________________________________________________________________________________
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 JUNE 30, 1999
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 10, 1999 was 11,638,400.
GULF ISLAND FABRICATION, INC.
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income
for the Three and Six Months Ended June 30, 1999
and 1998 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity
for the Six Months Ended June 30, 1999 (unaudited) 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999
and 1998 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX E-1
-2-
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
-------------- --------------
(in thousands)
ASSETS
------
Current assets:
Cash $ 12,832 $ 2,808
Short-term investments 6,000 -
Contracts receivable, net 19,250 34,682
Retainage 1,364 5,837
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,103 2,061
Prepaid expenses 400 878
Inventory 1,198 1,137
Recoverable income taxes - 531
-------------- --------------
Total current assets 43,147 47,934
Property, plant and equipment, net 45,019 45,418
Excess of cost over fair value of net assets acquired
less accumulated amortization of $ 415,125 and $ 278,825 at
June 30, 1999 and December 31, 1998, respectively 3,702 3,839
Other assets 793 549
-------------- --------------
Total assets $ 92,661 $ 97,740
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 3,532 $ 7,151
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,921 9,476
Accrued employee costs 2,748 4,085
Accrued expenses 2,744 1,983
Income taxes payable 994 -
-------------- --------------
Total current liabilities 15,939 22,695
Deferred income taxes 3,112 2,315
Notes payable - 3,000
-------------- --------------
Total liabilities 19,051 28,010
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, 11,638,400 shares issued and outstanding
at June 30, 1999 and December 31, 1998 4,162 4,162
Additional paid-in capital 35,124 35,124
Retained earnings 34,324 30,444
-------------- --------------
Total shareholders' equity 73,610 69,730
-------------- --------------
$ 92,661 $ 97,740
============== ==============
The accompanying notes are an integral part of these statements.
-3-
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
------------ ------------- ----------- ------------
(in thousands, except per share data)
Revenue $ 28,106 $ 50,641 $ 58,435 $ 97,555
Cost of revenue 24,093 40,874 50,196 79,477
------------ ------------- ----------- ------------
Gross profit 4,013 9,767 8,239 18,078
General and administrative expenses 989 1,460 2,271 3,074
------------ ------------- ----------- ------------
Operating income 3,024 8,307 5,968 15,004
Other expense (income):
Interest expense 14 11 35 53
Interest income (166) (22) (267) (89)
Other - net 39 4 (10) 4
------------ ------------- ----------- ------------
(113) (7) (242) (32)
------------ ------------- ----------- ------------
Income before income taxes 3,137 8,314 6,210 15,036
Income taxes 1,182 3,163 2,330 5,652
------------ ------------- ----------- ------------
Net income $ 1,955 $ 5,151 $ 3,880 $ 9,384
============ ============= =========== ============
Per share data:
Basic earnings per share $ 0.17 $ 0.44 $ 0.33 $ 0.81
============ ============= =========== ============
Diluted earnings per share $ 0.17 $ 0.44 $ 0.33 $ 0.80
============ ============= =========== ============
Weighted-average shares 11,638 11,632 11,638 11,622
Effect of dilutive securities: employee stock options 69 89 43 97
------------ ------------- ----------- ------------
Adjusted weighted-average shares 11,707 11,721 11,681 11,719
============ ============= =========== ============
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, 1999 11,638,400 $ 4,162 $35,124 $30,444 $ 69,730
Net income - - - 3,880 3,880
---------- -------- ------------ ---------- ---------------
Balance at June 30, 1999 11,638,400 $ 4,162 $35,124 $34,324 $ 73,610
========== ======== ============ ========== ===============
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,
1999 1998
-------------- --------------
(in thousands)
Cash flows from operating activities:
Net income $ 3,880 $ 9,384
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,315 1,889
Amortization 137 141
Deferred income taxes 797 (168)
Changes in operating assets and liabilities:
Contracts receivable 15,432 (3,085)
Retainage 4,473 (2,376)
Costs and estimated earnings in excess of billings
on uncompleted contracts (42) (1,653)
Prepaid expenses and other assets 478 586
Inventory (61) (159)
Accounts payable and accrued expenses (4,195) 2,728
Income taxes payable 1,525 959
Billings in excess of costs and estimated earnings
on uncompleted contracts (3,555) 2,385
-------- ---------
Net cash provided by operating activities 21,184 10,631
Cash flows from investing activities:
Capital expenditures, net (1,916) (5,601)
Short-term investments (6,000) -
Payment for purchase of Southport, net of cash acquired - (5,922)
Other (244) (52)
-------- ---------
Net cash used in investing activities (8,160) (11,575)
Cash flows from financing activities:
Borrowings against notes payable - 8,000
Principal payments on notes payable (3,000) (10,600)
Proceeds from exercise of stock options - 288
-------- ---------
Net cash used in financing activities (3,000) (2,312)
-------- ---------
Net increase (decrease) in cash 10,024 (3,256)
Cash at beginning of period 2,808 6,879
-------- ---------
Cash at end of period $ 12,832 $ 3,623
======== =========
Supplemental cash flow information:
Interest paid $ 54 $ 38
======== =========
Income taxes paid $ 55 $ 4,827
======== =========
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, 1999 AND 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
Gulf Island Fabrication, Inc. ("Gulf Island"), together with its wholly
owned subsidiaries (collectively "the Company"), 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. The Company,
located in Houma, Louisiana, also offers offshore interconnect pipe hook-up,
inshore marine construction, manufacture and repair of pressure vessels, steel
warehousing and sales, and the fabrication of offshore living quarters. Gulf
Island's principal markets are concentrated in the offshore regions of the Gulf
of Mexico. The consolidated financial statements include the accounts of Gulf
Island and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
The information presented at June 30, 1999 and for the three months and six
months ended June 30, 1999 and 1998, 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, 1999 and the results of its operations for the three months
and six months ended June 30, 1999 and 1998, and its cash flows for the six
months ended June 30, 1999 and 1998. The results of operations for the three
months and six months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
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 generally accepted accounting principles 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, 1998.
