-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PuLFN5MNf2LnwQOz/OJuoFrcvZwn2biW+UDx0K0HoT+0YIT2MRzMzqBPKA8swJ84 9O2YWo/85mphxwsiH+Q3uA== 0000906280-98-000027.txt : 19980212 0000906280-98-000027.hdr.sgml : 19980212 ACCESSION NUMBER: 0000906280-98-000027 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980101 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF ISLAND FABRICATION INC CENTRAL INDEX KEY: 0001031623 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED STRUCTURAL METAL PRODUCTS [3440] IRS NUMBER: 721147390 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22303 FILM NUMBER: 98532734 BUSINESS ADDRESS: STREET 1: GULF ISLAND FABRICATION INC STREET 2: 583 THOMPSON RD CITY: HOUMA STATE: LA ZIP: 70361 BUSINESS PHONE: 5048722100 MAIL ADDRESS: STREET 1: P O BOX 310 CITY: HOUMA STATE: LA ZIP: 70361 8-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A-1 CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) January 1, 1998 GULF ISLAND FABRICATION, INC. (Exact name of registrant as specified in its charter) LOUISIANA 0-22303 72-1147390 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 583 Thompson Road, Houma, Louisiana 70363 (Address of principal executive offices) (Zip Code) (504) 872-2100 (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) On January 16, 1998, Gulf Island Fabrication, Inc. ("the Company") filed a Form 8-K dated January 1, 1998 (the "January 1998 Form 8-K") containing a description of the Company's acquisition of Southport, Inc. and its wholly owned subsidiary Southport International, Inc. This Form 8-K/A-1 amends and restates the disclosure in Item 7(a) and (b) of the January 1998 Form 8-K to include the financial statements of the businesses acquired and pro forma financial information. ITEM 2. Acquisition or Disposition of Assets. As of January 1, 1998, the registrant, Gulf Island Fabrication, Inc. ("the Company"), acquired all of the common shares of Southport, Inc. and it's wholly owned subsidiary Southport International, Inc. (collectively "Southport") pursuant to a Stock Purchase Agreement between the Company and the shareholders of Southport identified on the copy of such agreement filed as Exhibit 2.0 to the January 1998 Form 8-K (the "Stock Purchase Agreement"). The purchase price was $6.0 million cash, plus contingency payments of up to an additional $5.0 million based on Southport's annual net income over a four-year period ending December 31, 2001. The purchase price was determined by arm's length negotiation between the Company and Southport's shareholders. The non- contingent portion of the purchase price has been paid by the Company out of working capital; contingency payments, if and when they become due, are expected to be paid by the Company out of working capital or borrowings. Southport, headquartered in Harvey, Louisiana, specializes in the fabrication of living quarters for offshore platforms for the oil and gas industry. The Company intends that Southport will continue in this business. The acquisition was effective on January 1, 1998, as announced in the press release, dated January 5, 1998, which was filed as an exhibit to the January 1998 Form 8-K. Additional information relating to the acquisition is set fourth in the Stock Purchase Agreement. ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired. (1)Audited Consolidated Balance Sheet of Southport as of December 31, 1996 and related Consolidated Statement of Income and Retained Earnings and Consolidated Statement of Cash Flows for the year ended December 31, 1996, including the notes thereto, and the related report of Legier & Materne. (2)Unaudited Consolidated Balance Sheet of Southport as of September 30, 1997 and related Consolidated Statement of Income and Retained Earnings and Consolidated Statement of Cash Flows for the nine months ended ended September 30, 1997, including the notes thereto. (b) Pro Forma Financial Information. (1)Unaudited Pro Forma Condensed Combined Balance Sheet of the Company as of September 30, 1997, including the notes thereto. (2)Unaudited Pro Forma Condensed Combined Statement of Income of the Company for the nine months ended September 30, 1997, including the notes thereto. (3)Unaudited Pro Forma Condensed Combined Statement of Income of the Company for the year ended December 31, 1996, including the notes thereto. (c) Exhibits. 2.0 Stock Purchase Agreement dated as of November 12, 1997 between Gulf Island Fabrication, Inc. and the shareholders of Southport, Inc., incorporated herein by reference to Exhibit 2.0 to the Company's report on Form 8-K dated January 1, 1998. This exhibit includes an index briefly identifying the contents of all schedules and exhibits, all of which are omitted therefrom. The Company will furnish supplementally to the Commission upon its request a copy of any omitted schedule or exhibit. 