buildings 11,818 11,777 Piers, shipways and drydocks 23,401 23,108 Machinery and equipment 37,301 35,531 Total plant and equipment, at cost 73,671 71,567
Less accumulated depreciation (57,076) (54,209) Plant, property and equipment, net $ 16,595 $ 17,358
The Company recognized $3.0 million, $3.0 million, and $3.2 million of depreciation expense in fiscal years 2002, 2001 and 2000, respectively.
7. PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company provides defined pension benefits and postretirement benefits to employees as described below.
Nonunion Pension Plans - The Company sponsors the Todd Shipyards Corporation Retirement System (the "Retirement System"), a noncontributory defined benefit plan under which all nonunion employees are covered. The benefits are based on years of service and the employee's compensation before retirement. The Company's funding policy is to fund such retirement costs as required to meet allowable deductibility limits under current Internal Revenue Service regulations. The Retirement System plan assets consist principally of common stocks and Government and corporate obligations. Plan assets at April 1, 2001, included 172,000 shares of the Company's stock valued at $7.00 per share. During fiscal year 2002, all of these shares were tendered to the Company under the Company's "Dutch Auction," therefore at March 31, 2002 the Plan assets did not include any Company stock.
Under a provision of the Omnibus Budget Reform Act of 1990 ("OBRA `90") the Company transferred approximately $1.6 million and $1.7 million in excess pension assets from its Retirement System into a fund to pay fiscal year 2002 and 2001 retiree medical benefit expenses, respectively. OBRA `90 was modified by the Work Incentives Improvement Act of 1999 to extend annual excess asset transfers through the fiscal year ending March 2006.
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 meet 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.
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 following is a reconciliation of the benefit obligation, plan assets, and funded status of the Company's sponsored plans. Other Postretirement Pension Benefits Benefits 2002 2001 2002 2001 Change in Benefit Obligation (in thousands of dollars) Benefit obligation at beginning of year $35,507 $36,385 $16,173 $13,751 Service cost 480 400 - - Interest cost 2,284 2,395 1,046 904 Actuarial (gain)/loss (1,550) (663) - 3,228 Benefits paid (3,345) (3,010) (1,627) (1,710) Benefit obligation at end of year $33,376 $35,507 $15,592 $16,173
Other Postretirement Pension Benefits Benefits 2002 2001 2002 2001 Change in Plan Assets (in thousands of dollars) Fair value of plan assets at beginning of year $63,469 $69,243 $ - $ - Actual gain (loss) on plan assets 2,262 (1,098) - - Employer contribution - - 40 44 Asset transfer (1,587) (1,666) 1,587 1,666 Benefits paid (3,345) (3,010) (1,627) (1,710) Fair value of plan assets at end of year $60,799 $63,469 $ - $ -
Other Postretirement Pension Benefits Benefits 2002 2001 2002 2001 Funded Status Reconciliation (in thousands of dollars) Funded status of plans $27,423 $27,962 $(15,592) $(16,173) Unrecognized prior service cost 597 842 - - Unrecognized (gain)/loss 2,803 1,954 (3,272) (3,406) Deferred pension asset (accrued liability) $30,823 $30,758 (18,864) (19,579) Less: current portion included in "Accounts payable and accruals" - - 1,460 1,392 Long-term accrued postretirement health benefits - - $(17,404) $(18,187)
Other Postretirement Pension Benefits Benefits 2002 2001 2002 2001 Weighted Average Assumptions Discount rate 7.00% 7.00% 7.00% 7.00% Expected return on plan assets 7.50% 7.50% - - Rate of compensation increase 4.50% 4.50% - - Medical trend rate (retirees) (1) - - 10.00% 12.00%
(1) Postretirement benefit medical trend rate in fiscal year 2002 is 10.00% graded to 6.00% over 4 years. Fiscal year 2001 is 12.00% graded to 6.00% over 5 years.
