================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ================================================================================ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 November 8, 2000 was 11,681,300. GULF ISLAND FABRICATION, INC. I N D E X
Page ------ PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) 4 Consolidated Statement of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2000 (unaudited) 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (unaudited) 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 PART II OTHER INFORMATION Item 1. Legal Proceedings 12 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) September 30, December 31, 2000 1999 -------------- -------------- (in thousands) ASSETS ------ Current assets: Cash and cash equivalents $ 6,606 $ 4,535 Short-term investments 15,840 11,215 Contracts receivable, net 23,656 22,739 Contract retainage 263 3,251 Costs and estimated earnings in excess of billings on uncompleted contracts 2,350 3,438 Prepaid expenses 961 749 Inventory 1,315 1,227 ---------- ----------- Total current assets 50,991 47,154 Property, plant and equipment, net 42,165 43,664 Excess of cost over fair value of net assets acquired less accumulated amortization of $ 758,675 and $ 553,025 at September 30, 2000 and December 31, 1999, respectively 5,309 3,565 Other assets 853 666 ---------- ----------- Total assets $ 99,318 $ 95,049 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 3,093 $ 4,167 Billings in excess of costs and estimated earnings on uncompleted contracts 4,957 6,473 Accrued employee costs 1,669 1,790 Accrued expenses 4,757 1,475 Income taxes payable 1,025 1,462 ---------- ----------- Total current liabilities 15,501 15,367 Deferred income taxes 3,584 3,064 ---------- ----------- Total liabilities 19,085 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, 11,681,300 and 11,638,400 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively 4,195 4,162 Additional paid-in capital 35,753 35,326 Retained earnings 40,285 37,130 ---------- ----------- Total shareholders' equity 80,233 76,618 ---------- ----------- Total liability and shareholders' equity $ 99,318 $ 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 Nine Months Ended September 30, September 30, 2000 1999 2000 1999 -------- -------- -------- --------- (in thousands, except per share data) Revenue $ 27,544 $ 29,034 $ 87,665 $ 87,469 Cost of revenue 25,159 25,393 80,282 75,589 -------- -------- -------- -------- Gross profit 2,385 3,641 7,383 11,880 General and administrative expenses 1,035 955 3,195 3,226 -------- -------- -------- -------- Operating income 1,350 2,686 4,188 8,654 Other income (expense): Interest expense (18) (11) (25) (46) Interest income 373 203 985 470 Other - net (68) (39) (169) (29) -------- -------- -------- -------- 287 153 791 395 -------- -------- -------- -------- Income before income taxes 1,637 2,839 4,979 9,049 Income taxes 617 1,105 1,824 3,435 -------- -------- -------- -------- Net income $ 1,020 $ 1,734 $ 3,155 $ 5,614 ======== ======== ======== ======== Per share data: Basic earnings per share $ 0.09 $ 0.15 $ 0.27 $ 0.48 ======== ======== ======== ======== Diluted earnings per share $ 0.09 $ 0.15 $ 0.27 $ 0.48 ======== ======== ======== ======== Weighted-average shares 11,680 11,638 11,661 11,638 Effect of dilutive securities: employee stock options 96 77 89 54 -------- -------- -------- -------- Adjusted weighted-average shares 11,776 11,715 11,750 11,692 ======== ======== ======== ========
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 42,900 33 304 - 337 Income tax benefit from exercise of stock options - - 123 - 123 Net income - - - 3,155 3,155 ----------- --------- ---------- ---------- ---------- Balance at September 30, 2000 11,681,300 $ 4,195 $ 35,753 $ 40,285 $ 80,233 =========== ========= ========== ========== ==========
The accompanying notes are an integral part of these statements. -5- GULF ISLAND FABRICATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 2000 1999 ---------- ----------- (in thousands) Cash flows from operating activities: Net income $ 3,155 $ 5,614 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,358 3,475 Amortization 206 206 Deferred income taxes 520 1,247 Changes in operating assets and liabilities: Contracts receivable (917) 19,242 Contract retainage 2,988 2,775 Costs and estimated earnings in excess of billings on uncompleted contracts 1,088 (16) Prepaid expenses, inventory and other assets (300) 320 Accounts payable (1,074) (2,418) Billings in excess of costs and estimated earnings on uncompleted contracts (1,516) (5,339) Accrued employee costs (121) (1,954) Accrued expenses 1,332 657 Income taxes payable (437) 1,520 -------- -------- Net cash provided by operating activities 8,282 25,329 Cash flows from investing activities: Capital expenditures, net (1,859) (2,783) Purchase of short-term investments (4,625) (11,076) Other (187) (104) -------- -------- Net cash used in investing activities (6,671) (13,963) Cash flows from financing activities: Principal payments on notes payable - (3,000) Proceeds from exercise of stock options 460 - -------- -------- Net cash provided by (used in) financing activities 460 (3,000) -------- -------- Net increase in cash and cash equivalents 2,071 8,366 Cash and cash equivalents at beginning of period 4,535 2,808 -------- -------- Cash and cash equivalents at end of period $ 6,606 $ 11,174 ======== ======== Supplemental cash flow information: Interest paid $ 25 $ - ======== ======== Income taxes paid $ 1,616 $ 659 ======== ========
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 AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 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 September 30, 2000 and for the three months and nine months ended September 30, 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 September 30, 2000 and the results of its operations for the three months and nine months ended September 30, 2000 and 1999, and its cash flows for the nine months ended September 30, 2000 and 1999. The results of operations for the three months and nine months ended September 30, 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 September 21, 2000, the Company's existing bank credit facility was amended and restated in order, among other reasons, to extend the maturity date to -7- GULF ISLAND FABRICATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) December 31, 2002. 