- --------------------------------------------------------------------------------
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 MARCH 31, 2002
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 May 10, 2002 was 11,734,814.
GULF ISLAND FABRICATION, INC.
INDEX
<Table>
<Caption>
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at March 31, 2002 (unaudited) and December 31, 2001 3
Consolidated Statements of Income
for the Three Months Ended March 31, 2002
and 2001 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity
for the Three Months Ended March 31, 2002 (unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2002
and 2001 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX E-1
</Table>
-2-
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
(Unaudited)
March 31, December 31,
2002 2001
----------- ------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,928 $ 11,274
Short-term investments 23,959 23,758
Contracts receivable, net 23,347 14,231
Contract retainage 2,070 1,736
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,417 1,961
Prepaid expenses 804 1,170
Inventory 1,326 1,331
---------- ----------
Total current assets 58,851 55,461
Property, plant and equipment, net 43,060 41,666
Excess of cost over fair value of net assets acquired, net -- 4,765
Other assets 647 646
---------- ----------
Total assets $ 102,558 $ 102,538
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,415 $ 1,660
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,684 2,891
Accrued employee costs 1,674 2,012
Accrued expenses 2,386 1,929
Income taxes payable 869 368
---------- ----------
Total current liabilities 12,028 8,860
Deferred income taxes 4,981 4,773
---------- ----------
Total liabilities 17,009 13,633
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, 11,709,192 and 11,706,864 shares issued and
outstanding at March 31, 2002 and December 31, 2001, respectively 4,229 4,227
Additional paid-in capital 36,123 36,101
Retained earnings 45,197 48,577
---------- ----------
Total shareholders' equity 85,549 88,905
---------- ----------
Total liabilities and shareholders' equity $ 102,558 $ 102,538
========== ==========
</Table>
The accompanying notes are an integral part of these statements.
-3-
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
<Table>
<Caption>
Three Months Ended
March 31,
------------------------
2002 2001
---------- ----------
Revenue $ 27,246 $ 27,558
Cost of revenue 24,448 25,275
---------- ----------
Gross profit 2,798 2,283
General and administrative expenses 908 1,141
---------- ----------
Operating income 1,890 1,142
Other income (expense):
Interest expense (9) (9)
Interest income 160 314
Other 57 (7)
---------- ----------
208 298
---------- ----------
Income before income taxes 2,098 1,440
Income taxes 713 522
---------- ----------
Net income before cumulative effect of
change in accounting principle 1,385 918
Cumulative effect of change in accounting principle (Note 2) (4,765) --
---------- ----------
Net income (loss) $ (3,380) $ 918
========== ==========
Per share data:
Basic earnings (loss) per share:
Net income before cumulative effect of
change in accounting principle $ 0.12 $ 0.08
Cumulative effect of change in accounting principle (0.41) --
---------- ----------
Basic earnings (loss) per share $ (0.29) $ 0.08
========== ==========
Diluted income (loss) per share:
Net income before cumulative effect of
change in accounting principle $ 0.12 $ 0.08
Cumulative effect of change in accounting principle (0.41) --
---------- ----------
Diluted earnings (loss) per share $ (0.29) $ 0.08
========== ==========
Weighted-average shares 11,708 11,696
Effect of dilutive securities: employee stock options 66 149
---------- ----------
Adjusted weighted-average shares 11,774 11,845
========== ==========
</Table>
The accompanying notes are an integral part of these statements.
-4-
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<Table>
<Caption>
Common Stock Additional Total
------------------------------ Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------------- ------------- -------------- ------------- --------------
(in thousands, except share data)
Balance at January 1, 2002 11,706,864 $ 4,227 $ 36,101 $ 48,577 $ 88,905
Exercise of stock options 2,328 2 18 -- 20
Income tax benefit from exercise
of stock options -- -- 4 -- 4
Net income (loss) -- -- -- (3,380) (3,380)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2002 11,709,192 $ 4,229 $ 36,123 $ 45,197 $ 85,549
============ ============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these statements.
