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 MARCH 31, 2001
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, 2001 was 11,705,216.
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, 2001
(unaudited) and December 31, 2000 3
Consolidated Statements of Income for the
Three Months Ended March 31, 2001 and 2000
(unaudited) 4
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended March 31, 2001
(unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000
(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 Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
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,
2001 2000
-------------- -------------
(in thousands)
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,132 $10,079
Short-term investments 16,252 16,024
Contracts receivable, net 22,442 15,922
Contract retainage 1,470 738
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,145 2,419
Prepaid expenses 1,066 1,017
Inventory 1,288 1,347
------- -------
Total current assets 49,795 47,546
Property, plant and equipment, net 43,087 42,662
Excess of cost over fair value of net assets acquired
less accumulated amortization of $ 977,525 and $ 869,225 at
March 31, 2001 and December 31, 2000, respectively 5,090 5,198
Other assets 653 656
------- -------
Total assets $98,625 $96,062
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,796 $ 2,229
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,092 3,608
Accrued employee costs 1,503 1,696
Accrued expenses 2,405 2,446
Income taxes payable 758 392
------- -------
Total current liabilities 11,554 10,371
Deferred income taxes 4,524 4,425
------- -------
Total liabilities 16,078 14,796
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, 11,705,216 and 11,681,500 shares issued and
outstanding at March 31, 2001 and December 31, 2000, respectively 4,226 4,195
Additional paid-in capital 36,087 35,755
Retained earnings 42,234 41,316
------- -------
Total shareholders' equity 82,547 81,266
------- -------
Total liabilities and shareholders' equity $98,625 $96,062
======= =======
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,
----------------------------
2001 2000
---- ----
(in thousands, except per share data)
Revenue $27,558 $31,741
Cost of revenue 25,275 29,193
------- -------
Gross profit 2,283 2,548
General and administrative expenses 1,141 1,124
------- -------
Operating income 1,142 1,424
Other income (expense):
Interest expense (9) (18)
Interest income 314 319
Other - net (7) (57)
------- -------
298 244
------- -------
Income before income taxes 1,440 1,668
Income taxes 522 561
------- -------
Net income $ 918 $ 1,107
======= =======
Per share data:
Basic earnings per share $0.08 $0.10
======= =======
Diluted earnings per share $0.08 $0.09
======= =======
Weighted-average shares 11,696 11,638
Effect of dilutive securities: employee stock options 149 67
------- -------
Adjusted weighted-average shares 11,845 11,705
======= =======
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, 2001 11,681,500 $4,195 $35,755 $41,316 $81,266
Exercise of stock options 23,716 31 276 - 307
Income tax benefit from exercise of stock options - - 56 - 56
Net income - - - 918 918
---------- ------ ------- ------- -------
Balance at March 31, 2001 11,705,216 $4,226 $36,087 $42,234 $82,547
========== ====== ======= ======= =======
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,
-------------------
2001 2000
---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 918 $ 1,107
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 1,077 1,155
Amortization 108 69
Deferred income taxes 99 232
Changes in operating assets and liabilities:
Contracts receivable (6,520) (2,588)
Contract retainage (732) 1,248
Costs and estimated earnings in excess of billings
on uncompleted contracts (726) 24
Prepaid expenses, inventory and other assets 10 4
Accounts payable 567 (1,905)
Billings in excess of costs and estimated earnings
on uncompleted contracts 484 1,236
Accrued employee costs (193) (260)
Accrued expenses (41) 556
Income taxes payable 366 (170)
------- -------
Net cash provided by (used in) operating activities (4,583) 708
Cash flows from investing activities:
Capital expenditures, net (1,502) (172)
Purchase of short-term investments (228) (204)
Other 3 (103)
------- -------
Net cash used in investing activities (1,727) (479)
Cash flows from financing activities:
Proceeds from exercise of stock options 363 1
------- -------
Net cash provided by financing activities 363 1
------- -------
Net increase (decrease) in cash and cash equivalents (5,947) 230
Cash and cash equivalents at beginning of period 10,079 4,535
------- -------
Cash and cash equivalents at end of period $ 4,132 $ 4,765
======= =======
Supplemental cash flow information:
Interest paid $ 9 $ 17
======= =======
Income taxes paid $ - $ 500
======= =======
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, 2001 AND 2000
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, 2001 and for the three months ended
March 31, 2001 and 2000, 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, 2001 and the results of its operations for the three
months ended March 31, 2001 and 2000, and its cash flows for the three months
ended March 31, 2001 and 2000. The results of operations for the three months
ended March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.
