UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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)
(985) 872-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of the Registrant's common stock, no par value per
share, outstanding at November 8, 2001 was 11,706,264.
GULF ISLAND FABRICATION, INC.
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 2001 (unaudited) and December 31, 2000 3
Consolidated Statements of Income
for the Three and Nine Months Ended September 30, 2001
and 2000 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 2001 (unaudited) 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 9-10
of Operations
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)
September 30, December 31,
2001 2000
------------- ------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,676 $10,079
Short-term investments 23,617 16,024
Contracts receivable, net 26,248 15,922
Contract retainage 2,201 738
Costs and estimated earnings in excess of billings on uncompleted contracts 1,347 2,419
Prepaid expenses 858 1,017
Inventory 1,180 1,347
-------- -------
Total current assets 60,127 47,546
Property, plant and equipment, net 40,482 42,662
Excess of cost over fair value of net assets acquired less accumulated amortization
of $ 1,194,125 and $ 869,225 at September 30, 2001 and December 31, 2000, respectively 4,873 5,198
Other assets 706 656
-------- -------
Total assets $106,188 $96,062
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,262 $ 2,229
Billings in excess of costs and estimated earnings on uncompleted contracts 5,011 3,608
Accrued employee costs 2,306 1,696
Accrued expenses 1,848 2,446
Income taxes payable 2,585 392
-------- -------
Total current liabilities 14,012 10,371
Deferred income taxes 4,521 4,425
-------- -------
Total liabilities 18,533 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, 11,706,264 and 4,227 4,195
11,681,500 shares issued and outstanding at September 30, 2001 and
December 31, 2000, respectively
Additional paid-in capital 36,097 35,755
Retained earnings 47,331 41,316
-------- -------
Total shareholders' equity 87,655 81,266
-------- -------
Total liability and shareholders' equity $106,188 $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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except per share data)
Revenue $30,496 $27,544 $92,321 $87,665
Cost of revenue 25,826 25,159 79,731 80,282
------- ------- ------- -------
Gross profit 4,670 2,385 12,590 7,383
General and administrative expenses 1,051 1,035 3,394 3,195
------- ------- ------- -------
Operating income 3,619 1,350 9,196 4,188
Other income (expense):
Interest expense (9) (18) (27) (25)
Interest income 295 373 874 985
Other - net (628) (68) (737) (169)
------- ------- ------- -------
(342) 287 110 791
------- ------- ------- -------
Income before income taxes 3,277 1,637 9,306 4,979
Income taxes 1,120 617 3,291 1,824
------- ------- ------- -------
Net income $ 2,157 $ 1,020 $ 6,015 $ 3,155
======= ======= ======= =======
Per share data:
Basic earnings per share $0.18 $0.09 $0.51 $0.27
======= ======= ======= =======
Diluted earnings per share $0.18 $0.09 $0.51 $0.27
======= ======= ======= =======
Weighted-average shares 11,706 11,680 11,702 11,661
Effect of dilutive securities:
employee stock options 52 96 100 89
------- ------- ------- -------
Adjusted weighted-average shares 11,758 11,776 11,802 11,750
======= ======= ======= =======
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 24,764 32 283 -- 315
Income tax benefit from exercise of stock options -- -- 59 -- 59
Net income -- -- -- 6,015 6,015
---------- ------ ------- ------- -------
Balance at September 30, 2001 11,706,264 $4,227 $36,097 $47,331 $87,655
========== ====== ======= ======= =======
The accompanying notes are an integral part of these statements.
