UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 1, 1998
GULF ISLAND FABRICATION, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 0-22303 72-1147390
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
583 Thompson Road, Houma, Louisiana 70363
(Address of principal executive offices) (Zip Code)
(504) 872-2100
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
On January 16, 1998, Gulf Island Fabrication,
Inc. ("the Company") filed a Form 8-K dated
January 1, 1998 (the "January 1998 Form 8-K")
containing a description of
the Company's acquisition of Southport, Inc.
and its wholly owned subsidiary Southport
International, Inc. This Form 8-K/A-1 amends and
restates the disclosure in Item 7(a) and (b)
of the January 1998 Form 8-K
to include the financial statements
of the businesses acquired and pro forma
financial information.
ITEM 2. Acquisition or Disposition of Assets.
As of January 1, 1998, the registrant,
Gulf Island Fabrication, Inc. ("the
Company"), acquired all of the common shares
of Southport, Inc. and it's wholly owned
subsidiary Southport International, Inc.
(collectively "Southport") pursuant to a Stock
Purchase Agreement between the Company and
the shareholders of Southport identified on
the copy of such agreement filed as
Exhibit 2.0 to the January 1998 Form 8-K
(the "Stock Purchase Agreement").
The purchase price was $6.0 million cash, plus
contingency payments of up to an additional
$5.0 million based on Southport's annual net income
over a four-year period ending December 31,
2001. The purchase price was determined by
arm's length negotiation between the Company
and Southport's shareholders. The non-
contingent portion of the purchase price has
been paid by the Company out of working
capital; contingency payments, if and when
they become due, are expected to be paid by
the Company out of working capital or
borrowings.
Southport, headquartered in Harvey,
Louisiana, specializes in the fabrication of
living quarters for offshore platforms for
the oil and gas industry. The Company
intends that Southport will continue in this
business.
The acquisition was effective on January
1, 1998, as announced in the press release,
dated January 5, 1998, which was filed
as an exhibit to the January 1998 Form 8-K.
Additional information relating to the acquisition
is set fourth in the Stock Purchase Agreement.
ITEM 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(a) Financial Statements of Businesses
Acquired.
(1)Audited Consolidated Balance Sheet
of Southport as of December 31,
1996 and related Consolidated
Statement of Income and Retained
Earnings and Consolidated Statement
of Cash Flows for the year ended
December 31, 1996, including the
notes thereto, and the related
report of Legier & Materne.
(2)Unaudited Consolidated Balance
Sheet of Southport as of September
30, 1997 and related Consolidated
Statement of Income and Retained
Earnings and Consolidated Statement
of Cash Flows for the nine months ended
ended September 30, 1997, including
the notes thereto.
(b) Pro Forma Financial Information.
(1)Unaudited Pro Forma Condensed
Combined Balance Sheet of the
Company as of September 30, 1997,
including the notes thereto.
(2)Unaudited Pro Forma Condensed
Combined Statement of Income of the
Company for the nine months ended
September 30, 1997, including the
notes thereto.
(3)Unaudited Pro Forma Condensed
Combined Statement of Income of the
Company for the year ended December
31, 1996, including the notes
thereto.
(c) Exhibits.
2.0 Stock Purchase Agreement dated
as of November 12, 1997
between Gulf Island
Fabrication, Inc. and the
shareholders of Southport,
Inc., incorporated herein by
reference to Exhibit 2.0 to the
Company's report on Form 8-K
dated January 1, 1998.
This exhibit includes an
index briefly identifying the
contents of all schedules
and exhibits, all of which are
omitted therefrom. The
Company will furnish
supplementally to the
Commission upon its request a
copy of any omitted schedule
or exhibit.
10.1 Employment agreement dated as
of January 1, 1998 between
Southport, Inc, and Stephen G.
Benton, Jr., incorporated herein
by reference to Exhibit 10.1 to
the Company's report on Form
8-K dated January 1, 1998.
99.1 Press Release issued
November 13, 1997
disclosing the execution of a
definitive agreement to
acquire all the outstanding
shares of Southport, Inc.,
incorporated herein
by reference to Exhibit 99.1 to
the Company's report on Form
8-K dated January 1, 1998.
99.2 Press Release issued January
5, 1998 disclosing the
completion of the Company's
acquisition of Southport, Inc.,
incorporated herein
by reference to Exhibit 99.2 to
the Company's report on Form
8-K dated January 1, 1998.
SIGNATURE
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.
By: /s/ Joseph P. Gallagher
Joseph P. Gallagher, III
Vice President- Finance
(Principal Financial Officer
and Duly Authorized Officer)
Date: February 11, 1998
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
FINANCIAL STATEMENTS
(1) Audited Consolidated Balance Sheet
of Southport as of December 31,
1996 and related Consolidated
Statement of Income and Retained
Earnings and Consolidated statement
of Cash Flows for the year ended
December 31, 1996, including the
notes thereto and the related report
of Legier & Materne.
(2) Unaudited Consolidated Balance
Sheet of Southport as of September
30, 1997 and related Consolidated
Statement of Income and Retained
Earnings and Consolidated Statement
of Cash Flows for the nine months
ended September 30, 1997, including
the notes thereto.
PRO FORMA FINANCIAL INFORMATION
(1) Unaudited Pro Forma Condensed
Combined Balance Sheet of the
Company as of September 30, 1997,
including the notes thereto.
(2) Unaudited Pro Forma Condensed
Combined Statement of Income of the
Company for the nine months ended
September 30, 1997, including the
notes thereto.
(3) Unaudited Pro Forma Condensed
Combined Statement of Income of the
Company for the year ended December
31, 1996, including the notes
thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Southport, Inc.