Other Postretirement Pension Benefits Benefits 2002 2001 2000 2002 2001 2000 Components of Net Periodic Benefit Cost (in thousands of dollars) Service Cost $ 480 $ 400 $ 237 $ - $ - $ - Interest cost on projected benefit obligation 2,283 2,396 2,528 1,046 904 948 Expected return on plan assets (4,660) (5,568) (4,737) - - - Amortization of transition obligation - (2,415) (2,415) - - - Amortization of prior service cost 245 245 245 - - - Recognized actuarial (gain)/loss - - - (174) (522) (607) Net periodic (benefit) cost before OBRA '90 (1,652) (4,942) (4,142) 872 382 341 Transfer of assets for payment of retiree medical benefits (401(h) Plan) 1,587 1,666 1,442 (1,587) (1,666) (1,442) Net periodic benefit $ (65) $(3,276) $(2,700) $(715) $(1,284) $(1,101)
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects: Other Postretirement Benefits 2002 2001 Effect of a 1% Increase in the Health Care Cost Trend On: (in thousands of dollars) Service cost plus interest cost $ 83 $ 86 Accumulated postretirement benefit obligation $ 1,176 $ 1,219
Effect of a 1% Decrease in the Health Care Cost Trend On: (in thousands of dollars) Service cost plus interest cost $ (73) $ (76) Accumulated postretirement benefit obligation $(1,050) $(1,087)
Union Pension Plans - Operating Shipyard - The Company participates in several multi-employer plans, which provide defined benefits to the Company's collective bargaining employees. The expense for these plans totaled $2.6 million, $2.5 million and $2.8 million, for fiscal years 2002, 2001 and 2000, respectively.
Union Pension Plans - Previously Operated Shipyards - The Company no longer sponsors union pension plans attributable to the prior operation of other shipyards. The ongoing operation and management of these plans have either been terminated or transferred to other parties.
Savings Investment Plan - The Company sponsors a Savings Investment Plan (the "Savings Plan"), under Internal Revenue Code Section 401, covering all non- union employees. Under the terms of the Savings Plan, which were modified in fiscal year 2001, the Company now contributes an amount up to 2.4% of each participant's annual salary depending on the participant's Savings Plan contributions. These Company contributions are subject to a two-year cliff- vesting. The Company incurred expenses related to this plan of $0.1 million and $38 thousand in fiscal years 2002 and 2001, respectively. The Company did not incur expenses related to this plan in fiscal year 2000.
8. INCOME TAXES
Components of the income tax expense (benefit) are as follows (in thousands):
2002 2001 2000
Current tax expense $ 390 $ 1,329 $ 691 Deferred tax expense (benefit) 3,526 (1,504) - Total income tax expense (benefit) $ 3,916 $ (175) $ 691
The provision for income taxes differs from the amount of tax determined by applying the federal statutory rate and is as follows (in thousands):
2002 2001 2000 Tax provision at federal statutory tax rate $ 3,827 $ 5,793 $ 3,088 Decrease in valuation allowance - (5,905) (2,529) Other - net 89 (63) 132 Income tax expense (benefit) $ 3,916 $ (175) $ 691
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 31, 2002 and April 1, 2001 were as follows (in thousands):
2002 2001 Deferred income tax assets:
Alternative minimum tax credit carryforwards $ 2,590 $ 2,863 Accrued employee benefits 7,465 7,298 Environmental and other reserves 9,964 9,706 Inventory reserves 98 98 Reserve for doubtful accounts 53 35 Other 487 527 Total deferred income tax assets 20,657 20,527
Deferred income tax liabilities: Insurance receivable 9,379 5,556 Deferred pension income 10,788 10,766 Accelerated depreciation 1,943 2,174 Contract deferrals 362 351 Securities available-for-sale 497 685 Other 208 176 Total deferred income tax liabilities 23,177 19,708
Net deferred tax asset (liability) $ (2,520) $ 819
During fiscal year 2002, the Company utilized approximately, $0.3 million in alternative minimum tax credits. The Company has approximately $2.6 million in remaining alternative minimum tax credit carryforwards that can be used in the future and have no expiration date. During fiscal year 2001, the Company fully utilized its remaining net operating loss and tax credit carryforwards.
