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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to _____________
Commission File Number 0-22303
GULF ISLAND FABRICATION, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-1147390
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
583 THOMPSON ROAD,
HOUMA, LOUISIANA 70363
(Address of principal executive offices) (Zip Code)
(504) 872-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
___ ___
The number of shares of the Registrant's common stock, no par value per
share, outstanding at May 10, 2000 was 11,659,500.
GULF ISLAND FABRICATION, INC.
I N D E X
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at March 31, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Income
for the Three Months Ended March 31, 2000
and 1999 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity
for the Three Months Ended March 31, 2000 (unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000
and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II OTHER INFORMATION
Item 1. Legal Preceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX E-1
2
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
-------------- ---------------
(in thousands)
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,765 $ 4,535
Short-term investments 11,419 11,215
Contracts receivable, net 25,327 22,739
Contract retainage 2,003 3,251
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,414 3,438
Prepaid expenses 852 749
Inventory 1,120 1,227
---------- ---------
Total current assets 48,900 47,154
Property, plant and equipment, net 42,681 43,664
Excess of cost over fair value of net assets acquired
less accumulated amortization of $ 621,575 and $ 553,025 at
March 31, 2000 and December 31, 1999, respectively 3,496 3,565
Other assets 769 666
---------- ---------
Total assets $ 95,846 $ 95,049
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,262 $ 4,167
Billings in excess of costs and estimated
earnings on uncompleted contracts 7,709 6,473
Accrued employee costs 1,530 1,790
Accrued expenses 2,031 1,475
Income taxes payable 1,292 1,462
---------- ---------
Total current liabilities 14,824 15,367
Deferred income taxes 3,296 3,064
---------- ---------
Total liabilities 18,120 18,431
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, no par value, 20,000,000 shares
authorized, 11,638,600 and 11,638,400 shares issued and
outstanding at March 31, 2000 and December 31, 1999, respectively 4,162 4,162
Additional paid-in capital 35,327 35,326
Retained earnings 38,237 37,130
---------- ---------
Total shareholders' equity 77,726 76,618
---------- ---------
Total liabilities and shareholders' equity $ 95,846 $ 95,049
=========== ==========
The accompanying notes are an integral part of these statements.
3
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31,
2000 1999
------------- ------------
(in thousands, except per share data)
Revenue $ 31,741 $ 30,329
Cost of revenue 29,193 26,103
------------- ------------
Gross profit 2,548 4,226
General and administrative expenses 1,124 1,282
------------- ------------
Operating income 1,424 2,944
Other expense (income):
Interest expense 18 21
Interest income (319) (101)
Other - net 57 (49)
------------- ------------
(244) (129)
------------- ------------
Income before income taxes 1,668 3,073
Income taxes 561 1,148
------------- ------------
Net income $ 1,107 $ 1,925
============= ============
Per share data:
Basic earnings per share $ 0.10 $ 0.17
============= ============
Diluted earnings per share $ 0.09 $ 0.17
============= ============
Weighted-average shares 11,638 11,638
Effect of dilutive securities: employee stock option 67 18
------------- ------------
Adjusted weighted-average shares 11,705 11,656
============= ============
The accompanying notes are an integral part of these statements.
4
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Additional Total
Common Stock Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------------- ---------- ------------- -------------- ---------------
(in thousands, except share data)
Balance at January 1, 2000 11,638,400 $ 4,162 $ 35,326 $ 37,130 $ 76,618
Exercise of stock options 200 - 1 - 1
Net income - - - 1,107 1,107
-------------- ---------- ------------- -------------- ---------------
Balance at March 31, 2000 11,638,600 $ 4,162 $ 35,327 $ 38,237 $ 77,726
============== ========== ============= ============== ===============
The accompanying notes are an integral part of these statements.