We have audited the accompanying consolidated balance
sheet of Southport, Inc. (a Louisiana corporation) and
subsidiary as of December 31, 1996, and the related
consolidated statements of income and retained earnings,
and cash flows for the year then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. 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 audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Southport, Inc. and subsidiary as of December 31, 1996,
and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting
principles.
/s/ Legier & Materne
Legier & Materne
February 25, 1997
SOUTHPORT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1996
ASSETS
- ------
Current assets:
- ---------------
Cash $ 34,458
Contracts receivables 4,158,587
Other receivables 173,731
Materials and supply inventory 54,774
Prepaid expenses 52,957
Costs and estimated earnings in excess of
billings on incomplete contracts 1,598,185
Deferred tax asset, net 189,270
-----------
Total current assets, net 6,261,962
Property and equipment, net 1,110,468
Other receivables 117,602
Other assets 14,841
-----------
Total assets $ 7,504,873
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
- ---------------------
Accounts payable $ 4,329,271
Outstanding borrowings on line of credit 1,875,000
Due to related party 178,769
Accrued expenses 456,814
Billings in excess of costs and estimated
earnings on incomplete contracts 264,613
-----------
Total current liabilities 7,104,467
Stockholders' equity:
- ---------------------
Common stock, par value $10 per share, authorized 30,000
shares, issued and outstanding 10,350 shares 103,500
Additional paid-in capital 37,432
Retained earnings 259,474
-----------
Total stockholders' equity 400,406
-----------
Total liabilities and stockholders' equity $ 7,504,873
===========
The accompanying notes are an integral part of these financial statements.
SOUTHPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Year ended December 31, 1996
CONTRACT REVENUES EARNED $17,837,931
COST OF REVENUES EARNED:
Direct Cost:
Materials 5,848,407
Direct labor 3,972,626
Subcontracting cost 2,956,520
Payroll taxes and related insurance 639,623
Other 1,213,082
Indirect Cost:
Salaries 735,091
Payroll taxes and related insurance 153,118
Equipment cost 201,784
Depreciation 57,948
Land and equipment rentals 214,438
Utilities 130,115
Other 95,452
-----------
Total cost of revenues earned 16,218,204
-----------
GROSS PROFIT 1,619,727
Administrative expenses 1,186,185
Other income 31,919
Moving expenses 53,227
-----------
Income before income taxes 412,234
Income taxes:
Current income tax expense (70,000)
Benefits of operating loss carryforwards 45,300
Adjustment of valuation allowance 189,300
-----------
NET INCOME 576,834
Accumulated deficit, beginning of year (317,360)
-----------
Retained earnings, end of year $259,474
===========
The accompanying notes are an integral part of these financial statements.
SOUTHPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 576,834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 130,936
Deferred income tax benefit (189,270)
Changes in operating assets and liabilities:
Contract receivables (1,761,915)
Other receivables (269,407)
Materials and supply inventory (25,003)
Prepaid expenses 6,468
Net decrease in billings related to costs and estimated
earnings on incomplete contracts (1,996,543)
Other assets (4,304)
Accounts payable 3,203,146
Due to related party 171,769
Accrued expenses 316,380
-----------
Net cash provided by operating activities 159,091
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (891,600)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to bank (150,000)
Net borrowings on line of credit 875,000
-----------
Net cash provided by financing activities 725,000
-----------
Net decrease in cash (7,509)
Cash at beginning of period 41,967
-----------
Cash at end of period $ 34,458
===========
Supplemental disclosures:
Interest paid $ 109,842
Income taxes paid $ 22,500
The accompanying notes are an integral part of these financial statements.
SOUTHPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - THE COMPANY
Southport, Inc. constructs living quarters placed on
offshore rigs used in the oil and gas industry.
During 1996, in conjunction with an expansion of the
Company's operations resulting from significant new
construction projects, the Company relocated its operations
to a much larger facility, entered into a land lease for the
new facility with a related corporation, and constructed a
new administrative building. The Company incurred
approximately $53,000 in moving expenses related to this
relocation during 1996. An additional $40,000 of moving
expenses are expected to be incurred in 1997, and the
Company will also write off the remaining book value of
leasehold improvements at the former facility, which
approximates $71,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the
accounts of Southport, Inc. and its wholly-owned subsidiary,
Southport International, Inc. All material intercompany
transactions and balances have been eliminated in the
consolidation.
Revenue Recognition
Revenue is recognized on significant construction
contracts using the percentage-of-completion method, based
upon engineering estimates of the status of individual
contracts. On minor construction or repair contracts,
revenue is recognized using the completed contract method
whereby billings and costs are accumulated during the period
of construction, but profits are not recorded until
completion of the contract. Provisions for estimated losses
on incomplete contracts are made in the period in which such
losses are determined. At December 31, 1996, the Company
had made no such provisions on incomplete contracts, as all
such contracts were projected to be profitable.
Assets and liabilities related to construction
contracts are included in the accompanying balance sheet.
The asset "Cost and estimated earnings in excess of billings
on incomplete contracts" represents revenue recognized in
excess of amounts billed. The liability "Billings in excess
of cost and estimated earnings on incomplete contracts"
represents amounts billed in excess of revenue recognized.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of 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. The Company's
significant estimates include those regarding the valuation
of contract receivables, assets and liabilities related to
incomplete contracts, and self-insured workers' compensation
liabilities.
Self-Insured Workers' Compensation
The Company is self-insured for potential losses up to
$25,000 per claim related to state and federal workers'
compensation. The Company expenses claims as they are paid,
and records a liability for estimated costs to be incurred
in the future on claims existing at the date of the
financial statements. In addition, the Company has issued a
letter of credit of $60,000 to its workers' compensation
administrator for its obligations under this arrangement.