NOTE 2 - SHORT-TERM INVESTMENTS
Short-term investments consist of highly-liquid debt securities with a
maturity of greater than three months, but less than twelve months. The
securities are classified as available-for-sale and the fair value of these
investments approximated their carrying value at June 30, 1999.
-7-
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if employee stock options were exercised or
converted into common stock. Quarterly per share data may not sum to the year-
to-date data reported in the Company's consolidated financial statements due to
rounding.
NOTE 4 - NOTES PAYABLE
Effective June 23, 1999, the Company's existing bank credit facility was
amended and restated in order, among other reasons, to extend the maturity date
to December 31, 2001. 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 Company is required to maintain certain balance sheet
and cash flow ratios. The Company pays a fee quarterly of three-eighths of one
percent per annum on the weighted-average unused portion of the line of credit.
At June 30, 1999, there were no borrowings outstanding under the credit
facility.
NOTE 5 - 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 insurer, seeks to recover the
remainder of its claimed out-of-pocket losses (approximately $1 million) and
approximately $65 million from the four defendants for economic losses that it
alleges resulted from the delay in oil and gas production that was caused by
these events. The trial court has issued rulings, the effect of which is to
limit the damage recoverable from all four defendants to a maximum of $15
million.
The trial court has issued this and other rulings that have been favorable
to the defendants, all of which are subject to appeal by the plaintiff at the
conclusion of the trial. Management is vigorously defending this case and, after
consultation with legal counsel, 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, although no assurances can be given as to the ultimate outcome of the
claims.
-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, 1999 was $28.1 million and $58.4 million, a decrease of 44.5% and 40.2%,
respectively, compared to $50.6 million and $97.6 million in revenue for the
three-month and six-month periods ended June 30, 1998. Revenue decreased as a
result of a lower volume of direct labor hours applied to contracts during the
1999 periods compared to the same periods ended in 1998. The slower than
expected recovery in the oil and gas industry has made fewer fabrication
projects available; consequently, in the three-month and six-month periods ended
June 30, 1999, the Company had fewer contracts in its backlog and thus fewer
hours worked compared to the same periods in 1998.
The fewer number of projects available has also caused the competitiveness
in the bidding process to substantially reduce margins on contracts that have
been awarded. For the three-month and six-month periods ended June 30, 1999,
gross profit was $4.0 million (14.3% of revenue) and $8.2 million (14.1% of
revenue), compared to $9.8 million (19.3% of revenue) and $18.1 million (18.5%
of revenue) of gross profit for the three-month and six-month periods ended June
30, 1998.
The Company's general and administrative expenses were $989,000 for the
three- month period ended June 30, 1999 and $2.3 million for the six-month
period ended June 30, 1999. This compares to $1.5 million for the three-month
period ended June 30, 1998 and $3.1 million for the six-month period ended June
30, 1998. These decreases of $471,000 and $803,000, respectively, were primarily
the result of the more efficient managing of costs associated with public
company reporting requirements and a general decrease in costs related to
reduced production levels. In an effort to further control general and
administrative costs, the Company implemented an overall 5% reduction in hourly
and salary wages effective May 31, 1999 and June 1, 1999, respectively.
The Company had net interest income of $113,000 and $242,000 for the three-
month and six-month periods ended June 30, 1999, respectively, compared to
$7,000 and $32,000 for the three-month and six-month periods ended June 30,
1998. The current reduction in production levels generated more available cash
for investment purposes.
Although there have been recent increases in the price of oil and natural
gas, these increases are not being reflected in the number and dollar value of
projects in the market. Accordingly, the Company is continuously monitoring its
costs as production levels decline in order to take appropriate actions.