5
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
2001 2000
------ ------
(in thousands)
Cash flows from operating activities:
Net income $ 6,015 $ 3,155
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,302 3,358
Amortization 325 206
Deferred income taxes 96 520
Changes in operating assets and liabilities:
Contracts receivable (10,326) (917)
Contract retainage (1,463) 2,988
Costs and estimated earnings in excess of billings on uncompleted 1,072 1,088
contracts
Prepaid expenses, inventory and other assets 326 (300)
Accounts payable 33 (1,074)
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,403 (1,516)
Accrued employee costs 610 (121)
Accrued expenses (598) 1,332
Income taxes payable 2,193 (437)
-------- -------
Net cash provided by operating activities 2,988 8,282
Cash flows from investing activities:
Capital expenditures, net (3,222) (1,859)
Proceeds on the sale of property 2,100 -
Purchase of short-term investments (7,593) (4,625)
Other (50) (187)
-------- -------
Net cash used in investing activities (8,765) (6,671)
Cash flows from financing activities:
Proceeds from exercise of stock options 374 460
-------- -------
Net cash provided by financing activities 374 460
-------- -------
Net increase (decrease) in cash and cash equivalents (5,403) 2,071
Cash and cash equivalents at beginning of period 10,079 4,535
-------- -------
Cash and cash equivalents at end of period $ 4,676 $ 6,606
======== =======
Supplemental cash flow information:
Interest paid $ 18 $ 25
======== =======
Income taxes paid $ 940 $ 1,616
======== =======
The accompanying notes are an integral part of these statements.
6
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTH AND NINE MONTH
PERIODS ENDED SEPTEMBER 30, 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 September 30, 2001 and for the three months
and nine months ended September 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 September 30, 2001 and the results of its operations for the three
months and nine months ended September 30, 2001 and 2000, and its cash flows for
the nine months ended September 30, 2001 and 2000. The results of operations for
the three months and nine months ended September 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 was one of four defendants in a lawsuit in which the plaintiff
claimed that the Company improperly installed certain attachments to a jacket
that it had fabricated for the plaintiff. In the third quarter, the Company and
the other three defendants settled
7
this lawsuit with the plaintiff. The Company's contribution to this settlement
was $280,000, which was expensed in the third quarter. The Company reserved its
right to seek, and intends to seek, recovery of legal fees and expenses from
various underwriters. There are no assurances as to the size of the recovery,
if any, with respect to this matter.
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.
NOTE 4 - NOTES PAYABLE
Effective October 24, 2001, the Company's existing bank credit facility was
amended and restated in order, among other reasons, to extend the maturity date
to December 31, 2003. The credit facility provides for a revolving line of
credit (the "Revolver") of up to $20.0 million that bears interest equal to, at
the Company's option, the prime lending rate established by Bank One Corporation
or LIBOR plus 1.5%. The Revolver is secured by a mortgage on the Company's real
estate, equipment and fixtures. The Company pays a fee quarterly of three-
sixteenths of one percent per annum on the weighted-average unused portion of
the line of credit. The Company is required to maintain certain covenants,
including balance sheet and cash flow ratios. At September 30, 2001, the Company
was in compliance with these covenants and had no outstanding borrowings under
the Revolver.
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 nine-month periods ended
September 30, 2001 was $30.5 million and $92.3 million, an increase of 10.7% and
5.3%, respectively, compared to $27.5 million and $87.7 million in revenue for
the three-month and nine-month periods ended September 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 nine-
month periods ended September 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 $2.3 million or 95.8% and $5.2 million or 70.5% when comparing
the three-month and nine-month periods ended September 30, 2001 to the
comparative periods in 2000. For the three-month and nine-month periods ended
September 30, 2001, gross profit was $4.7 million (15.3% of revenue) and $12.6
million (13.6% of revenue), compared to $2.4 million (8.7% of revenue) and $7.4
million (8.4% of revenue) of gross profit for the three-month and nine-month
periods ended September 30, 2000.
The Company's general and administrative expenses were $1.1 million for the
three-month period ended September 30, 2001 and $3.4 million for the nine-month
period ended September 30, 2001. This compares to $1.0 million for the three-
month period ended September 30, 2000 and $3.2 million for the nine-month period
ended September 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 3.4% from 3.8% of revenue for
the three-month periods ended September 30, 2001 and 2000, respectively, but
increased to 3.7% from 3.6% of revenue for the comparative nine-month periods.