Contracts Receivables
In the opinion of management, all contract receivables
are fully collectible, and no allowance for doubtful
accounts has been provided for in the accompanying financial
statements. Contract receivables are charged directly
against earnings when they are determined to be
uncollectible. Use of this method does not result in a
material difference from the valuation method required by
generally accepted accounting principles.
Materials and Supply Inventory
Materials and supply inventory is valued at cost using
the first-in, first-out cost method.
Property and Equipment
Depreciation and amortization are provided on the
straight-line method based on the estimated useful lives of
the related assets, ranging from three to ten years.
Profit-Sharing Plan
The Company has a non-contributory profit-sharing plan
covering substantially all of its employees. Under the
plan, the Company's contribution is determined annually by
the Board of Directors. No contribution to the profit-
sharing plan was declared for 1996.
Income Taxes
Temporary differences between the financial statement
and tax bases of assets and liabilities are insignificant.
Therefore, the Company does not record deferred income taxes
on temporary differences. The Company does record the
deferred tax assets associated with any available
carryforward tax benefits.
NOTE 3 - CONCENTRATIONS
Certain customers are significant to the Company's
operations. Four customers comprised approximately 72% of
the Company's 1996 revenue and, at December 31, 1996, the
Company had extended credit to a customer whose individual
account represents approximately 31% of the contract
receivables balance. Additionally, two incomplete contracts
comprise 66% of costs and estimated earnings in excess of
billing on incomplete contracts at December 31, 1996
NOTE 4 - CONTRACT AND OTHER RECEIVABLES
Contract receivables at December 31, 1996 are
categorized as follows:
Billed receivables on contracts in progress $3,757,995
Billed receivables on completed contracts 266,951
Unbilled receivables on completed contract 133,641
-------------
Total $4,158,587
=============
Contract receivables include approximately $470,000 of
change orders expected to be collected during 1997. Other
receivables consist primarily of $261,675 of amounts
receivable under retainage provisions in contracts with
customers; $117,602 of this amount is not expected to be
collected until 1998.
NOTE 5 - COSTS AND ESTIMATED EARNINGS ON INCOMPLETE
CONTRACTS
Information with respect to incomplete contracts at
December 31, 1996 follows:
Costs incurred on incomplete contracts $ 9,303,016
Estimated earnings 2,389,510
-------------
11,692,526
Less billings to date (10,358,954)
-------------
Total $ 1,333,572
=============
The above amounts are included in the accompanying
balance sheet under the following captions:
Costs and estimated earnings in excess of
billings on incomplete contracts $ 1,598,185
Billings in excess of costs and estimated
earnings on incomplete contracts (264,613)
-------------
Total $ 1,333,572
=============
NOTE 6 - PROPERTY AND EQUIPMENT
The major classes of property and equipment at
December 31, 1996 were as follows:
Building $ 416,623
Equipment 477,928
Furniture and fixtures 365,449
Vehicles 29,769
Leasehold improvements 498,803
-------------
1,788,572
Less: Accumulated depreciation
and amortization (678,104)
-------------
$1,110,468
=============
Subsequent to year-end, the Company ceased operations
at its old yard. See Note 1 for information regarding
equipment and leasehold improvements charged against 1997
operations.
NOTE 7 - INCOME TAXES
At December 31, 1996, the Company had net operating
loss carryforwards of approximately $1,000,000 that may be
offset against future taxable income through 2009. The
following amounts related to these carryforwards have been
recorded in the accompanying balance sheet:
Deferred tax asset $362,332
Valuation allowance (173,062)
---------
Net deferred tax asset $189,270
=========
The valuation allowance was reduced in 1996 by
approximately $325,000, in order for the net asset to
approximate the tax effect of the carryforwards which
management projects will be utilized in 1997. The effects
of these carryforwards, and the tax savings generated by the
Company's subsidiary, caused the total tax provision to
differ from that which would result from applying statutory
rates to pretax income.
NOTE 8 - LINE OF CREDIT
At December31, 1996, the Company had a line of credit
agreement with a bank for borrowings not to exceed the
lesser of $2,500,000 or 80% of eligible contract
receivables. Interest is payable monthly at the prime rate
plus 1%. The line of credit is secured by a first priority
security interest and liens on the Company's contract
receivables, by all other Company assets, and by personal
guarantees of a shareholder. In addition, the agreement
contains restrictive covenants, which prohibits the Company
from paying dividends or purchasing treasury stock without
prior bank approval. The agreement expires in November
1997.
Interest expense for the year ended December 31, 1996
was $109,842.
NOTE 9 - OPERATING LEASES
The Company is obligated under certain long-term
operating leases for land and equipment used in its
operations. The monthly base rent under one of these leases
increases annually, and includes an additional component for
taxes, insurance and a security service.
Additionally, the Company subleases land used in its
primary operations under a three year operating lease from a
related corporation for $8,300 per month; the Company
guarantees payments on this lease on behalf of the related
entity. This lease agreement expires in May 1999, with two
three-year renewal options at adjusted rates. In addition,
the agreement contains an option for the Company to purchase
the land at a specified price at any time during the initial
term. The Company paid a total of $119,350 in rental
payments to this related party during 1996, and at December
31, 1996, owed this related party $178,769.
