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 ---- 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.