Liquidity and Capital Resources
Historically the Company has funded its business activities through funds
generated from operations and borrowings under its bank credit facility. Net
cash provided by operations was $21.2 million for the six months ended June 30,
1999 with an eight percent increase in working capital to $27.2 million. Net
cash used in investing activities for the six months ended
-9-
June 30, 1999 was $8.2 million, of which $6.0 million related to the purchase of
short-term investments during the period. The majority of the remaining $2.2
million consisted of capital expenditures during the period, specifically $1.4
million for one new Manitowoc crane and approximately $600,000 for equipment and
improvements to the production facilities.
Net cash used in financing activities was $3.0 million for the six-month
period ended June 30, 1999. This amount was a payment to eliminate the
outstanding balance on the Company's bank credit facility.
The Company's bank credit facility currently provides for a revolving line
of credit (the "Revolver") of up to $20.0 million, which bears interest equal
to, at the Company's option, the prime lending rate established by Bank One
Corporation or LIBOR plus 1 1/2%. The Revolver matures December 31, 2001 and is
secured by a mortgage on the Company's real estate, equipment and fixtures. At
June 30, 1999, the Company had no outstanding borrowings under the credit
facility.
Capital expenditures for the remaining six months of 1999 are estimated to
be approximately $4.1 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
Revolver will be sufficient to fund these capital expenditures and its working
capital needs. The Company may, however, expand its operations through future
acquisitions that may require additional equity or debt financing.
Year 2000 Issues
The Problem. Year 2000 issues result from the past practice in the computer
industry of using two digits rather than four digits when coding the year
portion of a date. This practice can create breakdowns or erroneous results when
computers and processors embedded in other equipment perform operations
involving dates later than December 31, 1999.
The Company's State of Readiness. The Company has assessed the Year 2000
compliance of its information technology systems and has purchased software and
hardware that it believes will be adequate to upgrade all of these systems to
Year 2000 compliance. The Company has also surveyed its significant non-
information technology equipment for Year 2000 issues. Although the Company uses
several such items of equipment that are significant to its operations (such as
automated welding and cutting equipment), none of the automated functions of
this equipment are date sensitive and the Company believes that none of the
equipment will require replacement or modification for Year 2000 compliance.
The Company does not have any significant suppliers or customers whose
information technology systems directly interface with that of the Company;
nevertheless, as part of its assessment of its state of readiness, the Company
has surveyed a representative number of its suppliers and customers for Year
2000 compliance. To date, the Company has received replies from approximately
73% of the suppliers that it has contacted, all of which (with insignificant
exceptions) have indicated that they have taken appropriate steps to achieve
Year 2000 compliance or have plans to do so. The Company has received replies
from approximately 77% of its customers contacted, all of which have indicated
that they have taken steps to achieve Year 2000 compliance or have plans to do
so.
-10-
Costs. Because the Company's information technology systems have been
regularly upgraded and replaced as part of the Company's ongoing efforts to
maintain high-grade technology and because the Company is not heavily dependent
on non-information technology equipment that is date sensitive, the Company's
Year 2000 compliance costs are expected to be relatively low. The Company has
incurred $77,000 to purchase software and hardware to upgrade its information
technology systems and management does not believe that significant additional
costs will be required for Year 2000 compliance. There can be no guarantee,
however, that actual costs will not exceed that amount.
Risks. Although the Company believes that it has taken reasonable steps to
assess its internal systems and prepare them for Year 2000 issues, if those
steps prove inadequate the Company's ability to estimate and bid on new jobs and
its financial and other daily business procedures could be interrupted or
delayed, any of which could have a material adverse effect on the Company's
operations. Because the replies to the Company's survey of its suppliers and
customers is not complete, the Company is not in a position to evaluate the risk
of their non-compliance. It is possible that the operations of the Company
could be adversely affected to a material extent by the non-compliance of
significant suppliers or customers.
Contingency Plan. While the Company intends to continue to monitor Year
2000 issues, it does not currently have a contingency plan for dealing with the
possibility that its current systems may prove inadequate, nor does the Company
currently intend to develop such a plan.
Forward-Looking Statements
Statements under "Year 2000 Issues" as to the Company's beliefs and
expectations, statements in the last paragraph under "Results of Operations" 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 accuracy of the Company's assessment of its
exposure to Year 2000 issues and the adequacy of the steps it has taken to
address those issues. 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.
-11-
PART II. OTHER INFORMATION
Item 5. Other Information
On July 22, 1999 the Company announced its 1999 second quarter earnings
and related matters. The press release making this announcement is attached
hereto as Exhibit 99.1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 First Amendment to the Seventh Amended and Restated
Revolving Credit Agreement among the Company and Bank One,
Louisiana, N.A. and Whitney National Bank, dated June 23,
1999.
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on July 22, 1999
announcing its 1999 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.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULF ISLAND FABRICATION, INC.
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: August 11, 1999
-13-
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.1 First Amendment to the Seventh Amended and Restated Revolving Credit
Agreement among the Company and Bank One, Louisiana, N.A. and Whitney
National Bank, dated June 23, 1999.
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on July 22, 1999 announcing its
1999 second quarter earnings and related matters.
E-1