10.1 Employment agreement dated as of January 1, 1998 between Southport, Inc, and Stephen G. Benton, Jr., incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 8-K dated January 1, 1998. 99.1 Press Release issued November 13, 1997 disclosing the execution of a definitive agreement to acquire all the outstanding shares of Southport, Inc., incorporated herein by reference to Exhibit 99.1 to the Company's report on Form 8-K dated January 1, 1998. 99.2 Press Release issued January 5, 1998 disclosing the completion of the Company's acquisition of Southport, Inc., incorporated herein by reference to Exhibit 99.2 to the Company's report on Form 8-K dated January 1, 1998. SIGNATURE 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 Joseph P. Gallagher, III Vice President- Finance (Principal Financial Officer and Duly Authorized Officer) Date: February 11, 1998 INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION FINANCIAL STATEMENTS (1) Audited Consolidated Balance Sheet of Southport as of December 31, 1996 and related Consolidated Statement of Income and Retained Earnings and Consolidated statement of Cash Flows for the year ended December 31, 1996, including the notes thereto and the related report of Legier & Materne. (2) Unaudited Consolidated Balance Sheet of Southport as of September 30, 1997 and related Consolidated Statement of Income and Retained Earnings and Consolidated Statement of Cash Flows for the nine months ended September 30, 1997, including the notes thereto. PRO FORMA FINANCIAL INFORMATION (1) Unaudited Pro Forma Condensed Combined Balance Sheet of the Company as of September 30, 1997, including the notes thereto. (2) Unaudited Pro Forma Condensed Combined Statement of Income of the Company for the nine months ended September 30, 1997, including the notes thereto. (3) Unaudited Pro Forma Condensed Combined Statement of Income of the Company for the year ended December 31, 1996, including the notes thereto. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Southport, Inc. We have audited the accompanying consolidated balance sheet of Southport, Inc. (a Louisiana corporation) and subsidiary as of December 31, 1996, and the related consolidated statements of income and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southport, Inc. and subsidiary as of December 31, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Legier & Materne Legier & Materne February 25, 1997 SOUTHPORT, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET December 31, 1996 ASSETS - ------ Current assets: - --------------- Cash $ 34,458 Contracts receivables 4,158,587 Other receivables 173,731 Materials and supply inventory 54,774 Prepaid expenses 52,957 Costs and estimated earnings in excess of billings on incomplete contracts 1,598,185 Deferred tax asset, net 189,270 ----------- Total current assets, net 6,261,962 Property and equipment, net 1,110,468 Other receivables 117,602 Other assets 14,841 ----------- Total assets $ 7,504,873 =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: - --------------------- Accounts payable $ 4,329,271 Outstanding borrowings on line of credit 1,875,000 Due to related party 178,769 Accrued expenses 456,814 Billings in excess of costs and estimated earnings on incomplete contracts 264,613 ----------- Total current liabilities 7,104,467 Stockholders' equity: - --------------------- Common stock, par value $10 per share, authorized 30,000 shares, issued and outstanding 10,350 shares 103,500 Additional paid-in capital 37,432 Retained earnings 259,474 ----------- Total stockholders' equity 400,406 ----------- Total liabilities and stockholders' equity $ 7,504,873 =========== The accompanying notes are an integral part of these financial statements. SOUTHPORT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Year ended December 31, 1996 CONTRACT REVENUES EARNED $17,837,931 COST OF REVENUES EARNED: Direct Cost: Materials 5,848,407 Direct labor 3,972,626 Subcontracting cost 2,956,520 Payroll taxes and related insurance 639,623 Other 1,213,082 Indirect Cost: Salaries 735,091 Payroll taxes and related insurance 153,118 Equipment cost 201,784 Depreciation 57,948 Land and equipment rentals 214,438 Utilities 130,115 Other 95,452 ----------- Total cost of revenues earned 16,218,204 ----------- GROSS PROFIT 1,619,727 Administrative expenses 1,186,185 Other income 31,919 Moving expenses 53,227 ----------- Income before income taxes 412,234 Income taxes: Current income tax expense (70,000) Benefits of operating loss carryforwards 45,300 Adjustment of valuation allowance 189,300 ----------- NET INCOME 576,834 Accumulated deficit, beginning of year (317,360) ----------- Retained earnings, end of year $259,474 =========== The accompanying notes are an