Future minimum rental payments under the noncancelable
operating leases are as follows:
1997 $124,826
1998 123,600
1999 49,460
---------
$297,886
=========
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company has an agreement with its stockholders that
should any stockholder desire to sell or transfer shares, he
must sell the shares to the Company, which must redeem all
of the withdrawing stockholder's stock. The redemption
value of the stock shall be equal to book value of the
shares plus stated adjustments for certain events.
In order to guarantee compliance with any warranty work
or specified contract provisions, letters of credit may be
given to customers. At December 31, 1996, the Company had
issued letters of credit totaling $1,148,866. A $460,000
portion of one such letter matured in January 1997, at which
time the Company's contingent obligations under the letter
were reduced by that amount. The Company does not believe
that any funds will be advanced on these letters of credit.
The Company is party to certain claims filed by former
employees. Management believes that the outcome of these
claims will not have a material effect on the Company's
financial position or results of operations.
NOTE 11 - BACKLOG
The Company had backlog of approximately $25,235,000 on
signed contracts in existence at December 31, 1996. One of
these signed contracts includes an option for additional
construction in the future of $16,915,000. Management
expects the customer to exercise this option during 1997.
SOUTHPORT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
ASSETS
- ------
Current assets:
- --------------
Cash $ 50,570
Contracts receivables 5,391,803
Other receivables 14,236
Materials and supply inventory 52,559
Prepaid expenses 93,944
Costs and estimated earnings in excess of
billings on incomplete contracts 724,481
Deferred tax asset 139,105
-----------
Total current assets 6,466,698
Property and equipment, net 986,277
Other assets 14,408
-----------
Total assets $7,467,383
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
- ---------------------
Accounts payable $ 2,226,641
Outstanding borrowings on line of credit 2,570,000
Accrued expenses 305,868
Workers compensation loss fund payable 25,000
Billings in excess of costs and estimated
earnings on incomplete contracts 1,162,490
-----------
Total current liabilities 6,289,999
Stockholders' equity:
- ---------------------
Common stock, par value $10 per share, authorized 30,000
shares, issued and outstanding 10,350 shares 103,500
Additional paid-in capital 37,432
Retained earnings 1,036,452
-----------
Total stockholders' equity 1,177,384
-----------
Total liabilities and stockholders' equity $ 7,467,383
===========
The accompanying notes are an integral part of these financial statements.
SOUTHPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Nine Months Ended September 30, 1997
(Unaudited)
CONTRACT REVENUES EARNED $14,394,894
COST OF REVENUES EARNED:
Direct Cost:
Materials 3,490,758
Direct labor 3,976,673
Subcontracting cost 1,848,409
Payroll taxes and related insurance 536,493
Other 864,083
Indirect Cost:
Salaries 660,076
Payroll taxes and related insurance 145,154
Equipment cost 117,598
Depreciation 34,000
Land and equipment rentals 313,668
Utilities 117,454
Other 149,062
-----------
Total cost of revenues earned 12,253,428
-----------
GROSS PROFIT 2,141,466
Administrative expenses 1,011,075
Other expense 123,437
Moving expenses 119,708
-----------
Income before income taxes 887,246
Income taxes:
Current income tax expense 283,395
Adjustment of valuation allowance (173,127)
-----------
NET INCOME 776,978
Retained earnings, beginning of period 259,474
-----------
Retained earnings, end of period $ 1,036,452
===========
The accompanying notes are an integral part of these financial statments.
SOUTHPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1997
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 776,978
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 146,000
Deferred income tax benefit 50,165
Changes in operating assets and liabilities:
Contract receivables (1,233,216)
Other receivables 277,097
Materials and supply inventory 2,215
Prepaid expenses (40,987)
Net increase in billings related to costs and estimated
earnings on incomplete contracts 1,771,581
Other assets 433
Accounts payable (2,102,630)
Due to related party (178,769)
Accrued expenses (125,946)
-----------
Net cash used in operating activities (657,079)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (21,809)
-----------
Net cash used in investing activities (21,809)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 695,000
-----------
Net cash provided by financing activities 695,000
-----------
Net increase in cash 16,112
Cash at beginning of period 34,458
-----------
Cash at end of period $ 50,570
===========
Supplemental disclosures:
Interest paid $ 150,560
Income taxes paid $ 49,000
The accompanying notes are an integral part of these financial statments.
SOUTHPORT, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1997
NOTE 1 - THE COMPANY
Southport, Inc. constructs living quarters placed on
offshore rigs used in the oil and gas industry.
During 1996, in conjunction with an expansion of the
Company's operations resulting from significant new
construction projects, the Company relocated its operations
to a much larger facility, entered into a land lease for the
new facility with a related corporation, and constructed a
new administrative building. The Company incurred
approximately $53,000 in moving expenses related to this
relocation during 1996. An additional $49,000 of moving
expenses was recorded during the nine months ended September
30, 1997, and the Company wrote off the remaining book value
of leasehold improvements at the former facility, which
approximated $71,000.
The information presented as of September 30, 1997 and
for the nine-month period ended September 30, 1997, is
unaudited. In the opinion of the Company's management, the
accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments)
which the Company considers necessary for the fair
presentation of the Company's financial position as of
September 30, 1997 and the results of its operations and its
cash flows for the nine-month period ended September 30,
1997. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the
accounts of Southport, Inc. and its wholly-owned subsidiary,
Southport International, Inc. All material intercompany
transactions and balances have been eliminated in the
consolidation.
Revenue Recognition
Revenue is recognized on significant construction
contracts using the percentage-of-completion method, based
upon engineering estimates of the status of individual
contracts. On minor construction or repair contracts,
revenue is recognized using the completed contract method
whereby billings and costs are accumulated during the period
of construction, but profits are not recorded until
completion of the contract. Provisions for estimated losses
on incomplete contracts are made in the period in which such
losses are determined. At September 30, 1997, the Company
had made no such provisions on incomplete contracts, as all
such contracts were projected to be profitable.