Prior to fiscal year 2001, the Company recorded its deferred tax assets on the balance sheet net of a valuation reserve due to the uncertainty of its ability to generate consistent, sustainable taxable income from its core shipyard operations. In fiscal year 2001, the Company recorded its net deferred tax asset on the balance sheet based on its ability to utilize this net asset in future years.
9. LEASES
Operating lease payments charged to expense were $0.9 million, $1.5 million and $1.2 million for fiscal years 2002, 2001 and 2000, respectively. Certain leases contain renewal options and minimum amounts of annual maintenance clauses. Minimum lease commitments at March 31, 2002 are summarized below (in thousands):
Operating Leases 2003 $ 857 2004 815 2005 788 2006 783 2007 71 Thereafter 245
Total minimum lease commitments $ 3,559
10. FINANCING ARRANGEMENTS
During the first quarter of fiscal year 2002, Todd Pacific Shipyards Corporation, a wholly owned subsidiary of the Company, negotiated a $10.0 million revolving credit facility with interest at the prime rate. The credit facility, which is renewable on a bi-annual basis, will provide the Todd Pacific with greater flexibility in funding its operational cash flow needs. Todd Pacific had no outstanding borrowings as of March 31, 2002. Todd Pacific did not have a credit facility in place during fiscal year 2001 and therefore, had no outstanding borrowings as of April 1, 2001.
11. ENVIRONMENTAL AND OTHER RESERVES
The Company faces potential liabilities in connection with the alleged presence of hazardous waste materials at its Seattle shipyard and at several sites used by the Company for disposal of alleged hazardous waste. The Company continues to analyze environmental matters and associated liabilities for which it may be responsible. No assurance can be given as to the existence or extent of any 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.
Harbor Island Site Insurance
In the fourth quarter of fiscal year 2001, the Company entered into a 30-year agreement with an insurance company that will provide the Company with broad- based insurance coverage for the remediation of the Company's operable units at the Harbor Island Superfund Site.
The agreement provides coverage for the known liabilities in an amount exceeding the Company's current booked reserves of $17.7 million. Additionally, the Company has entered into a 15-year agreement for coverage of any new environmental conditions discovered at the Seattle shipyard property that would require environmental remediation.
The Company recorded a non-current asset in the form of an insurance receivable in accordance with its environmental accounting policies at the time it entered into this agreement. This transaction did not have a material effect on the Company's results of operations, nor did the transaction have a material effect on stockholders' equity.
Harbor Island Site History
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. Removal of floating petroleum product from the water table began in October 1998 and is anticipated to continue through fiscal year 2005. The Company and the EPA are currently negotiating the extent and methodology of the soil remediation.
During the third quarter of fiscal year 1997, 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 remedy (the "Selected Remedy"). The Selected Remedy requires sediment dredging, and installation of a clean sediment cap and various monitoring efforts extending over ten years. The Selected Remedy included dredging and disposal of approximately 116,000 cubic yards of material currently in the Duwamish River and Elliott Bay surrounding the Shipyard. During the third quarter of fiscal year 2000, the EPA expanded the boundaries of the SSOU issuing their Phase 1B Data Report and resulting Explanation of Significant Differences outlining the changes to the ROD.
