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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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 August 9, 2001 was 11,705,916.
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 June 30, 2001 (unaudited) and December 31, 2000 3
Consolidated Statements of Income
for the Three and Six Months Ended June 30, 2001
and 2000 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity
for the Six Months Ended June 30, 2001 (unaudited) 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 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 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX E-1
2
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2001 2000
----------- ------------
(in thousands)
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,539 $10,079
Short-term investments 16,420 16,024
Contracts receivable, net 30,553 15,922
Contract retainage 1,722 738
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,586 2,419
Prepaid expenses 735 1,017
Inventory 1,128 1,347
-------- -------
Total current assets 58,683 47,546
Property, plant and equipment, net 40,932 42,662
Excess of cost over fair value of net assets acquired
less accumulated amortization of $1,085,825 and $869,225 at
June 30, 2001 and December 31, 2000, respectively 4,982 5,198
Other assets 653 656
-------- -------
Total assets $105,250 $96,062
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 4,159 $ 2,229
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,740 3,608
Accrued employee costs 2,082 1,696
Accrued expenses 2,833 2,446
Income taxes payable 1,433 392
-------- -------
Total current liabilities 15,247 10,371
Deferred income taxes 4,508 4,425
-------- -------
Total liabilities 19,755 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, 11,705,916 and 11,681,500 shares
issued and outstanding at June 30, 2001
and December 31, 2000, respectively 4,226 4,195
Additional paid-in capital 36,095 35,755
Retained earnings 45,174 41,316
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Total shareholders' equity 85,495 81,266
-------- -------
Total liability and shareholders' equity $105,250 $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 Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------- ------- ------- -------
(in thousands, except per share data)
Revenue $34,267 $28,380 $61,825 $60,121
Cost of revenue 28,630 25,930 53,905 55,123
------- ------- ------- -------
Gross profit 5,637 2,450 7,920 4,998
General and administrative expenses 1,202 1,036 2,343 2,160
------- ------- ------- -------
Operating income 4,435 1,414 5,577 2,838
Other income (expense):
Interest expense (9) 11 (18) (7)
Interest income 265 293 579 612
Other - net (102) (44) (109) (101)
------- ------- ------- -------
154 260 452 504
------- ------- ------- -------
Income before income taxes 4,589 1,674 6,029 3,342
Income taxes 1,649 646 2,171 1,207
------- ------- ------- -------
Net income $ 2,940 $ 1,028 $ 3,858 $ 2,135
======= ======= ======= =======
Per share data:
Basic earnings per share $0.25 $0.09 $0.33 $0.18
======= ======= ======= =======
Diluted earnings per share $0.25 $0.09 $0.33 $0.18
======= ======= ======= =======
Weighted-average shares 11,705 11,664 11,701 11,651
Effect of dilutive securities: employee stock options 97 104 123 89
------- ------- ------- -------
Adjusted weighted-average shares 11,802 11,768 11,824 11,740
======= ======= ======= =======
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 24,416 31 281 - 312
Income tax benefit from
exercise of stock options - - 59 - 59
Net income - - - 3,858 3,858
---------- ------ ------- ------- -------
Balance at June 30, 2001 11,705,916 $4,226 $36,095 $45,174 $85,495
========== ====== ======= ======= =======
The accompanying notes are an integral part of these statements.
5
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
2001 2000
----------------- -----------------
(in thousands)
Cash flows from operating activities:
Net income $ 3,858 $ 2,135
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 2,188 2,261
Amortization 217 138
Deferred income taxes 83 786
Changes in operating assets and liabilities:
Contracts receivable (14,631) (1,246)
Contract retainage (984) 905
Costs and estimated earnings in excess of billings
on uncompleted contracts (1,167) 2,472
Prepaid expenses, inventory and other assets 501 (141)
Accounts payable 1,930 (1,445)
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,132 166
Accrued employee costs 386 1,060
Accrued expenses 386 (149)
Income taxes payable 1,041 (1,253)
-------- -------
Net cash provided by (used in) operating activities (5,060) 5,689
Cash flows from investing activities:
Capital expenditures, net (2,558) (670)
Proceeds on the sale of property 2,100 -
Purchase of short-term investments (396) (4,391)
Other 3 (57)
-------- -------
Net cash used in investing activities (851) (5,118)
Cash flows from financing activities:
Proceeds from exercise of stock options 371 427
-------- -------
Net cash provided by financing activities 371 427
-------- -------
Net increase (decrease) in cash and cash equivalents (5,540) 998
Cash and cash equivalents at beginning of period 10,079 4,535
-------- -------
Cash and cash equivalents at end of period $ 4,539 $ 5,533
======== =======
Supplemental cash flow information:
Interest paid $ 18 $ 17
======== =======
Income taxes paid $ 810 $ 1,551
======== =======
The accompanying notes are an integral part of these statements.