5
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
2000 1999
------------ ------------
(in thousands)
Cash flows from operating activities:
Net income $ 1,107 $ 1,925
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,155 1,133
Amortization 69 68
Deferred income taxes 232 378
Changes in operating assets and liabilities:
Contracts receivable (2,588) 13,335
Contract retainage 1,248 2,508
Costs and estimated earnings in excess of billings
on uncompleted contracts 24 338
Income taxes payable (170) 718
Prepaid expenses, inventory and other assets 4 75
Accounts payable (1,905) (2,971)
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,236 (2,999)
Accrued employee costs (260) (1,187)
Accrued expenses 556 608
------------ ------------
Net cash provided by operating activities 708 13,929
Cash flows from investing activities:
Capital expenditures, net (172) (1,490)
Purchase of short-term investments (204) -
Other (103) 111
------------ ------------
Net cash used in investing activities (479) (1,379)
Cash flows from financing activities:
Principal payments on notes payable - (3,000)
Proceeds from exercise of stock options 1 -
------------ ------------
Net cash provided by (used in) financing activities 1 (3,000)
------------ ------------
Net increase in cash and cash equivalents 230 9,550
Cash and cash equivalents at beginning of period 4,535 2,808
------------ ------------
Cash and cash equivalents at end of period $ 4,765 $ 12,358
============ ============
Supplemental cash flow information:
Interest paid $ 17 $ 31
============ ============
Income taxes paid $ 500 $ 25
============ ============
The accompanying notes are an integral part of these statements.
6
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTH
PERIODS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
Gulf Island Fabrication, Inc. (the "Company"), together with its
subsidiaries, is a leading fabricator of offshore drilling and production
platforms and other specialized structures used in the development and
production of offshore oil and gas reserves. Structures and equipment fabricated
by the Company include jackets and deck sections of fixed production platforms;
hull and deck sections of floating production platforms (such as tension leg
platforms); piles; wellhead protectors; subsea templates; and various
production, compressor and utility modules; and offshore living quarters. The
Company, located in Houma, Louisiana, also provides services such as offshore
interconnect pipe hook-up; inshore marine construction; manufacture and repair
of pressure vessels; and steel warehousing and sales. Gulf Island Fabrication,
Inc.'s principal markets are concentrated in the offshore regions of the Gulf
of Mexico. The consolidated financial statements include the accounts of Gulf
Island Fabrication Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
The information presented at March 31, 2000 and for the three months ended
March 31, 2000 and 1999, is unaudited. In the opinion of the Company's
management, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for the fair presentation of the Company's financial
position at March 31, 2000 and the results of its operations for the three
months ended March 31, 2000 and 1999, and its cash flows for the three months
ended March 31, 2000 and 1999. The results of operations for the three months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
In the opinion of management, the financial statements included herein have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
NOTE 2 - NOTES PAYABLE
Effective January 1, 2000, the Company's existing bank credit facility was
amended and restated. The credit facility provides for a revolving line of
credit (the "Revolver") of up to $20.0 million that bears interest equal to, at
the Company's option,
7
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
the prime lending rate established by Bank One Corporation or LIBOR plus 1.5%.
The Revolver matures December 31, 2001 and is secured by a mortgage on the
Company's real estate, equipment and fixtures. The Company pays a fee quarterly
of three-sixteenths of one percent per annum on the weighted-average unused
portion of the line of credit. The Company is required to maintain certain
covenants, including balance sheet and cash flow ratios. At March 31, 2000, the
Company was in compliance in all material respects with these covenants and had
no outstanding borrowings under the Revolver.
NOTE 3 - CONTINGENCIES
The Louisiana Department of Environmental Quality ( the "LDEQ") has
required the Company to update its reports and modify its state air permit with
respect to emissions from chemicals that are components of the steel and paint
used by Gulf Island, L.L.C. in its fabrication operations, and Gulf Island
L.L.C. has done so. The LDEQ has advised the Company that it is considering the
assessment of a penalty for exceeding permitted limits and inaccurate reporting.
Gulf Island, L.L.C. does not believe that any actions of the LDEQ in this matter
will be material to its financial position or require any changes to its
operations other than the monitoring of the content of certain purchased
materials, the cost of which is expected to be negligible.
The Company is one of four defendants in a lawsuit in which the plaintiff
claims that the Company improperly installed certain attachments to a jacket
that it had fabricated for the plaintiff. The plaintiff, which has recovered
most of its out-of-pocket losses from its own insurer, seeks to recover from the
four defendants the remainder of its claimed out-of-pocket losses (approximately
$1 million) and approximately $65 million for economic losses which it alleges
resulted from the delay in oil and gas production that was caused by these
events. The trial court has issued rulings and is expected to issue additional
rulings, all of which could be appealed by the plaintiff, the effect of which
would be to prevent plaintiff's recovery of any damages from defendants,
including the Company. In connection with the additional rulings of the court,
the parties have entered into agreements that eliminate the possibility of
plaintiff's recovery of any out-of-pocket damages and preserve for appeal only
those questions bearing on plaintiff's recovery of its economic losses from
delay in production. The Company continues to defend the case vigorously,
leaving open the possibility of reasonable settlement. After consultation with
legal counsel, the Company does not expect that the ultimate resolution of this
matter will have a material adverse effect on the financial position or results
of operations of the Company, although no assurances can be given as to the
ultimate outcome of the claims.