-5-
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
Three Months Ended
March 31,
2002 2001
---------- ----------
(in thousands)
Cash flows from operating activities:
Net income (loss) $ (3,380) $ 918
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 1,142 1,077
Amortization -- 108
Cumulative effect of change in accounting principle 4,765 --
Deferred income taxes 208 99
Changes in operating assets and liabilities:
Contracts receivable (9,116) (6,520)
Contract retainage (334) (732)
Costs and estimated earnings in excess of billings
on uncompleted contracts (456) (726)
Prepaid expenses, inventory and other assets 371 10
Accounts payable 755 567
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,793 484
Accrued employee costs (338) (193)
Accrued expenses 457 (41)
Income taxes payable 505 422
---------- ----------
Net cash used in operating activities (3,628) (4,527)
Cash flows from investing activities:
Capital expenditures, net (2,636) (1,502)
Proceeds on the sale of equipment 100 --
Purchase of short-term investments (201) (228)
Other (1) 3
---------- ----------
Net cash used in investing activities (2,738) (1,727)
Cash flows from financing activities:
Proceeds from exercise of stock options 20 307
---------- ----------
Net cash provided by financing activities 20 307
---------- ----------
Net decrease in cash and cash equivalents (6,346) (5,947)
Cash and cash equivalents at beginning of period 11,274 10,079
---------- ----------
Cash and cash equivalents at end of period $ 4,928 $ 4,132
========== ==========
Supplemental cash flow information:
Interest paid $ 18 $ 9
========== ==========
Income taxes paid $ 21 $ --
========== ==========
</Table>
The accompanying notes are an integral part of these statements.
-6-
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTH
PERIODS ENDED MARCH 31, 2002 AND 2001
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/or deck sections of floating production platforms (such as TLP's,
SPAR's and FPSO's); piles; wellhead protectors; subsea templates; 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. The Company's principal
markets are concentrated in the offshore regions of the Gulf of Mexico. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
The information presented at March 31, 2002, and for the three months
ended March 31, 2002 and 2001, is unaudited. In the opinion of the Company's
management, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for the fair presentation of the Company's financial
position at March 31, 2002, and the results of its operations for the three
months ended March 31, 2002 and 2001, and its cash flows for the three months
ended March 31, 2002 and 2001. The results of operations for the three months
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002.
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, 2001.
NOTE 2 - NEW ACCOUNTING STANDARD
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.142 ("SFAS No. 142"), "Goodwill
and Other Intangible Assets", which established a new method of testing goodwill
for impairment using a fair-value-based approach and eliminated the amortization
of goodwill as previously required by Accounting Principles Board ("APB")
Opinion 17, "Intangibles". An impairment loss would be recorded if the recorded
goodwill exceeds its implied fair value. At December 31, 2001, the
-7-
Company had goodwill of $4.8 million (net of accumulated amortization of $1.3
million) related to the acquisition of Southport, Inc. ("Southport"). The
Company adopted SFAS No. 142 effective January 1, 2002, and completed the
required transitional impairment test during the quarter ended March 31, 2002.
As a result of the transitional impairment test, the Company calculated an
impairment charge of $4.8 million. The impairment charge was calculated based on
fair value using an expected cash flow approach. The Company considered in its
expected cash flow projections the continued decline in the demand for, the
highly competitive nature of, and the recent bid activity related to the
fabrication of living quarters. The transitional impairment charge is reflected
as a cumulative effect of change in accounting principle as of January 1, 2002,
in the accompanying financial statements.
A reconciliation of reported net income before cumulative effect of
change in accounting principle and related earnings per share to the adjusted
net income and earnings per share to exclude the prior amortization expense of
goodwill is as follows (in thousands, except per share data):
<Table>
<Caption>
Three Months Ended
March 31,
2002 2001
---------- ----------
Reported net income before cumulative
effect of change in accounting
principle $ 1,385 $ 918
Add back: Goodwill amortization -- 108
---------- ----------
Adjusted net income before cumulative
effect of change in accounting principle $ 1,385 $ 1,026
========== ==========
Basic earnings-per-share
Reported net income before cumulative
effect of change in accounting
principle $ 0.12 $ 0.08
Add back: Goodwill amortization -- 0.01
---------- ----------
Adjusted net income before cumulative
effect of change in accounting
principle $ 0.12 $ 0.09
========== ==========
Diluted earnings-per-share
Reported net income before cumulative
effect of change in accounting
principle $ 0.12 $ 0.08
Add back: Goodwill amortization -- 0.01
---------- ----------
Adjusted net income before cumulative
effect of change in accounting
principle $ 0.12 $ 0.09
========== ==========
</Table>
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business", for the disposal of a segment
of a business. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. On January 1, 2002, management adopted SFAS No. 144 and has
concluded that SFAS No. 144 does not have an impact on its results of
operations, financial position or cash flows.