integral part of these financial statements. SOUTHPORT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 576,834 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 130,936 Deferred income tax benefit (189,270) Changes in operating assets and liabilities: Contract receivables (1,761,915) Other receivables (269,407) Materials and supply inventory (25,003) Prepaid expenses 6,468 Net decrease in billings related to costs and estimated earnings on incomplete contracts (1,996,543) Other assets (4,304) Accounts payable 3,203,146 Due to related party 171,769 Accrued expenses 316,380 ----------- Net cash provided by operating activities 159,091 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (891,600) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of note payable to bank (150,000) Net borrowings on line of credit 875,000 ----------- Net cash provided by financing activities 725,000 ----------- Net decrease in cash (7,509) Cash at beginning of period 41,967 ----------- Cash at end of period $ 34,458 =========== Supplemental disclosures: Interest paid $ 109,842 Income taxes paid $ 22,500 The accompanying notes are an integral part of these financial statements. SOUTHPORT, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 NOTE 1 - THE COMPANY Southport, Inc. constructs living quarters placed on offshore rigs used in the oil and gas industry. During 1996, in conjunction with an expansion of the Company's operations resulting from significant new construction projects, the Company relocated its operations to a much larger facility, entered into a land lease for the new facility with a related corporation, and constructed a new administrative building. The Company incurred approximately $53,000 in moving expenses related to this relocation during 1996. An additional $40,000 of moving expenses are expected to be incurred in 1997, and the Company will also write off the remaining book value of leasehold improvements at the former facility, which approximates $71,000. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of Southport, Inc. and its wholly-owned subsidiary, Southport International, Inc. All material intercompany transactions and balances have been eliminated in the consolidation. Revenue Recognition Revenue is recognized on significant construction contracts using the percentage-of-completion method, based upon engineering estimates of the status of individual contracts. On minor construction or repair contracts, revenue is recognized using the completed contract method whereby billings and costs are accumulated during the period of construction, but profits are not recorded until completion of the contract. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. At December 31, 1996, the Company had made no such provisions on incomplete contracts, as all such contracts were projected to be profitable. Assets and liabilities related to construction contracts are included in the accompanying balance sheet. The asset "Cost and estimated earnings in excess of billings on incomplete contracts" represents revenue recognized in excess of amounts billed. The liability "Billings in excess of cost and estimated earnings on incomplete contracts" represents amounts billed in excess of revenue recognized. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's significant estimates include those regarding the valuation of contract receivables, assets and liabilities related to incomplete contracts, and self-insured workers' compensation liabilities. Self-Insured Workers' Compensation The Company is self-insured for potential losses up to $25,000 per claim related to state and federal workers' compensation. The Company expenses claims as they are paid, and records a liability for estimated costs to be incurred in the future on claims existing at the date of the financial statements. In addition, the Company has issued a letter of credit of $60,000 to its workers' compensation administrator for its obligations under this arrangement. Contracts Receivables In the opinion of management, all contract receivables are fully collectible, and no allowance for doubtful accounts has been provided for in the accompanying financial statements. Contract receivables are charged directly against earnings when they are determined to be uncollectible. Use of this method does not result in a material difference from the valuation method required by generally accepted accounting principles. Materials and Supply Inventory Materials and supply inventory is valued at cost using the first-in, first-out cost method. Property and Equipment Depreciation and amortization are provided on the straight-line method based on the estimated useful lives of the related assets, ranging from three to ten years. Profit-Sharing Plan The Company has a non-contributory