The Company is subject to other claims arising primarily in the normal conduct
of its business. While the outcome of such claims cannot be determined,
management does not expect that resolution of these matters will have a material
adverse effect on the financial position or results of operations of the
Company.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's revenue for the three-month period ended March 31, 2000 was
$31.7 million, an increase of 4.7%, compared to $30.3 million in revenue for the
three-month period ended March 31, 1999. Revenue increased slightly as a result
of the mix of contracts in progress for the first quarter of 2000 compared to
the first quarter of 1999.
The expected recovery in the oil and gas industry did not materialize and
continues to suppress margins on contracts. For the three-month period ended
March 31, 2000, gross profit was $2.5 million (8.0% of revenue) compared to
$4.2 million (13.9% of revenue) of gross profit for the three-month period ended
March 31, 1999.
The Company's general and administrative expenses were $1.1 million for the
three-month period ended March 31, 2000. This compares to $1.3 million for the
three-month period ended March 31, 1999. This decrease of approximately $200,000
was primarily the result of a general decrease in costs related to reduced
production levels, mainly payroll and related costs. In an effort to control
general and administrative costs, the Company implemented an overall 5%
reduction in hourly and salary wages effective May 31, 1999 and June 1, 1999,
respectively. These reductions remain in force throughout the first quarter of
2000, but because of the implementation dates the reductions were not reflected
in the operating results of the first quarter 1999.
The Company had net interest income of $301,000 for the three-month period
ended March 31, 2000 compared to $80,000 for the three-month period ended March
31, 1999. The current reduced production levels generate more available cash for
investment purposes.
For the period ended March 31, 2000 other represented $57,000 of expenses,
while other represented $ 49,000 of income for the period ended March 31, 1999.
These expense and income items consist primarily of the Company's share of the
MinDOC, LLC activities to design and market the MinDOC floating platform concept
for deepwater drilling and production.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company has funded its business activities through funds
generated from operations and borrowings under its revolving line of credit. Net
cash provided by operations was $708,000 for the three months ended March 31,
2000 which contributed to a 7.2% increase in working capital to $34.1 million.
Net cash used in investing activities for the three months ended March 31, 2000
was $479,000, of which $204,000 related to the purchase of short-term
investments, $172,000 was for miscellaneous equipment purchases and facility
improvements and $103,000 of other expenditures related to MinDOC, LLC.
The Company's Revolver currently provides for a revolving line of credit of
up to $20.0 million, that bears interest equal to, at the Company's option, the
prime lending rate established by Bank One Corporation or LIBOR plus 1.5%. The
Revolver matures December 31, 2001 and
9
is secured by a mortgage on the Company's real estate, equipment and fixtures.
The Company pays a fee quarterly of three-sixteenths of one percent per annum on
the weighted-average unused portion of the line of credit. The Company is
required to maintain certain covenants, including balance sheet and cash flow
ratios. At March 31, 2000, the Company was in compliance in all material
respects with these covenants and had no outstanding borrowings under the
Revolver.
Capital expenditures for the remaining nine months of 2000 are estimated to
be approximately $3.8 million, including improvements to the facilities and
various other fabrication equipment. Management believes that its available
funds, cash generated by operating activities and funds available under the
Revolver will be sufficient to fund these capital expenditures and its working
capital needs. The Company may, however, expand its operations through future
acquisitions that may require additional equity or debt financing.
