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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 September 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______
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The number of shares of the Registrant's common stock, no par value per
share, outstanding at November 8, 2000 was 11,681,300.
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GULF ISLAND FABRICATION, INC.
I N D E X
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity for
the Nine Months Ended September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX E-1
</TABLE>
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GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
-------------- --------------
(in thousands)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 6,606 $ 4,535
Short-term investments 15,840 11,215
Contracts receivable, net 23,656 22,739
Contract retainage 263 3,251
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,350 3,438
Prepaid expenses 961 749
Inventory 1,315 1,227
---------- -----------
Total current assets 50,991 47,154
Property, plant and equipment, net 42,165 43,664
Excess of cost over fair value of net assets acquired
less accumulated amortization of $ 758,675 and $ 553,025 at
September 30, 2000 and December 31, 1999, respectively 5,309 3,565
Other assets 853 666
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Total assets $ 99,318 $ 95,049
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 3,093 $ 4,167
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,957 6,473
Accrued employee costs 1,669 1,790
Accrued expenses 4,757 1,475
Income taxes payable 1,025 1,462
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Total current liabilities 15,501 15,367
Deferred income taxes 3,584 3,064
---------- -----------
Total liabilities 19,085 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, 11,681,300 and 11,638,400 shares
issued and outstanding at September 30, 2000
and December 31, 1999, respectively 4,195 4,162
Additional paid-in capital 35,753 35,326
Retained earnings 40,285 37,130
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Total shareholders' equity 80,233 76,618
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Total liability and shareholders' equity $ 99,318 $ 95,049
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 27,544 $ 29,034 $ 87,665 $ 87,469
Cost of revenue 25,159 25,393 80,282 75,589
-------- -------- -------- --------
Gross profit 2,385 3,641 7,383 11,880
General and administrative expenses 1,035 955 3,195 3,226
-------- -------- -------- --------
Operating income 1,350 2,686 4,188 8,654
Other income (expense):
Interest expense (18) (11) (25) (46)
Interest income 373 203 985 470
Other - net (68) (39) (169) (29)
-------- -------- -------- --------
287 153 791 395
-------- -------- -------- --------
Income before income taxes 1,637 2,839 4,979 9,049
Income taxes 617 1,105 1,824 3,435
-------- -------- -------- --------
Net income $ 1,020 $ 1,734 $ 3,155 $ 5,614
======== ======== ======== ========
Per share data:
Basic earnings per share $ 0.09 $ 0.15 $ 0.27 $ 0.48
======== ======== ======== ========
Diluted earnings per share $ 0.09 $ 0.15 $ 0.27 $ 0.48
======== ======== ======== ========
Weighted-average shares 11,680 11,638 11,661 11,638
Effect of dilutive securities: employee stock options 96 77 89 54
-------- -------- -------- --------
Adjusted weighted-average shares 11,776 11,715 11,750 11,692
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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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 42,900 33 304 - 337
Income tax benefit from
exercise of stock options - - 123 - 123
Net income - - - 3,155 3,155
----------- --------- ---------- ---------- ----------
Balance at September 30, 2000 11,681,300 $ 4,195 $ 35,753 $ 40,285 $ 80,233
=========== ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---------- -----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,155 $ 5,614
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,358 3,475
Amortization 206 206
Deferred income taxes 520 1,247
Changes in operating assets and liabilities:
Contracts receivable (917) 19,242
Contract retainage 2,988 2,775
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,088 (16)
Prepaid expenses, inventory and other assets (300) 320
Accounts payable (1,074) (2,418)
Billings in excess of costs and estimated earnings
on uncompleted contracts (1,516) (5,339)
Accrued employee costs (121) (1,954)
Accrued expenses 1,332 657
Income taxes payable (437) 1,520
-------- --------
Net cash provided by operating activities 8,282 25,329
Cash flows from investing activities:
Capital expenditures, net (1,859) (2,783)
Purchase of short-term investments (4,625) (11,076)
Other (187) (104)
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Net cash used in investing activities (6,671) (13,963)
Cash flows from financing activities:
Principal payments on notes payable - (3,000)
Proceeds from exercise of stock options 460 -
-------- --------
Net cash provided by (used in) financing activities 460 (3,000)
-------- --------
Net increase in cash and cash equivalents 2,071 8,366
Cash and cash equivalents at beginning of period 4,535 2,808
-------- --------
Cash and cash equivalents at end of period $ 6,606 $ 11,174
======== ========
Supplemental cash flow information:
Interest paid $ 25 $ -
======== ========
Income taxes paid $ 1,616 $ 659
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTH AND NINE MONTH
PERIODS ENDED SEPTEMBER 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 September 30, 2000 and for the three months
and nine months ended September 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 September 30, 2000 and the results of its operations for the three
months and nine months ended September 30, 2000 and 1999, and its cash flows for
the nine months ended September 30, 2000 and 1999. The results of operations for
the three months and nine months ended September 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 September 21, 2000, the Company's existing bank credit facility
was amended and restated in order, among other reasons, to extend the maturity
date to
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GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
December 31, 2002. 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, 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
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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 4 - NEW ACCOUNTING STANDARD
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." This document expresses the views of the SEC in applying generally
accepted accounting principles to the revenue recognition process. In June 2000,
the SEC issued SAB 101B, "Deferral of the Effective Date of SAB 101," which
deferred the effective date of SAB 101 to the fourth fiscal quarter of fiscal
years beginning after December 15, 1999. The Company has evaluated the impact of
adoption of the SAB and does not anticipate that adoption of the views expressed
in this document will have a material impact on the methodology the Company uses
to recognize revenue.