Within the newly established SSOU boundary the Company could be required to increase the amount of material to be dredged to 150,000 - 200,000 cubic yards of sediment material. The current proposed method of disposal is in an approved upland disposal site. The Company evaluated what it believed was the financial impact of the EPA's actions and this resulted in a charge against fiscal year 2000 earnings of $5.5 million. During the fourth quarter of fiscal year 2000, the Company and the EPA entered into an Administrative Order on Consent for the development of the remedial design for the SSOU. The Management anticipates that during fiscal year 2003 agreement will be reached with the EPA on a remedial design that identifies the scope of remediation and the method of sediment disposal. Pursuant to the current schedule, remediation of the SSOU will begin in the third quarter of fiscal 2004. Current environmental regulations limit the period of time during the year that dredging may occur. Given these limits, the completion of dredging in the SSOU will require several years to complete. The cost of the SSOU clean up will remain significantly uncertain until agreement has been reached with the EPA during fiscal year 2003.
During the Company's fiscal year 2000, several species of salmon in Washington State were designated under the Endangered Species Act. The potential impact the designation could have on the remedial efforts on the Harbor Island Superfund site is unknown at this time, although any related costs within aggregate policy limits will be covered by insurance purchased in January 2001. As of March 31, 2002, the Company believes that aggregate policy limits are currently adequate to cover this potential impact.
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 on Consent to perform certain limited testing as part of the SOU investigation. After an evaluation of the results, the EPA issued a draft "no action" ROD on the SOU for public comment which if issued in final form would end the investigation of the SOU requiring no remedial action. The public comment period closed during the Company's fourth quarter of fiscal year 2000 and the EPA has not yet announced the results. The Company's environmental reserves for the entire Harbor Island Site aggregated $17.7 million at March 31, 2002.
Other Environmental Remediation Matters
In January 2001, the EPA issued Special Notice letters naming the PRPs on the Hylebos Waterway Operable Unit of the Commencement Bay Superfund Site in Tacoma, Washington. The Company was not included on the EPA's list. Todd has been notified by other PRPs of their intent to bring a contribution action against the Company. Subsidiaries of the Company had a presence on the site from 1917-1925 and again from 1939-1946, for the most part, coinciding with World Wars I and II when the Company built war ships at the direction of the United States government. Several parties in 2000 hired an allocator to assign percentages of responsibility to all parties, historical and present, notwithstanding potential defenses or contractual claims. The allocator's findings were taken into account in including an estimate of potential liability in the Company's reserve discussed below.
During the fourth quarter of fiscal year 2001, the Company received a request for information from the EPA regarding the Agriculture Street Landfill Superfund Site in New Orleans, Louisiana. The EPA informed the Company that the area was used as a landfill from 1909 through 1934 and then sporadically until its final closure in 1966. The Company has indicated to the EPA that it has no information regarding this site. No estimate of potential liability has been included in the Company's reserves discussed below.
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. Immaterial payments began in fiscal year 1997 and will extend for up to ten years.
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 $0.6 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. During fiscal year 2002 the Company entered into a Final Consent Decree with the EPA to contribute an additional $0.4 million in final settlement of its alleged liability on this site. The Company expects the Final Consent Decree to be entered by the United States District Court during fiscal year 2003 with payment due shortly thereafter.
Asbestos-Related Claims
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. At March 31, 2002, the Company had approximately 377 cases involving approximately 570 plaintiffs pending against it and 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 assesses claims as they are filed and developed, analyzing them in two different categories based on severity of illness. Based on current fact patterns, certain diseases including mesothelioma, lung cancer and fully developed asbestosis are categorized by the Company as "malignant" claims. All others of a less medically serious nature are categorized as "non- malignant". The Company is currently defending approximately 35 "malignant" claims and approximately 535 "non-malignant" claims. The Company and its insurers are vigorously defending these actions. See Item 3. Legal Proceedings for additional claim information.