6
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTH AND SIX MONTH
PERIODS ENDED JUNE 30, 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 June 30, 2001 and for the three months and six
months ended June 30, 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 June 30, 2001 and the results of its operations for the three months
and six months ended June 30, 2001 and 2000, and its cash flows for the six
months ended June 30, 2001 and 2000. The results of operations for the three
months and six months ended June 30, 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 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. The
Company currently does not have any other intangible assets deemed to have
indefinite lives. The Company will apply the new rules on accounting for
goodwill beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $433,000 ($0.04 diluted EPS) per year. During 2002, the Company
will perform the required impairment tests of goodwill as of January 1, 2002,
but has not yet determined what effect these tests will have on the earnings and
financial position of the Company.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's revenue for the three-month and six-month periods ended
June 30, 2001 was $34.3 million and $61.8 million, an increase of 20.7% and
2.8%, respectively, compared to $28.4 million and $60.1 million in revenue for
the three-month and six-month periods ended June 30, 2000. Revenue increased as
a result of the increase in the volume of direct labor hours applied to
contracts in progress accompanied by increased prices available on several
short-term contract jobs when comparing the three-month and the six-month
periods ended June 30, 2001 to the similar periods of 2000.
The more favorable weather conditions combined with the utilization of
labor saving equipment enabled the Company to increase production volumes and
profit margins. Also contributing to increased margins were increased product
prices and deeper discounts from major suppliers of material and services. Gross
profit increased $3.2 million or 131% and $2.9 million or 58% when comparing the
three-month and six-month periods ended June 30, 2001 to the comparative periods
in 2000. For the three-month and six-month periods ended June 30, 2001, gross
profit was $5.6 million (16.5% of revenue) and $7.9 million (12.8% of revenue),
compared to $2.5 million (8.6% of revenue) and $5.0 million (8.3% of revenue)
of gross profit for the three-month and six-month periods ended June 30, 2000.
The Company's general and administrative expenses were $1.2 million for the
three-month period ended June 30, 2001 and $2.3 million for the six-month period
ended June 30, 2001. This compares to $1.0 million for the three-month period
ended June 30, 2000 and $2.2 million for the six-month period ended June 30,
2000. Although general and administrative expenses increased, the majority of
the increases were related to costs that vary with sales volumes, primarily
labor-related costs. As a percentage of revenue, general and administrative
expenses decreased to 3.5% from 3.7% of revenue for the three-month periods
ended June 30, 2001 and 2000, respectively, but increased to 3.8% from 3.6% of
revenue for the comparative six-month periods.
The Company had net interest income of $256,000 and $561,000 for the three-
month and six-month periods ended June 30, 2001, respectively, compared to
$304,000 and $605,000 for the three-month and six-month periods ended June 30,
2000. The current reduction in interest income is the result of cash utilization
associated with the increase in production levels for the three-month and six-
month periods.
For the three-month period ended June 30, 2001, other-net, represented
$102,000 of expenses compared to $44,000 of expenses for the period ended
June 30, 2000. For the six-month period ended June 30, 2001, other-net,
represented $109,000 of expenses compared to $101,000 of expenses for the six-
month period ended June 30, 2000. These expenses consist primarily of the
Company's share of the MinDOC, LLC activities to design and market the MinDOC
floating platform concept for deepwater drilling and production.
9
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 $5.1 million for the six-
months ended June 30, 2001, working capital increased by $6.3 million to $43.4
million, resulting in a current ratio of 3.8 to 1. Net cash used in investing
activities for the six months ended June 30, 2001 was $851,000, which included
$2.1 million of proceeds on the sale of property, $2.6 million for the purchase
of production machinery and equipment and facility improvements, and $396,000
for the purchase of short-term investments. In June 2001, the Company sold its
13-acre facility located in Harvey, Louisiana, which was previously occupied by
Southport, Inc.
The Company's credit agreement currently provides for a revolving line of
credit of up to $20.0 million that bears interest equal to, at the Company's
option, the prime lending rate established by Bank One Corporation or LIBOR plus
1.5%. The revolving line of credit matures December 31, 2002 and is secured by a
mortgage on the Company's real estate, equipment and fixtures. The Company pays
a fee quarterly of three-sixteenths of one percent per annum on the weighted-
average unused portion of the line of credit. The Company is required to
maintain certain covenants, including balance sheet and cash flow ratios. At
June 30, 2001, the Company was in compliance with these covenants and had no
outstanding borrowings under the revolving line of credit.
Capital expenditures for the remaining six months of 2001 are budgeted to
be approximately $7.2 million, including improvements to the facilities and
various other fabrication equipment. Management believes that its available
funds, cash generated by operating activities and funds available under the
revolving line of credit 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 PROCEEDINGS.
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 5. OTHER INFORMATION.
On July 2, 2001 the Company announced the scheduled time for the
release of its 2001 second quarter earnings and its quarterly conference call.
The press release making this announcement is attached hereto as Exhibit 99.1.
On July 25, 2001 the Company announced its 2001 second quarter earnings
and related matters. The press release making this announcement is attached
hereto as Exhibit 99.2.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
99.1 Press release issued by the Company on July 2, 2001
announcing the scheduled time for the release of its 2001
second quarter earnings and its quarterly conference call.
99.2 Press release issued by the Company on July 25, 2001
announcing its 2001 second quarter earnings and related
matters.
(b) The Company filed no reports on Form 8-K during the quarter for
which this report is filed.
11
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: August 9, 2001
12
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
99.1 Press release issued by the Company on July 2, 2001 announcing the
scheduled time for the release of its 2001 second quarter earnings
and its quarterly conference call.
99.2 Press release issued by the Company on July 25, 2001 announcing
its 2001 second quarter earnings and related matters.
E-1