NOTE 3 - INCOME TAX PROVISION
The reduction in the effective tax rate for the three-month period
ended March 31, 2002, compared to the three-month period ended March 31, 2001,
is the result of anticipated tax benefits primarily resulting from an increased
proportion of net income attributable to foreign contracts.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Goodwill Impairment-Southport Acquisition
In assessing the recoverability of the Company's excess of cost over
fair value of the net assets acquired (goodwill) from the Southport acquisition,
the Company must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. Pursuant to
SFAS No. 142 the Company adopted the new rules for accounting for goodwill
effective January 1, 2002, and completed the required transitional impairment
test during the quarter ended March 31, 2002. As a result of the transitional
impairment test, the Company calculated an impairment charge of $4.8 million.
The impairment charge was calculated based on fair value using an expected cash
flow approach. The Company considered in its expected cash flow projections the
continued decline in the demand for, the highly competitive nature of, and the
recent bid activity related to the fabrication of living quarters. The
transitional impairment charge is reflected as a cumulative effect of change in
accounting principle as of January 1, 2002, in the accompanying financial
statements.
RESULTS OF OPERATIONS
The Company's revenue for the three-month period ended March 31, 2002
was $27.2 million, compared to revenue of $27.6 million for the three-month
period ended March 31, 2001. Revenue for the three-month period ended March 31,
2002 remained relatively stable when compared to the three-month period ended
March 31, 2001, primarily due to a consistent volume of direct labor hours
applied to contracts for both periods.
For the three-month period ended March 31, 2002, gross profit was $2.8
million (10.3% of revenue) compared to gross profit of $2.3 million (8.3% of
revenue) for the three-month period ended March 31, 2001. The increase in gross
profit was the result of the utilization of labor saving equipment and discounts
received from major suppliers of materials and services.
The Company's general and administrative expenses decreased to $908,000
from $1.1 million for the three-month periods ended March 31, 2002 and March 31,
2001, respectively. As a percentage of revenue, general and administrative
expenses decreased to 3.3% from 4.1% for the three-month periods ended March 31,
2002 and 2001, respectively. The majority of the decrease was related to the
elimination of the amortization of goodwill ($108,000 per quarter), which was
effective January 1, 2002, and the reimbursement of approximately $70,000 in
legal expenses related to a lawsuit that was settled in 2001.
Net interest income was $151,000 for the three-month period ended March
31, 2002 compared to $305,000 for the three-month period ended March 31, 2001.
Income generated from investments decreased substantially during the three-month
period ended March 31, 2002, compared to the three-month period ended March 31,
2001, due to the sharp decline in interest rates (approximately 53%) on
short-term investments.
For the three-month period ended March 31, 2002, other income was
$57,000 compared to the three-month period ended March 31, 2001, when other
represented an expense of $7,000. Other income for the period ended March 31,
2002 was related to the sale of
-9-
miscellaneous equipment. For the period ended March 31, 2001, the other expense
consisted primarily of the Company's share of the MinDOC, L.L.C. activities to
design and market the MinDOC floating platform concept for deepwater drilling
and production. Prior to October 1, 2001, the Company's investment in MinDOC,
L.L.C. was accounted for under the equity method of accounting for investments
with its share of operating results included in other as an expense in the
statements of income. Effective October 1, 2001, the Company's investment in
MinDOC, L.L.C. and its operating results were consolidated within the
consolidated financial statements of Gulf Island Fabrication, Inc.