Assets and liabilities related to construction
contracts are included in the accompanying balance sheet.
The asset "Cost and estimated earnings in excess of billings
on incomplete contracts" represents revenue recognized in
excess of amounts billed. The liability "Billings in excess
of cost and estimated earnings on incomplete contracts"
represents amounts billed in excess of revenue recognized.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of 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. The Company's
significant estimates include those regarding the valuation
of contract receivables, assets and liabilities related to
incomplete contracts, and self-insured workers' compensation
liabilities.
Self-Insured Workers' Compensation
The Company is self-insured for potential losses up to
$25,000 per claim related to state and federal workers'
compensation. The Company expenses claims as they are paid,
and records a liability for estimated costs to be incurred
in the future on claims existing at the date of the
financial statements. In addition, the Company has issued a
letter of credit of $60,000 to its workers' compensation
administrator for its obligations under this arrangement.
Contracts Receivables
In the opinion of management, all contract receivables
are fully collectible, and no allowance for doubtful
accounts has been provided for in the accompanying financial
statements. Contract receivables are charged directly
against earnings when they are determined to be
uncollectible. Use of this method does not result in a
material difference from the valuation method required by
generally accepted accounting principles.
Materials and Supply Inventory
Materials and supply inventory is valued at cost using
the first-in, first-out cost method.
Property and Equipment
Depreciation and amortization are provided on the
straight-line method based on the estimated useful lives of
the related assets, ranging from three to ten years.
Profit-Sharing Plan
The Company has a non-contributory profit-sharing plan
covering substantially all of its employees. Under the
plan, the Company's contribution is determined annually by
the Board of Directors. No contribution to the profit-
sharing plan was declared for the first nine months ended
September 30, 1997.
Income Taxes
Temporary differences between the financial statement
and tax bases of assets and liabilities are insignificant.
Therefore, the Company does not record deferred income taxes
on temporary differences. The Company does record the
deferred tax assets associated with any available
carryforward tax benefits.
NOTE 3 - CONCENTRATIONS
Certain customers are significant to the Company's
operations. Four customers comprised approximately 87% of
the Company's revenue for the first nine months of 1997 and,
at September 30, 1997, the Company had extended credit to a
customer whose individual account represents approximately
47% of the contract receivables balance. Additionally, one
incomplete contract comprises 45% of costs and estimated
earnings in excess of billings on incomplete contracts and
two incomplete contracts comprise 86% of billings in excess
of cost and estimated earnings.
NOTE 4 - CONTRACT AND OTHER RECEIVABLES
Contract receivables at September 30, 1997 are
categorized as follows:
Billed receivables on contracts in progress $3,780,272
Billed receivables on completed contracts 1,611,531
-------------
Total $5,391,803
=============
Contract receivables include approximately $326,422 of
change orders and include $774,602 of amounts receivable
under retainage provisions in contracts with customers.
NOTE 5 - COSTS AND ESTIMATED EARNINGS ON INCOMPLETE
CONTRACTS
Information with respect to incomplete contracts at
September 30, 1997 follows:
Costs incurred on incomplete contracts $23,335,503
Estimated earnings 4,389,590
-------------
27,725,093
Less billings to date (28,163,102)
-------------
Total $ (438,009)
=============
The above amounts are included in the accompanying
balance sheet under the following captions:
Costs and estimated earnings in excess of
billings on incomplete contracts $ 724,481
Billings in excess of costs and estimated
earnings on incomplete contracts (1,162,490)
-------------
Total $ (438,009)
=============
NOTE 6 - PROPERTY AND EQUIPMENT
The major classes of property and equipment at
September 30, 1997 were as follows:
Building $ 416,623
Equipment 417,564
Furniture and fixtures 299,701
Vehicles 5,408
Leasehold improvements 382,332
-------------
1,521,628
Less: Accumulated depreciation
and amortization (535,351)
-------------
$ 986,277
=============
NOTE 7 - INCOME TAXES
At September 30, 1997, the Company had net operating
loss carryforwards of approximately $400,000 that may be
offset against future taxable income through 2009. The
following amounts related to these carryforwards have been
recorded in the accompanying balance sheet:
Net deferred tax asset $139,105
========
The entire valuation allowance was recorded as a
deferred tax asset in 1997, in order for the net asset to
approximate the tax effect of the carryforwards which were
utilized in 1997. The effects of these carryforwards, and
the tax savings generated by the Company's subsidiary,
caused the total tax provision to differ from that which
would result from applying statutory rates to pretax income.
NOTE 8 - LINE OF CREDIT
At September 30, 1997, the Company had a line of credit
agreement with a bank for borrowings not to exceed the
lesser of $3,500,000 or 80% of eligible contract
receivables. Interest is payable monthly at the Whitney
National Bank prime rate plus 1%. The line of credit is
secured by a first priority security interest and liens on
the Company's contract receivables, by all other Company
assets, and by personal guarantees of a shareholder. In
addition, the agreement contains restrictive covenants, which
prohibits the Company from paying dividends or purchasing
treasury stock without prior bank approval. The agreement
expires in March 1998.
Interest expense for the nine months ended September
30, 1997 was $149,245.
NOTE 9 - OPERATING LEASES
The Company is obligated under certain long-term
operating leases for land and equipment used in its
operations. The monthly base rent under one of these leases
increases annually, and includes an additional component for
taxes, insurance and a security service.