The Company has entered into agreements with several of its insurers to provide coverage for a significant portion of settlements and awards related to these bodily injury claims. These agreements have aggregate limits on amounts to be paid overall and formulas for determining amounts of payment on individual claims. The two most significant agreements provide coverage applicable to claims of exposure to asbestos occurring between 1949 and 1976 and occurring between 1976 through 1987. Insurance coverage for exposures to asbestos was no longer available from the insurance industry after 1987. Due to changes in federal regulations in the 1970s which resulted in the swift decline in commercial and military application of asbestos and increased regulation over the handling and removal of asbestos, there exists minimal risk of claims arising from exposure post 1987. Contractual formulas are utilized to determine the amount of coverage from each agreement on each claim settled or litigated. Once the initial date of alleged exposure to asbestos is determined, all contractual years subsequent to that date participate in the settlement. Since all known claims involve alleged exposure prior to 1976, the 1976 through 1987 Agreement will participate in the settlement or judgement of all outstanding claims that are settled or litigated. As a result, and as the years remaining calculation set forth below indicates, the 1976 through 1987 agreement will exhaust prior to the 1949 through 1976 agreement. Based on historical claims settlement data only, the Company projects that at March 31, 2002, the 1949 through 1976 agreement will provide coverage for an additional 20.6 years and the 1976 through 1987 agreement will provide coverage for an additional 5.2 years. At April 1, 2001, the Company projected that these agreements would provide coverage for an additional 23.7 years and 8.0 years, respectively. The increased declination of estimated coverage experienced from fiscal year 2001 to fiscal year 2002 was due to increased settlement activity on malignant cases including six cases that had been in inventory dating back as far as 1993. The Company resolved 20 malignant claims in 2002 compared with 16 in 2001 and 11 in 2000. If historical settlement patterns or the rate of filing for new cases change in future periods, these estimated coverage periods could be shorter or longer than anticipated. Moreover, if one or both of these coverages are exhausted at some future date, the Company's share of responsibility will increase for any subsequent claims' expense previously covered by these insurance agreements. At March 31, 2002, the Company has recorded a bodily injury liability reserve of $9.4 million and a bodily injury insurance receivable asset of $7.1 million. At April 1,2001, the Company had recorded a bodily injury liability reserve of $10.6 million and a bodily injury insurance receivable of $7.8 million. These bodily injury liabilities and receivables are classified within the Company's Consolidated Balance Sheets as environmental and other reserves, and insurance receivables, respectively.
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, there can be no assurance that the current reserves will be adequate to cover the costs of resolving existing cases. Additionally, the Company cannot predict the eventual number of cases to be filed against it or their eventual resolution and does not include in its reserve amounts for cases that may be filed in the future. However, it is probable that if future cases are filed against the Company it will result in additional costs arising either from its share of costs under current insurance in place arrangements or due to the exhaustion of such coverage. The Company reviews the adequacy of existing reserves periodically based upon developments affecting these claims, including new filings and resolutions, and makes adjustments to the reserve and related insurance receivable as appropriate.
As the Company is not able to estimate its potential ultimate exposure for filed and unfiled claims against the Company, it cannot predict whether the ultimate resolution of the bodily injury cases will have a material effect on the Company's results of operations or stockholders' equity.
The Company has recorded $0, $1.5 million and $5.6 million in charges against earnings in fiscal years 2002, 2001, and 2000, respectively relating to additional reserves for environmental and bodily injury matters. These charges are classified in the Company's Consolidated Statements of Income as a Provision for environmental and other reserves. The Company's remediation costs and bodily injury claims paid are charged against the reserves recorded when paid. In certain cases, amounts paid by the Company are reimbursable under its existing contractual arrangements with several insurance companies. These reimbursements are recorded against the environmental insurance asset when collected. In other cases, the Company manages work conducted by third party vendors and submits invoices to its insurance companies for reimbursement on behalf of the third party vendor. In these cases, the insurance companies reimburse the third party vendor directly. These expenses and payments associated with third party vendors are taken into consideration when estimating the Company's environmental and bodily injury liabilities and amounts available for reimbursement under its contractual arrangements. In addition to providing coverage for assessments or settlements of claims, the agreements also provide for costs of defending and processing such claims.
