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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, 2000
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 8, 2000 was 11,679,620.
<PAGE>
GULF ISLAND FABRICATION, INC
I N D E X
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Income
for the Three and Six Months Ended June 30, 2000
and 1999 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity
for the Six Months Ended June 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (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
<PAGE>
GULF ISLAND FABRICATION, INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
---------- ------------
(in thousands)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,533 $ 4,535
Short-term investments 15,606 11,215
Contracts receivable, net 23,985 22,739
Contract retainage 2,346 3,251
Costs and estimated earnings in excess of billings
on uncompleted contracts 966 3,438
Prepaid expenses 898 749
Inventory 1,219 1,227
------- -------
Total current assets 50,553 47,154
Property, plant and equipment, net 42,073 43,664
Excess of cost over fair value of net assets acquired
less accumulated amortization of $ 690,125 and $ 553,025 at
June 30, 2000 and December 31, 1999, respectively 3,427 3,565
Other assets 723 666
------- -------
Total assets $96,776 $95,049
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,722 $ 4,167
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,639 6,473
Accrued employee costs 1,641 1,790
Accrued expenses 2,535 1,475
Income taxes payable 209 1,462
------- -------
Total current liabilities 13,746 15,367
Deferred income taxes 3,850 3,064
------- -------
Total liabilities 17,596 18,431
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, 11,679,220 and 11,638,400 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively 4,192 4,162
Additional paid-in capital 35,723 35,326
Retained earnings 39,265 37,130
------- -------
Total shareholders' equity 79,180 76,618
------- -------
Total liability and shareholders' equity $96,776 $95,049
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------ ----------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $28,380 $28,106 $60,121 $58,435
Cost of revenue 25,930 24,093 55,123 50,196
------- ------- ------- -------
Gross profit 2,450 4,013 4,998 8,239
General and administrative expenses 1,036 989 2,160 2,271
------- ------- ------- -------
Operating income 1,414 3,024 2,838 5,968
Other income (expense):
Interest expense 11 (14) (7) (35)
Interest income 293 166 612 267
Other - net (44) (39) (101) 10
------- ------- ------- -------
260 113 504 242
------- ------- ------- -------
Income before income taxes 1,674 3,137 3,342 6,210
Income taxes 646 1,182 1,207 2,330
------- ------- ------- -------
Net income $ 1,028 $ 1,955 $ 2,135 $ 3,880
======= ======= ======= =======
Per share data:
Basic earnings per share $ 0.09 $ 0.17 $ 0.18 $ 0.33
======= ======= ======= =======
Diluted earnings per share $ 0.09 $ 0.17 $ 0.18 $ 0.33
======= ======= ======= =======
Weighted-average shares 11,664 11,638 11,651 11,638
Effect of dilutive securities: employee stock options 104 69 89 43
------- ------- ------- -------
Adjusted weighted-average shares 11,768 11,707 11,740 11,681
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------- -------- ----------- ---------- --------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 11,638,400 $4,162 $35,326 $37,130 $76,618
Exercise of stock options 40,820 30 274 - 304
Income tax benefit from
exercise of stock options - - 123 - 123
Net income - - - 2,135 2,135
---------- ------ ------- ------- -------
Balance at June 30, 2000 11,679,220 $4,192 $35,723 $39,265 $79,180
========== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
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GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
--------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,135 $ 3,880
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,261 2,315
Amortization 138 137
Deferred income taxes 786 797
Changes in operating assets and liabilities:
Contracts receivable (1,246) 15,432
Contract retainage 905 4,473
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,472 (42)
Prepaid expenses, inventory and other assets (141) 417
Accounts payable (1,445) (3,619)
Billings in excess of costs and estimated earnings
on uncompleted contracts 166 (3,555)
Accrued employee costs (149) (1,337)
Accrued expenses 1,060 761
Income taxes payable (1,130) 1,525
------- -------
Net cash provided by operating activities 5,812 21,184
Cash flows from investing activities:
Capital expenditures, net (670) (1,916)
Purchase of short-term investments (4,391) (6,000)
Other (57) (244)
------- -------
Net cash used in investing activities (5,118) (8,160)
Cash flows from financing activities:
Principal payments on notes payable - (3,000)
Proceeds from exercise of stock options 304 -
------- -------
Net cash provided by (used in) financing activities 304 (3,000)
------- -------
Net increase in cash and cash equivalents 998 10,024
Cash and cash equivalents at beginning of period 4,535 2,808
------- -------
Cash and cash equivalents at end of period $ 5,533 $12,832
======= =======
Supplemental cash flow information:
Interest paid $ 17 $ 38
======= =======
Income taxes paid $ 1,551 $ 4,827
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
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GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTH AND SIX MONTH
PERIODS ENDED JUNE 30, 2000 AND 1999
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, 2000 and for the three months and six
months ended June 30, 2000 and 1999, 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, 2000 and the results of its operations for the three months
and six months ended June 30, 2000 and 1999, and its cash flows for the six
months ended June 30, 2000 and 1999. The results of operations for the three
months and six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
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, 1999.