YEAR 2000 ISSUES
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $77,000 during 1998 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
FORWARD-LOOKING STATEMENTS
Statements under "Year 2000 Issues" as to the Company's beliefs and
expectations, statements in the last paragraph under "Results of Operations" and
other statements in this report and the exhibits hereto that are not statements
of historical fact are forward-looking statements. These statements involve
risks and uncertainties that include, among others, the timing and extent of
changes in the prices of crude oil and natural gas; the timing of new projects
and the Company's ability to obtain them; competitive factors in the heavy
marine fabrication industry; the Company's ability to successfully complete the
testing, production and marketing of the MinDOC and other deep water production
systems and to develop and provide financing for such systems that are
acceptable to its customers; and the accuracy of the Company's assessment of its
exposure to Year 2000 issues and the adequacy of the steps it has taken to
address those issues. Changes in these factors could result in changes in the
Company's performance and could cause the actual results to differ materially
from those expressed in the forward-looking statements.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
The Louisiana Department of Environmental Quality ( the "LDEQ") has
required the Company to update its reports and modify its state air permit with
respect to emissions from chemicals that are components of the steel and paint
used by Gulf Island, L.L.C. in its fabrication operations, and Gulf Island
L.L.C. has done so. The LDEQ has advised the Company that it is considering the
assessment of a penalty for exceeding permitted limits and inaccurate reporting.
Gulf Island, L.L.C. does not believe that any actions of the LDEQ in this matter
will be material to its financial position or require any changes to its
operations other than the monitoring of the content of certain purchased
materials, the cost of which is expected to be negligible.
The Company is one of four defendants in a lawsuit in which the plaintiff
claims that the Company improperly installed certain attachments to a jacket
that it had fabricated for the plaintiff. The plaintiff, which has recovered
most of its out-of-pocket losses from its own insurer, seeks to recover from the
four defendants the remainder of its claimed out-of-pocket losses (approximately
$1 million) and approximately $65 million for economic losses which it alleges
resulted from the delay in oil and gas production that was caused by these
events. The trial court has issued rulings and is expected to issue additional
rulings, all of which could be appealed by the plaintiff, the effect of which
would be to prevent plaintiff's recovery of any damages from defendants,
including the Company. In connection with the additional rulings of the court,
the parties have entered into agreements that eliminate the possibility of
plaintiff's recovery of any out-of-pocket damages and preserve for appeal only
those questions bearing on plaintiff's recovery of its economic losses from
delay in production. The Company continues to defend the case vigorously,
leaving open the possibility of reasonable settlement. After consultation with
legal counsel, the Company does not expect that the ultimate resolution of this
matter will have a material adverse effect on the financial position or results
of operations of the Company, although no assurances can be given as to the
ultimate outcome of the claims.
The Company is subject to other claims arising primarily in the normal conduct
of its business. While the outcome of such claims cannot be determined,
management does not expect that resolution of these matters will have a material
adverse effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) An annual meeting of the registrant's stockholders was held on
April 27, 2000.
11
(c) The following matters were voted upon with the results indicated
below:
(1) Election of the following nominees for directors.
Kerry J. Chauvin
Number of Votes Cast For - 10,980,082
Number of Votes Cast Against or Withheld - 157,724
Number of Abstentions - None
Number of Broker Non-Votes - None
Alden J. ("Doc") Laborde
Number of Votes Cast For - 10,980,082
Number of Votes Cast Against or Withheld - 157,724
Number of Abstentions - None
Number of Broker Non-Votes - None
Huey J. Wilson
Number of Votes Cast For - 10,980,082
Number of Votes Cast Against or Withheld - 157,724
Number of Abstentions - None
Number of Broker Non-Votes - None
(2) Ratification of appointment of Ernst & Young LLP as independent
auditors.
Number of Votes Cast For - 11,127,362
Number of Votes Cast Against or Withheld - 7,684
Number of Abstentions - 2,760
Number of Broker Non-Votes - None
ITEM 5. OTHER INFORMATION
On April 27, 2000 the Company announced its 2000 first quarter earnings
and related matters. The press release making this announcement is attached
hereto as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Eighth Amended and Restated Revolving Credit Agreement among
the Company and Bank One, Louisiana, N.A. and Whitney
National Bank ("the Revolver").
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on April 27, 2000
announcing its 2000 first quarter earnings and related
matters.
(b) The Company filed no reports on Form 8-K during the quarter for
which this report is filed.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULF ISLAND FABRICATION, INC.
/s/ Joseph P. Gallagher, III
By:__________________________
Joseph P. Gallagher, III
Vice President - Finance,
Chief Financial Officer
and Treasurer
(Principal Financial Officer
and Duly Authorized Officer)
Date: May 10, 2000
13
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.1 Eighth Amended and Restated Revolving Credit Agreement among the
Company and Bank One, Louisiana, N.A. and Whitney National Bank,
dated January 1, 2000 ("the Revolver").
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on April 27, 2000
announcing its 2000 first quarter earnings and related matters.
E-1