The Company continues to negotiate with its insurance carriers and prior landowners and operators for certain past and future remediation costs. The Company has reached various agreements with its insurance carriers regarding the carriers' obligations for property damage occurring in previous fiscal years. These settlements were recorded as income and totaled $0.5 million, $2.1 million and $0.9 million in fiscal years 2002, 2001 and 2000, respectively. These settlements are classified in the Company's Consolidated Statements of Income as Other - insurance settlements.
The Company has provided total aggregate reserves of $28.5 million as of March 31, 2002 for the above, described contingent environmental and bodily injury liabilities. Due to the complexities and extensive history of the Company's environmental and bodily injury matters, the amounts and timing of future expenditures is uncertain. As a result, there can be no assurance that the ultimate resolution of these environmental and bodily injury matters will not have a material adverse effect on the Company's financial position, cash flows or results of operations.
The Company has various insurance policies and agreements that provide coverage on the costs to remediate environmental sites and for the defense and settlement of bodily injury cases. These policies and agreements are primarily with two insurance companies. Based upon the current credit rating of both of these companies, the Company anticipates that both parties will be able to perform under the policy or agreement. As of March 31, 2002, the Company has recorded an insurance receivable asset of $26.8 million to reflect contractual arrangements with several insurance companies to share costs for certain environmental matters.
12. 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, tax matters and Government procurement regulations. In addition, the Company is subject to various risks from natural disasters such as the earthquake that struck the Puget Sound area during the fourth quarter of fiscal year 2001. 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.
The Company does not believe these risks or legal matters will have a material adverse impact on its financial position, results of operations, or cash flows. However, the Company continues to evaluate its exposures in each of these areas and may revise its estimates as necessary.
As a general practice within the defense industry, the Defense Contract Audit Agency ("DCAA") and other government agencies continually review the cost accounting practices of Government contractors. In the course of these reviews, cost accounting issues are identified, discussed and settled or resolved through agreements with the government's authorized contracting officer or through legal proceedings. Other than the normal cost accounting issues raised by the DCAA as a result of their ongoing reviews, the Company is not aware of any outstanding issues with the DCAA.
13. COLLECTIVE BARGAINING AGREEMENT
Todd Pacific Shipyards and the Puget Sound Metal Trades Council (the bargaining umbrella for all unions at Todd Pacific Shipyards) continue to operate under a collective bargaining agreement ratified in fiscal year 2000. That contract will expire July 31, 2002. Discussions with the unions for a new collective bargaining agreement began on June 11, 2002. Management considers its relations with the various unions to be stable.
14. TREASURY STOCK
During the first quarter of fiscal year 2002, the Company announced a tender offer for up to 4.0 million shares of the Company's Common Stock at a price of not in excess of $8.25 or less than $7.00 per share. The exact price was determined by a procedure commonly referred to as a "Dutch Auction." This offer to repurchase up to 4.0 million shares from existing stockholders was approximately 42.7% of the total number of shares outstanding at that time.
Following verification of the tenders and receipt of shares tendered subject to guarantees of delivery, an aggregate of 4,136,124 shares were validly tendered at a price of $8.25 per share. The Company elected to increase the number of shares to be purchased in order to avoid proration procedures otherwise applicable to the offer, resulting in an aggregate purchase price of $34.1 million. The Company incurred expenses in connection with this offer of approximately $0.5 million. The Company utilized available cash and proceeds from available-for-sale securities to fund the share repurchases completed through the offer.
During fiscal year 2001, the Company under a stock repurchase plan repurchased an aggregate of 358,800 shares of its Common Stock, at an average price per share of $7.00. The shares were repurchased at per share prices ranging from $6.56 to $7.75, for a total consideration of $2.5 million.
The following table summarizes the total number of common shares outstanding, held in treasury and issued by the Company during the past three fiscal years.