profit-sharing plan covering substantially all of its employees. Under the plan, the Company's contribution is determined annually by the Board of Directors. No contribution to the profit- sharing plan was declared for 1996. Income Taxes Temporary differences between the financial statement and tax bases of assets and liabilities are insignificant. Therefore, the Company does not record deferred income taxes on temporary differences. The Company does record the deferred tax assets associated with any available carryforward tax benefits. NOTE 3 - CONCENTRATIONS Certain customers are significant to the Company's operations. Four customers comprised approximately 72% of the Company's 1996 revenue and, at December 31, 1996, the Company had extended credit to a customer whose individual account represents approximately 31% of the contract receivables balance. Additionally, two incomplete contracts comprise 66% of costs and estimated earnings in excess of billing on incomplete contracts at December 31, 1996 NOTE 4 - CONTRACT AND OTHER RECEIVABLES Contract receivables at December 31, 1996 are categorized as follows: Billed receivables on contracts in progress $3,757,995 Billed receivables on completed contracts 266,951 Unbilled receivables on completed contract 133,641 ------------- Total $4,158,587 ============= Contract receivables include approximately $470,000 of change orders expected to be collected during 1997. Other receivables consist primarily of $261,675 of amounts receivable under retainage provisions in contracts with customers; $117,602 of this amount is not expected to be collected until 1998. NOTE 5 - COSTS AND ESTIMATED EARNINGS ON INCOMPLETE CONTRACTS Information with respect to incomplete contracts at December 31, 1996 follows: Costs incurred on incomplete contracts $ 9,303,016 Estimated earnings 2,389,510 ------------- 11,692,526 Less billings to date (10,358,954) ------------- Total $ 1,333,572 ============= The above amounts are included in the accompanying balance sheet under the following captions: Costs and estimated earnings in excess of billings on incomplete contracts $ 1,598,185 Billings in excess of costs and estimated earnings on incomplete contracts (264,613) ------------- Total $ 1,333,572 ============= NOTE 6 - PROPERTY AND EQUIPMENT The major classes of property and equipment at December 31, 1996 were as follows: Building $ 416,623 Equipment 477,928 Furniture and fixtures 365,449 Vehicles 29,769 Leasehold improvements 498,803 ------------- 1,788,572 Less: Accumulated depreciation and amortization (678,104) ------------- $1,110,468 ============= Subsequent to year-end, the Company ceased operations at its old yard. See Note 1 for information regarding equipment and leasehold improvements charged against 1997 operations. NOTE 7 - INCOME TAXES At December 31, 1996, the Company had net operating loss carryforwards of approximately $1,000,000 that may be offset against future taxable income through 2009. The following amounts related to these carryforwards have been recorded in the accompanying balance sheet: Deferred tax asset $362,332 Valuation allowance (173,062) --------- Net deferred tax asset $189,270 ========= The valuation allowance was reduced in 1996 by approximately $325,000, in order for the net asset to approximate the tax effect of the carryforwards which management projects will be utilized in 1997. The effects of these carryforwards, and the tax savings generated by the Company's subsidiary, caused the total tax provision to differ from that which would result from applying statutory rates to pretax income. NOTE 8 - LINE OF CREDIT At December31, 1996, the Company had a line of credit agreement with a bank for borrowings not to exceed the lesser of $2,500,000 or 80% of eligible contract receivables. Interest is payable monthly at the prime rate plus 1%. The line of credit is secured by a first priority security interest and liens on the Company's contract receivables, by all other Company assets, and by personal guarantees of a shareholder. In addition, the agreement contains restrictive covenants, which prohibits the Company from paying dividends or purchasing treasury stock without prior bank approval. The agreement expires in November 1997. Interest expense for the year ended December 31, 1996 was $109,842. NOTE 9 - OPERATING LEASES The Company is obligated under certain long-term operating leases for land and equipment used in its operations. The monthly base rent under one of these leases increases annually, and includes an additional component for taxes, insurance and a security service. Additionally, the Company subleases land used in its primary operations under a three year operating lease from a related corporation for $8,300 per month; the Company guarantees payments on this