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, 2000.
NOTE 2 - CONTINGENCIES
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-
7
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 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 3 - NEW ACCOUNTING STANDARD
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. Management has evaluated the impact of
adoption of SFAS 133 and has concluded the adoption of SFAS 133 does not have an
impact on its results of operations, financial position or cash flows. The
Company currently does not have any derivative instruments or hedging
activities.
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, 2001 was
$27.6 million, compared to revenue of $31.7 million for the three-month period
ended March 31, 2000. The number of projects available in the offshore marine
fabrication industry has remained depressed and has caused similar downward
pressure on the pricing of those projects.
For the three-month period ended March 31, 2001, gross profit was $2.3
million (8.3% of revenue) compared to gross profit of $2.5 million (8.0% of
revenue) for the three-month period ended March 31, 2000. As the Company begins
its third year of operating in a market of low volumes and depressed fabrication
prices, management is continuously evaluating methods of reducing or maintaining
costs at acceptable levels.
The Company's general and administrative expenses remained relatively
constant at $1.1 million for the three-month periods ended March 31, 2001 and
March 31, 2000. As a percentage of revenue, general and administrative expenses
increased to 4.1% from 3.5% of revenue for the three-month periods ended March
31, 2001 and 2000, respectively. This percentage increase was the result of
stabilized costs during a period of reduced revenues.
Income generated from investments has been consistent and generated net
interest income of $305,000 for the three-month period ended March 31, 2001
compared to $301,000 for the three-month period ended March 31, 2000.
For the three-month period ended March 31, 2001, other expenses were $7,000
compared to $57,000 for the three-month period ended March 31, 2000. These
expense 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.
Although net cash used in operating activities was $4.6 million for the three
months ended March 31, 2001, working capital increased by $1.1 million to $38.2
million, resulting in a current ratio of 4.3 to 1. Net cash used in investing
activities for the three months ended March 31, 2001 was $1.7 million, of which
$1.5 million was for the purchase of production machinery and equipment,
facility improvements, and $228,000 related to the purchase of short-term
investments.
The Company's Revolver currently provides for a revolving line of credit of
up to $20.0 million, which 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 is secured by a mortgage on the Company's
real estate, machinery and 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
9
required to maintain certain covenants, including balance sheet and cash flow
ratios. At March 31, 2001, 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 2001 are estimated to
be approximately $8.0 million, including improvements to the facilities and
various other fabrication machinery and 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.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING.
For a description of legal proceedings, see Item 3 of Part I of the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) An annual meeting of the registrant's stockholders was held on April
25, 2001.
(c) The following matters were voted upon at such meeting with the results
indicated below:
(1) Election of the following nominees for directors.
Thomas E. Fairley
Number of Votes Cast For - 10,741,749
Number of Votes Cast Against or Withheld - 229,784
Number of Abstentions - None
Number of Broker Non-Votes - None
Hugh J. Kelly
Number of Votes Cast For - 10,741,749
Number of Votes Cast Against or Withheld - 229,784
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 - 10,929,545
Number of Votes Cast Against or Withheld - 15,928
Number of Abstentions - 26,060
Number of Broker Non-Votes - None
ITEM 5. OTHER INFORMATION.
On April 25, 2001 the Company announced its 2001 first quarter earnings and
related matters. The press release making this announcement is attached hereto
as Exhibit 99.1.
On April 25, 2001 the Company announced the election of a new Chairman of the
Board. The press release making this announcement is attached hereto as Exhibit
99.2.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
99.1 Press release issued by the Company on April 25, 2001 announcing its 2001
first quarter earnings and related matters.
99.2 Press release issued by the Company on April 25, 2001 announcing the
election of a new Chairman of the Board.
(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, 2001
13
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
99.1 Press release issued by the Company on April 25, 2001
announcing its 2001 first quarter earnings and related matters.
99.2 Press release issued by the Company on April 25, 2001
announcing the election of a new Chairman of the Board.