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 (the "Revolver"). Although net cash used in operating activities was $3.6
million for the three months ended March 31, 2002, working capital remained
relatively stable at $46.8 million, which resulted in a current ratio of 4.9 to
1. Net cash used in investing activities for the three months ended March 31,
2002 was $2.7 million, which included $100,000 of proceeds from the sale of
equipment, $2.6 million for capital expenditures and $201,000 related to the
purchase of short-term investments. The majority of the capital expenditures for
the first quarter of 2002 were related to the construction of the new
fabrication building scheduled to be completed in the third quarter of 2002.
The Company's Revolver currently provides for a revolving line of
credit of up to $20.0 million, which bears interest equal to, at the Company's
option, the prime lending rate established by Bank One Corporation or LIBOR plus
1.5%. The Revolver matures December 31, 2003, and is secured by a mortgage on
the Company's real estate, machinery and equipment, and fixtures. The Company
pays a fee quarterly of three-sixteenths of one percent per annum on the
weighted-average unused portion of the line of credit. The Company is required
to maintain certain covenants, including balance sheet and cash flow ratios. At
March 31, 2002, the Company was in compliance in all material respects with
these covenants and had no outstanding borrowings under the Revolver.
Capital expenditures for the remaining nine months of 2002 are
estimated to be approximately $8.9 million, including improvements to the
facilities and the purchase of various other fabrication machinery and
equipment. Management believes that its available funds, cash generated by
operating activities, and funds available under the Revolver will be sufficient
to fund these capital expenditures and its working capital needs. The Company
may, however, expand its operations through future acquisitions that may require
additional equity or debt financing.
FORWARD-LOOKING STATEMENTS
Statements under "Results of Operations" and "Liquidity and Capital
Resources" and other statements in this report and the exhibits hereto that are
not statements of historical fact are forward-looking statements. These
statements involve risks and uncertainties that include, among others, the
timing and extent of changes in the prices of crude oil and natural gas; the
timing of new projects and the Company's ability to obtain them; competitive
factors in the heavy marine fabrication industry; the Company's ability to
successfully complete the testing, production and marketing of the MinDOC and
other deep water production systems and to develop and provide financing for
them; and the Company's ability to attract and retain qualified production
employees at acceptable compensation rates. Changes in these factors could
result in changes in the Company's performance and could cause the actual
results to differ materially from those expressed in the forward-looking
statements.
-10-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING.
For a description of legal proceedings, see Item 3 of Part I of the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) An annual meeting of the registrant's shareholders was held on
April 24, 2002.
(c) The following matters were voted upon at such meeting with the
results indicated below:
(1) Election of the following nominees for directors.
Gregory J. Cotter
Number of Votes Cast For - 10,383,690
Number of Votes Cast Against or Withheld - 521,468
Number of Abstentions - None
Number of Broker Non-Votes - None
John P. ("Jack") Laborde
Number of Votes Cast For - 10,383,690
Number of Votes Cast Against or Withheld - 521,468
Number of Abstentions - None
Number of Broker Non-Votes - None
(2) Approval of a proposal to adopt the 2002 Long-Term
Incentive Plan.
Number of Votes Cast For - 10,148,426
Number of Votes Cast Against or Withheld - 533,912
Number of Abstentions - 222,820
Number of Broker Non-Votes - None
(3) Ratification of appointment of Ernst & Young LLP as
independent auditors.
Number of Votes Cast For - 10,577,990
Number of Votes Cast Against or Withheld - 325,958
Number of Abstentions - 1,210
Number of Broker Non-Votes - None
-11-
ITEM 5. OTHER INFORMATION.
On April 3, 2002, the Company announced the scheduled time for the
release of its 2002 first quarter earnings and its quarterly conference call.
The press release making this announcement is attached hereto as Exhibit 99.1.
On April 24, 2002, the Company announced its 2002 first 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 April 3, 2002,
announcing the scheduled time for the release of its
2002 first quarter earnings and its quarterly
conference call.
99.2 Press release issued by the Company on April 24,
2002, announcing its 2002 first 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: May 14, 2002
-13-
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
99.1 Press release issued by the Company on April 3, 2002,
announcing the scheduled time for the release of its 2002
first quarter earnings and its quarterly conference call.
99.2 Press release issued by the Company on April 24, 2002,
announcing its 2002 first quarter earnings and related
matters.
</Table>
E-1