Additionally, the Company subleases land used in its
primary operations under a three year operating lease from a
related corporation for $8,300 per month through April 1997;
then increased to $25,000 per month for the remainder of the
lease period. The Company guarantees payments on this lease
on behalf of the related entity. This lease agreement
expires in May 1999, with two three-year renewal options at
adjusted rates. In addition, the agreement contains an
option for the Company to purchase the land at a specified
price at any time during the initial term. The Company paid
a total of $158,200 in rental payments to this related party
during the nine months ended September 30, 1997.
Future minimum rental payments under the noncancelable
operating leases are as follows:
Remainder of 1997 $ 52,334
1998 209,334
1999 63,239
2000 10,500
-------------
$ 335,407
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company has an agreement with its stockholders that
should any stockholder desire to sell or transfer shares, he
must sell the shares to the Company, which must redeem all
of the withdrawing stockholder's stock. The redemption
value of the stock shall be equal to book value of the
shares plus stated adjustments for certain events.
In order to guarantee compliance with any warranty work
or specified contract provisions, letters of credit may be
given to customers. At September 30, 1997, the Company had
issued letters of credit totaling $1,170,142. A $517,382
portion of two such letters matured in December 1997, at
which time the Company's contingent obligations under the
letter were reduced by that amount. The Company does not
believe that any funds will be advanced on these letters of
credit.
The Company is party to certain claims filed by former
employees. Management believes that the outcome of these
claims will not have a material effect on the Company's
financial position or results of operations.
NOTE 11 - BACKLOG
The Company had backlog of approximately $23,060,682 on
signed contracts in existence at September 30, 1997.
GULF ISLAND FABRICATION, INC.
Unaudited Pro Forma Condensed Combined Financial Statements
INTRODUCTION
The following unaudited pro forma condensed combined
financial statements give effect to the January 1, 1998
acquisition (the "Acquisition") of all the shares of
Southport, Inc. and its wholly owned subsidiary Southport,
International, Inc., (collectively "Southport"), pursuant to
a Stock Purchase Agreement between Gulf Island Fabrication,
Inc. ("the Company") and the shareholders of Southport.
The unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical
financial statements of Gulf Island Fabrication, Inc. and
Southport's notes thereto. This pro forma information is
presented for illustrative purposes only and is not
necessarily indicative of the results which actually would
have been obtained if the Acquisition had been effected on
the pro forma dates, nor is it necessarily indicative of
future results.
The unaudited pro forma condensed combined financial
statements are based on the purchase method of accounting
for the Acquisition. The Unaudited Pro Forma Condensed
Combined Balance Sheet as of September 30, 1997 assumes that
the Acquisition was effected on September 30, 1997. The
Unaudited Pro Forma Condensed Combined Statement of Income
for the nine months ended September 30, 1997 assumes that
the Acquisition was effected on January 1, 1997. The
Unaudited Pro Forma Condensed Combined Statement of Income
for the year ended December 31, 1996 assumes that the
Acquisition was effected on January 1, 1996.
GULF ISLAND FABRICATION, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
September 30, 1997
(in thousands)
Gulf Island
Fabrication, Southport, Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ ---------- ----------- ---------
(Note 1)
ASSETS
------
Current assets:
Cash $ 4,774 $ 51 $ (2,570)(a)$ 825
4,570 (b)
(6,000)(c)
Receivables 24,986 5,406 30,392
Costs and estimated earnings in
excess of billings on uncompleted
contracts 3,333 724 4,057
Other current assets 1,800 286 2,086
------------ ---------- ----------- ---------
Total current assets 34,893 6,467 (4,000) 37,360
Property, plant and equipment, net 31,533 986 656 (c) 33,175
Other assets 428 14 4,413 (c) 4,855
------------ ---------- ----------- ---------
$ 66,854 $ 7,467 $ 1,069 $ 75,390
============ ========== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 5,499 $ 2,227 $ - $ 7,726
Notes payable - 2,570 (2,570)(a) 4,570
4,570 (b)
Billings in excess of costs and
estimated earnings on uncompleted
contracts 5,635 1,162 6,797
Accrued employee costs 3,072 267 3,339
Accrued expenses 2,359 64 2,423
Income taxes payable 1,441 1,441
------------ ---------- ----------- ---------
Total current liabilities 18,006 6,290 2,000 26,296
Deferred income taxes 1,218 - 246 (c) 1,464
------------ ---------- ----------- ---------
Total liabilities 19,224 6,290 2,246 27,760
Shareholders' equity 47,630 1,177 (1,177)(c) 47,630
------------ ---------- ----------- ---------
$ 66,854 $ 7,467 $ 1,069 $ 75,390
============ ========== =========== =========
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
GULF ISLAND FABRICATION, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
For the Nine Months Ended September 30, 1997
(in thousands, except share and per share data)
Gulf Island
Fabrication, Southport, Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ ----------- ----------- ----------
(Note 1)
Revenue $ 101,556 $ 14,395 $ - $ 115,951
Cost of revenue 83,282 12,253 33 (h) 95,568
------------ ----------- ----------- ----------
Gross profit 18,274 2,142 (33) 20,383
General and administrative
expenses 3,262 1,131 221 (g) 4,403
(211)(i)
------------ ----------- ----------- ----------
Operating income 15,012 1,011 (43) 15,980
Interest expense (income), net 212 124 (164)(d) 613
291 (e)
150 (f)
------------ ----------- ----------- ----------
Income before income taxes 14,800 887 (320) 15,367
Provision for income taxes 4,210 110 (120)(j) 4,200
Cumulative deferred tax
provision 1,144 - 1,144
------------ ----------- ----------- ----------
Net income $ 9,446 $ 777 $ (200) $ 10,023
============ =========== =========== ==========
Pro forma data
Income before income taxes $ 14,800 $ 15,367
Provision for income taxes 4,210 4,200
Pro forma provision for
income taxes related
to operations as an
S Corporation 1,379 1,379
------------ ----------
Pro forma net income $ 9,211 $ 9,788
============ ==========
Pro forma per share data
Pro forma net income
per share $ 0.89 $ 0.94
============ ==========
Pro forma weighted
average common shares 10,370,000 10,370,000
============ ==========
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
GULF ISLAND FABRICATION, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
September 30, 1997
(UNAUDITED)
NOTE 1: ACQUISITION OF SOUTHPORT, INC.