The Company had net interest income of $286,000 and $847,000 for the three-
month and nine-month periods ended September 30, 2001, respectively, compared to
$355,000 and $960,000 for the three-month and nine-month periods ended September
30, 2000. The current reduction in interest income is the result of a reduction
in the short-term interest rates when comparing 2001 to 2000.
For the three-month period ended September 30, 2001, other-net, represented
$628,000 of expenses compared to $68,000 of expenses for the three-month period
ended September 30, 2000. For the nine-month period ended September 30, 2001,
other-net, represented $737,000 of expenses compared to $169,000 of expenses for
the nine-month period ended September 30, 2000. Included in other-net for the
three months ended September 30, 2001 is $280,000 for the settlement of the
lawsuit that is described in Note 2-Contingencies to the consolidated financial
statements. Also included in other-net is the Company's share of expenses
related to the MinDOC, LLC activities to design and market the MinDOC floating
platform concept for deepwater drilling and production, which was $170,000 and
$279,000
9
compared to $68,000 and $169,000 for the three-month and nine-month periods
ended September 30, 2001 and 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company has funded its business activities through funds
generated from operations and borrowings under its revolving line of credit. Net
cash provided by operating activities was $3.0 million for the nine months ended
September 30, 2001, which contributed to a 24% increase in working capital to
$46.1 million, resulting in a current ratio of 4.3 to 1. Net cash used in
investing activities for the nine months ended September 30, 2001 was $8.8
million, which included $2.1 million of proceeds on the sale of property, $3.3
million for the purchase of production machinery and equipment and facility
improvements, and $7.6 million for the purchase of short-term investments. In
June 2001, the Company sold its 13-acre facility located in Harvey, Louisiana,
which was occupied by Southport, Inc. prior to moving its operations to a
facility in Houma, Louisiana.
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, 2003 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
September 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 three months of 2001 are budgeted to
be approximately $1.7 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.
The Company was one of four defendants in a lawsuit in which the plaintiff
claimed that the Company improperly installed certain attachments to a jacket
that it had fabricated for the plaintiff. In the third quarter, the Company and
the other three defendants settled this lawsuit with the plaintiff. The
Company's contribution to this settlement was $280,000, which was expensed in
the third quarter. The Company reserved its right to seek, and intends to seek,
recovery of legal fees and expenses from various underwriters. There are no
assurances as to the size of the recovery, if any, with respect to this matter.
ITEM 5. OTHER INFORMATION.
On October 15, 2001 the Company announced the scheduled time for the release
of its 2001 third quarter earnings and its quarterly conference call. The press
release making this announcement is attached hereto as Exhibit 99.1.
On October 24, 2001 the Company announced its 2001 third 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.
10.1 Second Amendment to Eighth Amended and Restated Revolving Credit
Agreement among the Company and Bank One, NA and Whitney National
Bank dated October 24, 2001.
99.1 Press release issued by the Company on October 15, 2001 announcing
the scheduled time for the release of its 2001 third quarter
earnings and its quarterly conference call.
99.2 Press release issued by the Company on October 24, 2001 announcing
its 2001 third quarter earnings and related matters.
(b) The Company filed no reports on Form 8-K during the quarter for which
this report is filed.
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.
By: /s/ Joseph P. Gallagher, III
-----------------------------------
Joseph P. Gallagher, III
Vice President - Finance, Chief Financial
Officer and Treasurer (Principal Financial
Officer and Duly Authorized Officer)
Date: November 8, 2001
12
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.1 Second Amendment to Eighth Amended and Restated Revolving Credit
Agreement among the Company and Bank One, NA and Whitney National
Bank dated October 24, 2001.
99.1 Press release issued by the Company on October 15, 2001 announcing
the scheduled time for the release of its 2001 third quarter
earnings and its quarterly conference call.
99.2 Press release issued by the Company on October 24, 2001 announcing
its 2001 third quarter earnings and related matters.
E-1