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued and is
effective for the Company beginning January 1, 2001. SFAS 133, as amended,
establishes accounting and reporting standards for recognition and measurement
of derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. The Company is required to and will adopt
SFAS 133 in the first quarter of fiscal 2001. The Company does not expect SFAS
133 as amended to have an impact on its results of operations, financial
position or cash flows as it currently does not have any derivative instruments
or hedging activities.
NOTE 5 - SUBSEQUENT EVENT
Effective January 1, 1998, the Company purchased all of the outstanding
shares of Southport, Inc., which specializes in the fabrication of offshore
living quarters, for $6.0 million cash, plus contingent payments of up to an
additional $5.0 million based on Southport's net income over a four-year period
ending December 31, 2001. On October 26, 2000, the Company reached an agreement
with the former shareholders of Southport, Inc. to an early payout amount of
approximately $2.0 million. This $2.0 million payment was accounted for under
the purchase method of accounting; consequently, the payment increased the
excess of cost over fair value of net assets acquired, which will result in an
increase in amortization expense of approximately $42,000 per quarter.
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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 periods ended September 30, 2000
and 1999 was $27.5 million and $29.0 million, respectively. Revenue for the
nine-month periods ended September 30, 2000 and 1999 was $87.7 million and $87.5
million, respectively. The decrease in revenue for the three-month period ended
September 30, 2000 was primarily related to the reduction in hours worked on
contracts in progress.
The delay in the anticipated recovery in the late cycle sectors, such as
offshore fabrication in which the Company operates, continues to suppress
margins on contracts. For the three-month and nine-month periods ended September
30, 2000, gross profit was $2.4 million (8.7% of revenue) and $7.4 million (8.4%
of revenue), compared to $3.6 million (12.5% of revenue) and $11.9 million
(13.6% of revenue) of gross profit for the three-month and nine-month periods
ended September 30, 1999.
The Company's general and administrative expenses have remained relatively
constant at approximately $1.0 million and $3.2 million for the three-month and
nine-month periods ended September 30, 2000 and 1999, respectively.
The Company had net interest income of $355,000 and $960,000 for the three-
month and nine-month periods ended September 30, 2000, respectively, compared to
$192,000 and $424,000 for the comparable periods of 1999. The current reduced
production levels requires less working capital thereby providing more available
cash for investment purposes.
For the three-month period ended September 30, 2000, other-net, represented
$68,000 of expenses compared to $39,000 of expenses for the period ended
September 30, 1999. For the nine-month period ended September 30, 2000, other-
net, represented $169,000 of expenses compared to $29,000 of expenses for the
nine-month period ended September 30, 1999. These expenses consist primarily of
the Company's share of the MinDOC, LLC activities to design and market the
MinDOC floating platform concept for deepwater drilling and production.
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 $8.3 million for the nine-months ended September
30, 2000, which contributed to an 11.6% increase in working capital to $35.5
million. Net cash used in investing activities for the nine-months ended
September 30, 2000 was $6.7 million, of which $4.6 million related to the
purchase of short-term investments, $1.9 million was for equipment purchases and
facility improvements and $187,000 of other net expenditures related to MinDOC,
LLC.
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, 2002 and
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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, 2000, the Company was in compliance with these
covenants and had no outstanding borrowings under the Revolver.
Capital expenditures for the remaining three months of 2000 are estimated
to be approximately $3.3 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 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of legal proceedings, see Item 1 of Part II of the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and
June 30, 2000, respectively.
Item 5. Other Information
On October 25, 2000 the Company announced its 2000 third 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 Eighth Amended and Restated
Revolving Credit Agreement among the Company and Bank One,
Louisiana, N.A. and Whitney National Bank, dated September
21, 2000.
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on October 25, 2000
announcing its 2000 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULF ISLAND FABRICATION, INC.
/s/ Joseph P. Gallagher, III
By:____________________________________
Joseph P. Gallagher, III
Vice President - Finance,
Chief Financial Officer
and Treasurer
(Principal Financial Officer
and Duly Authorized Officer)
Date: November 8, 2000
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GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
10.1 First Amendment to the Eighth Amended and Restated Revolving
Credit Agreement among the Company and Bank One, Louisiana, N.A.
and Whitney National Bank, dated September 21, 2000.
27.1 Financial Data Schedule.
99.1 Press release issued by the Company on October 25, 2000
announcing its 2000 third quarter earnings and related matters.
E-1