Effective January 1, 1998, the Company acquired all of
the outstanding shares of Southport, Inc. and its wholly
owned subsidiary Southport International, Inc., collectively
Southport. The purchase price was $ 6.0 million cash, plus
contingency payments of up to an additional $5.0 million
based on Southport's net income over a four year period
ending December 31, 2001.In addition to the purchase price
the Company paid approximately $101,000 of direct expenses,
which cumulatively exceeds the book value of assets acquired
and liabilities assumed by $4.413 million. The purchase
price was allocated to acquired assets and liabilities based
on estimated fair values.
Pro forma adjustments to record the Southport
Acquisition under the purchase method of accounting reflect:
(a) To record the payment to retire the outstanding debt
on Southport's line of credit.
(b) To record the borrowing under the Company's line of
credit to acquire the shares of Southport, Inc.
(c) To allocate the purchase price based on the
estimated fair values of the assets acquired and
liabilities assumed, eliminate shareholders' equity of
Southport, record the excess of acquisition cost over
the fair value of net assets acquired (goodwill),
record the related deferred tax effect of the
acquisition, and record the payment of cash to acquire
the shares of Southport.
(d) To record the adjustment to interest expense to reflect
the retirement of Southport's outstanding debt as of the
beginning of the period.
(e) To record the adjustment to interest expense to reflect
the borrowing on the Company's line of credit as of the
beginning of the period.
(f) To record the adjustment to interest income for cash
usage on the acquisition as of the beginning of the period.
(g) To record the amortization of cost in excess of fair
value of net assets acquired of $4.413 million in the
transaction (amortized over 15 years) as of the beginning of
the period.
(h) To record the adjustment for additional depreciation
expense on the new basis of property and equipment acquired
in the acquisition of Southport.
(i) To record the elimination of salary expense and
associated payroll burden on the employees who retired as of
the effective date of this transaction as of the beginning
of the period.
(j) To record the income tax provision related to the pro
forma adjustments using the Company's effective tax rate.
GULF ISLAND FABRICATION, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
Year Ended December 31, 1996
(in thousands, except share and per share data)
Gulf Island Dolphin Pro Pro Pro
Fabrication, Services, Forma Southport, Forma Forma
Inc. Inc. Adjustments Inc. Adjustments Combined
----------- --------- ------------ ---------- ---------- ---------
(Note 5) (Note7)
Revenue $ 79,004 $ 26,802 $ (2,799)(d) $ 17,838 $ - $ 120,845
Cost of revenue 68,673 22,950 (2,770)(b,d) 16,218 44 (e) 105,115
----------- --------- ------------ ---------- ---------- ---------
Gross profit 10,331 3,852 (29) 1,620 (44) 15,730
General and
administrative expense 2,661 1,642 1,207 294 (d) 5,524
- - (280)(f)
----------- --------- ------------ ---------- ---------- ---------
Operating income 7,670 2,210 (29) 413 (58) 10,206
Interest expense
(income), net 384 4 511 (a) - (218)(a) 1,269
388 (b)
200 (c)
----------- --------- ------------ ---------- ---------- ---------
Income before income
taxes 7,286 2,206 (540) 413 (428) 8,937
Provision for income
taxes (benefit) - 822 (203)(c) (164) (161)(g) 294
----------- --------- ------------ ---------- ---------- ---------
Net income $ 7,286 $ 1,384 $ (337) $ 577 $ (267) $ 8,643
=========== ========= ============ ========== ========== =========
Pro forma data:
Income before income
taxes (Note 3) $ 7,286 $ 8,937
Provision for income
taxes - 294
Pro forma provision
for income taxes
related to
operations as an
S Corporation 2,934 2,934
----------- ---------
Pro forma net income $ 4,352 $ 5,709
=========== =========
Pro forma per share
data: (Note 6)
Pro forma net
income per share $ 0.55 $ 0.73
=========== =========
Pro forma weighted
average common
shares 7,854,000 7,854,000
=========== =========
GULF ISLAND FABRICATION, INC.
NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF
INCOME
December 31, 1996
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
On January 2, 1997, the Company acquired all
outstanding shares of Dolphin Services, Inc., Dolphin Steel
Sales, Inc. and Dolphin Sales and Rentals Inc. for $5.9
million (the "Dolphin Acquisition"). The acquired
corporations perform fabrication, sandblasting, painting and
construction for offshore oil and gas platforms in inland
and offshore regions of the coast of the Gulf of Mexico. On
April 30, 1997, Dolphin Steel Sales, Inc. and Dolphin Sales
and Rentals, Inc. merged into Dolphin Services, Inc. The
three corporations are referred to hereinafter collectively
as "Dolphin Services."
The Dolphin Acquisition was financed by borrowings
under the Company's line of credit. The Company acquired
assets with a fair value of $9.6 million and assumed
liabilities of $3.8 million. The acquisition was accounted
for under the purchase method of accounting. Accordingly,
the operations of Dolphin Services are included in the
company's operations from January 2, 1997.