NOTE 2 - NOTES PAYABLE
Effective January 1, 2000, the Company's existing bank credit facility was
amended and restated. 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,
7
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GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
the prime lending rate established by Bank One Corporation or LIBOR plus 1.5%.
The Revolver matures December 31, 2001 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, 2000, the
Company was in compliance with these covenants and had no outstanding borrowings
under the Revolver.
NOTE 3 - CONTINGENCIES
The Louisiana Department of Environmental Quality ( the "LDEQ") has
required the Company to update its reports and modify its state air permit with
respect to emissions from chemicals that are components of the steel and paint
used by Gulf Island, L.L.C. in its fabrication operations, and Gulf Island
L.L.C. has done so. The LDEQ has advised the Company that it is considering the
assessment of a penalty for exceeding permitted limits and inaccurate reporting.
Gulf Island, L.L.C. does not believe that any actions of the LDEQ in this matter
will be material to its financial position or require any changes to its
operations other than the monitoring of the content of certain purchased
materials, the cost of which is expected to be negligible.
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-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.
8
<PAGE>
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, 2000 was $28.4 million and $60.1 million, an increase of 1.0% and 2.9%,
respectively, compared to $28.1 million and $58.4 million in revenue for the
three-month and six-month periods ended June 30, 1999. Revenue increased
slightly as a result of the mix of contracts in progress for the three-month and
the six-month periods ended June 30, 2000 compared to the comparative periods of
1999.
Although the expected recovery in the oil and gas industry has commenced in
the early cycle sectors, such as exploration and drilling, it has yet to
commence in the late cycle sectors, such as production and offshore fabrication,
in which the Company operates, which continues to suppress margins on contracts.
For the three-month and six-month periods ended June 30, 2000, gross profit was
$2.4 million (8.6% of revenue) and $5.0 million (8.3% of revenue), compared to
$4.0 million (14.3% of revenue) and $8.2 million (14.1% of revenue) of gross
profit for the three-month and six-month periods ended June 30, 1999.
The Company's general and administrative expenses remained stable at $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. This compares to $1.0 million for the
three-month period ended June 30, 1999 and $2.3 million for the six-month period
ended June 30, 1999.
The Company had net interest income of $304,000 and $605,000 for the
three-month and six-month periods ended June 30, 2000, respectively, compared to
$152,000 and $232,000 for the three-month and six-month periods ended June 30,
1999. The current reduction in production levels generated more available cash
for investment purposes.
For the three-month period ended June 30, 2000, other-net, represented
$44,000 of expenses compared to $39,000 of expenses for the period ended June
30, 1999. For the six-month period ended June 30, 2000, other-net, represented
$101,000 of expenses while, other-net, represented $ 10,000 of income for the
six-month period ended June 30, 1999. These expense and income items 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.
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 operations was $5.8 million for the six months ended June 30,
2000 which contributed to a 15.8% increase in working capital to $36.8 million.
Net cash used in investing activities for the six months ended June 30, 2000 was
$5.1 million, of which $4.4 million related to the purchase of short-term
investments, $670,000 was for miscellaneous equipment purchases and facility
improvements and $57,000 of other net expenditures related to MinDOC, LLC.
9
<PAGE>
The Company's Revolver 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
Revolver matures December 31, 2001 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, 2000, the Company was
in compliance with these covenants and had no outstanding borrowings under the
Revolver.
Capital expenditures for the remaining six months of 2000 are estimated to
be approximately $4.7 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
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 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 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
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Louisiana Department of Environmental Quality ( the "LDEQ") has
required the Company to update its reports and modify its state air permit with
respect to emissions from chemicals that are components of the steel and paint
used by Gulf Island, L.L.C. in its fabrication operations, and Gulf Island
L.L.C. has done so. The LDEQ has advised the Company that it is considering the
assessment of a penalty for exceeding permitted limits and inaccurate reporting.
Gulf Island, L.L.C. does not believe that any actions of the LDEQ in this matter
will be material to its financial position or require any changes to its
operations other than the monitoring of the content of certain purchased
materials, the cost of which is expected to be negligible.
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-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.
ITEM 5. OTHER INFORMATION
On July 26, 2000 the Company announced its 2000 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.
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on July 26, 2000
announcing its 2000 second quarter earnings and related
matters.
11
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(b) The Company filed no reports on Form 8-K during the quarter for
which this report is filed.
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 9, 2000
12
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GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on July 26, 2000 announcing
its 2000 second quarter earnings and related matters.
E-1