Total Shares of Common Stock Held in Outstanding Treasury Issued As of March 28, 1999 9,910,180 2,045,853 11,956,033 Shares Repurchased (293,700) 293,700 - Options Exercised 85,000 (85,000) - As of April 2, 2000 9,701,480 2,254,553 11,956,033 Shares Repurchased (358,800) 358,800 - Options Exercised 20,000 (20,000) - As of April 1, 2001 9,362,680 2,593,353 11,956,033 Shares Repurchased through Dutch Auction (4,136,124) 4,136,124 - Options Exercised 56,666 (56,666) - As of March 31, 2002 5,283,222 6,672,811 11,956,033
15. INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share:
March 31, April 1, April 2, 2002 2001 2000 (in thousands, except per share amount) Numerator: Numerator for basic and diluted net income per share: Net income $ 7,018 $ 16,727 $ 8,132
Denominator: Denominator for basic net income per share - weighted average common shares outstanding 6,677 9,587 9,765 Effect of dilutive securities Stock options based on the treasury stock method using average market price 150 89 96 Denominator for diluted net income per share 6,827 9,676 9,861
Basic income per share $ 1.05 $ 1.74 $ 0.83 Diluted income per share $ 1.03 $ 1.73 $ 0.82
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 1,000,000 shares of common stock has been authorized for issuance under the Plan. Options issued under the Plan generally 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 235,000 options available for future grant under the Plan at March 31, 2002.
A summary of stock option transactions for the years ended March 31,2002, April 1, 2001 and April 2, 2000 is as follows:
Number Option Price Weighted Average of Shares Per Share Exercise Price Outstanding, March 28, 1999 340,000 $4.25 to $6.00 $4.74 Granted 10,000 4.38 4.38 Exercised (85,000) 4.50 4.50 Outstanding, April 2, 2000 265,000 4.25 to 6.00 4.80 Granted 415,000 6.55 to 7.94 6.72 Exercised (55,000) 4.56 to 6.00 5.48 Outstanding, April 1, 2001 625,000 4.25 to 7.94 6.01 Exercised (116,666) 4.25 to 6.00 4.61 Outstanding, March 31, 2002 508,334 4.25 to 7.94 6.33 Exercisable, March 31, 2002 245,001 $4.25 to $7.94 $6.00
As described in Note 1, the Company accounts for stock-based compensation to its employees and directors using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for awards. Generally, no compensation expense has been recognized for such awards because the fair value of the underlying common stock equals the exercise price of the stock options granted. The outstanding stock options have a contractually weighted-average life of 6.0 years as of March 31, 2002.
If compensation costs had been recognized based on the fair value of the grant for options awarded under the Plan, the fair value would have been calculated using a Black-Scholes option pricing model with the following weighted-average assumptions on the option grant date:
Employee Stock Option Year Ended 2001 2000 Expected life (years) 4 4 Expected volatility 38% 38% Risk-free interest rate 6% 6% Expected dividend yield 0% 0%
The weighted average fair value of options granted during 2001 and 2000 was $2.55 and $1.81, respectively. No options were granted during fiscal year 2002.