On February 13, 1997, the Board of Directors approved
the filing of an initial registration statement on Form S-1
with the Securities and Exchange Commission to register and
sell 4.6 million shares of common stock. Shortly before
closing of the offering on April 9, 1997, the Company's
current shareholders elected to terminate its status as an S
Corporation, and the Company has become subject to federal
and state income taxes. (See Note 2.)
On April 3, 1997, the Securities and Exchange
Commission declared the Company's Registration Statement on
Form S-1 (Registration No. 333-21863) effective. On April
9, 1997, the Company sold 2.3 million common shares pursuant
to the registration statement, increasing the total shares
outstanding to 5.8 million (the "Initial Public Offering").
The Company received net proceeds from the sale of $31.3
million.
NOTE 2: TERMINATION OF S CORPORATION STATUS
On April 4, 1997, the Company's shareholders elected to
terminate the Company's status as an S Corporation, and the
Company became subject to federal and state income taxes.
In conjunction with the termination of S Corporation status,
the Company paid a distribution of $14 million to its
current shareholders representing substantially all of the
Company's remaining undistributed S Corporation earnings
through April 4, 1997. The S Corporation earnings for the
period April 1, 1997 to April 4, 1997 were an immaterial
part of the total distribution.
The balance sheet of the Company as of December 31,
1996 reflects a deferred income tax liability of $1.2
million, which includes $1.1 million of deferred income tax
liability resulting from the termination of the S
Corporation status. The amount of the Company's retained
earnings represents primarily the C Corporation earnings
prior to the Company's election of S Corporation status in
1989 and earnings after April 4, 1997.
The pro forma income statement presentation reflects an
additional provision for income taxes as if the Company had
been subject to federal and state income taxes since January
1, 1996 using an assumed effective tax rate of approximately
38%.
NOTE 3: PRO FORMA PER SHARE DATA
Pro forma per share data for year ended December 31,
1996 consists of the Company's historical income, adjusted
to reflect income taxes as if the Company had operated as
a C Corporation for the year ended December 31, 1996. This
calculation excludes the charge of $1,144,000 related to
cumulative deferred income taxes resulting from conversion
to a C Corporation on April 4, 1997. The weighted average
share calculations include the assumed issuance of
additional shares sufficient to pay he distributions made to
shareholders in connection with the Company's Initial Public
Offering in 1997, to the extent such distributions exceeded
net income for the year ended December 31, 1996.
NOTE 4: STOCK SPLIT
On October 6, 1997, the Company's Board of Directors
authorized a two-for-one stock split effected in the form of
a stock dividend that became effective on October 28, 1997
to shareholders of record on October 21, 1997. All share
and per share data included in the financial statements have
been restated to reflect the stock split increasing the
total shares outstanding to 11.6 million.
NOTE 5: ACQUISITION OF DOLPHIN
Pro forma adjustments to record the Dolphin Acquisition
under the purchase method of accounting reflect:
(a) To record the adjustment to interest charges on
additional borrowings of $5,886,083 at an estimated
average interest rate of 8.69%.
(b) To record the adjustment for additional depreciation
of property, plant and equipment using the straight-line
method over estimated useful lives of 3 to 5 years for
machinery and equipment and 30 years for buildings.
(c) To record the tax benefit related to interest and
additional depreciation charges.
(d) To record elimination of intercompany sales between the
Company and Dolphin Services.
NOTE 6: NET INCOME PER SHARE
Pro forma net income per share is calculated by
dividing the pro forma net income ($5,709,000) by the
weighted average shares outstanding (7,000,000), which gives
retroactive effect to the stock splits authorized on
February 14, 1997 and October 6, 1997, and increased to
reflect sufficient additional shares to pay the
distributions to shareholders in excess of 1996 historical
net income (854,000 shares). All such additional shares are
based on an assumed offering price of $7.50 per share, net
of offering expenses. The pro forma net income per share
does not give effect to distributions that may be paid from
earnings generated subsequent to December 31, 1996.
NOTE 7: ACQUISITION OF SOUTHPORT, INC.
Effective January 1, 1998, the Company acquired all of
the outstanding shares of Southport, Inc. and its wholly
owned subsidiary Southport International, Inc., collectively
Southport ("the Southport Acquisition"). The purchase price
was $ 6.0 million cash, plus contingency payments of up to
an additional $5.0 million based on Southport's net income
over a four year period ending December 31, 2001.In addition
to the purchase price the Company paid approximately
$101,000 of direct expenses, which cumulatively exceeds the
book value of assets acquired and liabilities assumed by
$4.413 million. The purchase price was allocated to
acquired assets and liabilities based on estimated fair
values.
Pro forma adjustments to record the Southport
Acquisition under the purchase method of accounting reflect:
(a) To record the adjustment to interest expense to
reflect the retirement of Southport's outstanding
debt as of the beginning of the year.
(b) To record the adjustment to interest expense to
reflect the borrowing on the Company's line of
credit as of the beginning of the year.
(c) To record the adjustment to interest income for
cash usage on the acquisition as of the beginning
of the year.
(d) To record the amortization of cost in excess of
fair value of net assets acquired of $4.413 million
in the transaction (amortized over 15 years) as of
the beginning of the year.
(e) To record the adjustment for additional
depreciation expense on the new basis of property
and equipment acquired in the acquisition of
Southport.
(f) To record the elimination of salary expense and
associated payroll burden on the employees who
retired as of the effective date of this
transaction as of the beginning of the year.
(g) To record the income tax provision related to the
pro forma adjustments using the Company's
effective tax rate.