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, the prime lending rate established by Bank One Corporation or LIBOR plus 1.5%. The Revolver 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 September 30, 2000, the Company was in compliance 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, sought 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 a judgement, which has been appealed by the plaintiff, the effect of which has been to prevent plaintiff's recovery of any damages from the defendants, including the Company. In connection with the judgement, 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 and on defendants' efforts to get a judgement against plaintiff's underwriters for coverage of any potential liability to plaintiff and for attorneys' fees and costs. 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 -8- 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. NOTE 4 - NEW ACCOUNTING STANDARD In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements." This document expresses the views of the SEC in applying generally accepted accounting principles to the revenue recognition process. In June 2000, the SEC issued SAB 101B, "Deferral of the Effective Date of SAB 101," which deferred the effective date of SAB 101 to the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company has evaluated the impact of adoption of the SAB and does not anticipate that adoption of the views expressed in this document will have a material impact on the methodology the Company uses to recognize revenue. In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and is effective for the Company beginning January 1, 2001. SFAS 133, as amended, establishes accounting and reporting standards for recognition and measurement of derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. The Company is required to and will adopt SFAS 133 in the first quarter of fiscal 2001. The Company does not expect SFAS 133 as amended to have an impact on its results of operations, financial position or cash flows as it currently does not have any derivative instruments or hedging activities. NOTE 5 - SUBSEQUENT EVENT Effective January 1, 1998, the Company purchased all of the outstanding shares of Southport, Inc., which specializes in the fabrication of offshore living quarters, for $6.0 million cash, plus contingent payments of up to an additional $5.0 million based on Southport's net income over a four-year period ending December 31, 2001. On October 26, 2000, the Company reached an agreement with the former shareholders of Southport, Inc. to an early payout amount of approximately $2.0 million. This $2.0 million payment was accounted for under the purchase method of accounting; consequently, the payment increased the excess of cost over fair value of net assets acquired, which will result in an increase in amortization expense of approximately $42,000 per quarter. -9- 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 periods ended September 30, 2000 and 1999 was $27.5 million and $29.0 million, respectively. Revenue for the nine-month periods ended September 30, 2000 and 1999 was $87.7 million and $87.5 million, respectively. The decrease in revenue for the three-month period ended September 30, 2000 was primarily related to the reduction in hours worked on contracts in progress. The delay in the anticipated recovery in the late cycle sectors, such as offshore fabrication in which the Company operates, continues to suppress margins on contracts. For the three-month and nine-month periods ended September 30, 2000, gross profit was $2.4 million (8.7% of revenue) and $7.4 million (8.4% of revenue), compared to $3.6 million (12.5% of revenue) and $11.9 million (13.6% of revenue) of gross profit for the three-month and nine-month periods ended September 30, 1999. The Company's general and administrative expenses have remained relatively constant at approximately $1.0 million and $3.2 million for the three-month and nine-month periods ended September 30, 2000 and 1999, respectively. The Company had net interest income of $355,000 and $960,000 for the three- month and nine-month periods ended September 30, 2000, respectively, compared to $192,000 and $424,000 for the comparable periods of 1999. The current reduced production levels requires less working capital thereby providing more available cash for investment purposes. For the three-month period ended September 30, 2000, other-net, represented $68,000 of expenses compared to $39,000 of expenses for the period ended September 30, 1999. For the nine-month period ended September 30, 2000, other- net, represented $169,000 of expenses compared to $29,000 of expenses for the nine-month period ended September 30, 1999. These expenses 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 $8.3 million for the nine-months ended September 30, 2000, which contributed to an 11.6% increase in working capital to $35.5 million. Net cash used in investing activities for the nine-months ended September 30, 2000 was $6.7 million, of which $4.6 million related to the purchase of short-term investments, $1.9 million was for equipment purchases and facility improvements and $187,000 of other net 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, 2002 and -10- 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 September 30, 2000, the Company was in compliance with these covenants and had no outstanding borrowings under the Revolver. Capital expenditures for the remaining three months of 2000 are estimated to be approximately $3.3 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. Forward-Looking Statements Statements under "Results of Operations" and "Liquidity and Capital Resources" 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 Company's ability to attract and retain qualified production employees at acceptable compensation rates. 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. -11- PART II. OTHER INFORMATION Item 1. Legal Proceedings For a description of legal proceedings, see Item 1 of Part II of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and June 30, 2000, respectively. Item 5. Other Information On October 25, 2000 the Company announced its 2000 third 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 First Amendment to the Eighth Amended and Restated Revolving Credit Agreement among the Company and Bank One, Louisiana, N.A. and Whitney National Bank, dated September 21, 2000. 27.1 Financial Data Schedule. 99.1 Press release issued by the Company on October 25, 2000 announcing its 2000 third 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: November 8, 2000 -13- GULF ISLAND FABRICATION, INC. EXHIBIT INDEX Exhibit Number Description of Exhibit - ------- ---------------------- 10.1 First Amendment to the Eighth Amended and Restated Revolving Credit Agreement among the Company and Bank One, Louisiana, N.A. and Whitney National Bank, dated September 21, 2000. 27.1 Financial Data Schedule. 99.1 Press release issued by the Company on October 25, 2000 announcing its 2000 third quarter earnings and related matters. E-1