Under SFAS 123, if the Company had elected to recognize the compensation cost based on the fair value of the options granted at the grant date, net income would have decreased as follows (the estimated fair value of the options is amortized to expense over the options' vesting period):
(in thousands, Year Ended except per share data) 2002 2001 2000 Net income: As reported $ 7,018 $ 16,727 $ 8,132 Pro forma 6,790 16,663 8,109
Net income per share: Basic As reported $ 1.05 $ 1.74 $ 0.83 Pro forma 1.02 1.74 0.83
Diluted As reported $ 1.03 $ 1.73 $ 0.82 Pro forma 0.99 1.72 0.82
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter for the fiscal years ended March 31, 2002 and April 1, 2001 are as follows. Each quarter is 13 weeks in length. (in thousands): Net Operating Income per income Net Diluted Revenues (loss) income Share
1st Qtr 2002 $ 31,242 $ 1,868 $ 1,802 $ 0.19 2nd Qtr 2002 31,017 2,167 2,971 0.43 3rd Qtr 2002 30,556 1,360 1,124 0.21 4th Qtr 2002 29,130 1,507 1,121 0.21
1st Qtr 2001 $ 33,401 $ 2,405 $ 2,320 $ 0.24 2nd Qtr 2001 28,681 2,276 2,602 0.27 3rd Qtr 2001 24,489 (483) 2,420 0.25 4th Qtr 2001(1) 29,974 7,752 9,385 0.99
(1) The fourth quarter of fiscal year 2001 reflects $3.9 million in additional revenue resulting from an agreement reached with the U.S. Navy to share in certain environmental insurance costs and $1.9 million in revenue associated with the Margarita II arbitration award and $0.4 million of related interest and expenses, and reversal of $5.9 million valuation allowance on deferred tax assets.
Todd Shipyards Corporation Schedule II - Valuation and Qualifying Reserves For years ending March 31, 2002, April 1, 2001 and April 2, 2000 (in thousands)
Reserves deducted from assets to which they apply - Allowance for doubtful accounts: Year Ended March 31, April 1, April 2, 2002 2001 2000 Balance at beginning of period $ 100 $ 100 $ 184 Charged to costs and expenses 13 81 52 (Deductions) recoveries from reserves (1) 37 (81) (136) Balance at close of period $ 150 $ 100 $ 100
Notes: (1) Deductions from reserves represent uncollectible accounts written off less recoveries.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCED DISCLOSURE None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT **
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION **
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT **
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS **
** The information for the above items will be provided in, and is incorporated by reference to, the 2002 Proxy Statement.
PART IV
ITEM 14.
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.
All other schedules have been omitted because the required information is included in the Consolidated Financial Statements, or the notes thereto, or is not applicable or required.
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
None
TODD SHIPYARDS CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE COVERED BY REPORT OF INDEPENDENT AUDITORS
Report of Ernst & Young LLP, Independent Auditors.............. *
Consolidated Balance Sheets at March 31, 2002 and April 1, 2001 ........................................... *
Consolidated Statements of Income For the years ended March 31, 2002, April 1, 2001 and April 2, 2000. ............................. *
Consolidated Statements of Cash Flows For the years ended March 31, 2002, April 1, 2001 and April 2, 2000. ............................. *
Consolidated Statements of Stockholders' Equity For the years ended March 31, 2002, April 1, 2001 and April 2, 2000. ............................. *
Notes to Consolidated Financial Statements For the years ended March 31, 2002, April 1, 2001 and April 2, 2000. ............................. *
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 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.
10-2 Todd Shipyards Corporation Retirement System Plan * and Amendments thereto filed in the Company's Form 10-K Report for 1995 as Exhibit 10-10.
10-3 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.
10-6 Employment contract between the Company and Stephen G. * Welch dated February 7, 2001.
10-7 Grant of Incentive Stock Option dated February 7, 2001 * to Stephen G. Welch pursuant to the Incentive Stock Compensation Plan
10-8 Put Agreement between the Company and Stephen G. * Welch dated February 7, 2001.
22-1 Subsidiaries of the Company. *
23 Consent of Ernst & Young LLP, Independent Auditors #
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 14, 2002
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 14, 2002 June 14, 2002
/s/ Patrick W.E. Hodgson /s/ Joseph D. Lehrer Patrick W.E. Hodgson, Joseph D. Lehrer, Director Chairman, and Director June 14, 2002 June 14, 2002
/s/ Philip N. Robinson /s/ John D. Weil Philip N. Robinson, Director John D. Weil, Director June 14, 2002 June 14, 2002
/s/ Stephen G. Welch Stephen G. Welch President, Chief Executive Officer, and Director June 14, 2002