lease on behalf of the related entity. This lease agreement expires in May 1999, with two three-year renewal options at adjusted rates. In addition, the agreement contains an option for the Company to purchase the land at a specified price at any time during the initial term. The Company paid a total of $119,350 in rental payments to this related party during 1996, and at December 31, 1996, owed this related party $178,769. Future minimum rental payments under the noncancelable operating leases are as follows: 1997 $124,826 1998 123,600 1999 49,460 --------- $297,886 ========= NOTE 10 - COMMITMENTS AND CONTINGENCIES The Company has an agreement with its stockholders that should any stockholder desire to sell or transfer shares, he must sell the shares to the Company, which must redeem all of the withdrawing stockholder's stock. The redemption value of the stock shall be equal to book value of the shares plus stated adjustments for certain events. In order to guarantee compliance with any warranty work or specified contract provisions, letters of credit may be given to customers. At December 31, 1996, the Company had issued letters of credit totaling $1,148,866. A $460,000 portion of one such letter matured in January 1997, at which time the Company's contingent obligations under the letter were reduced by that amount. The Company does not believe that any funds will be advanced on these letters of credit. The Company is party to certain claims filed by former employees. Management believes that the outcome of these claims will not have a material effect on the Company's financial position or results of operations. NOTE 11 - BACKLOG The Company had backlog of approximately $25,235,000 on signed contracts in existence at December 31, 1996. One of these signed contracts includes an option for additional construction in the future of $16,915,000. Management expects the customer to exercise this option during 1997. SOUTHPORT, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET September 30, 1997 (Unaudited) ASSETS - ------ Current assets: - -------------- Cash $ 50,570 Contracts receivables 5,391,803 Other receivables 14,236 Materials and supply inventory 52,559 Prepaid expenses 93,944 Costs and estimated earnings in excess of billings on incomplete contracts 724,481 Deferred tax asset 139,105 ----------- Total current assets 6,466,698 Property and equipment, net 986,277 Other assets 14,408 ----------- Total assets $7,467,383 =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: - --------------------- Accounts payable $ 2,226,641 Outstanding borrowings on line of credit 2,570,000 Accrued expenses 305,868 Workers compensation loss fund payable 25,000 Billings in excess of costs and estimated earnings on incomplete contracts 1,162,490 ----------- Total current liabilities 6,289,999 Stockholders' equity: - --------------------- Common stock, par value $10 per share, authorized 30,000 shares, issued and outstanding 10,350 shares 103,500 Additional paid-in capital 37,432 Retained earnings 1,036,452 ----------- Total stockholders' equity 1,177,384 ----------- Total liabilities and stockholders' equity $ 7,467,383 =========== The accompanying notes are an integral part of these financial statements. SOUTHPORT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Nine Months Ended September 30, 1997 (Unaudited) CONTRACT REVENUES EARNED $14,394,894 COST OF REVENUES EARNED: Direct Cost: Materials 3,490,758 Direct labor 3,976,673 Subcontracting cost 1,848,409 Payroll taxes and related insurance 536,493 Other 864,083 Indirect Cost: Salaries 660,076 Payroll taxes and related insurance 145,154 Equipment cost 117,598 Depreciation 34,000 Land and equipment rentals 313,668 Utilities 117,454 Other 149,062 ----------- Total cost of revenues earned 12,253,428 ----------- GROSS PROFIT 2,141,466 Administrative expenses 1,011,075 Other expense 123,437 Moving expenses 119,708 ----------- Income before income taxes 887,246 Income taxes: Current income tax expense 283,395 Adjustment of valuation allowance (173,127) ----------- NET INCOME 776,978 Retained earnings, beginning of period 259,474 ----------- Retained earnings, end of period $ 1,036,452 =========== The accompanying notes are an integral part of these financial statments. SOUTHPORT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended September 30, 1997 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 776,978 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 146,000 Deferred income tax benefit 50,165 Changes in operating assets and liabilities: Contract receivables (1,233,216) Other receivables 277,097 Materials and supply inventory 2,215 Prepaid expenses (40,987) Net increase in billings related to costs and estimated earnings on incomplete contracts 1,771,581 Other assets 433 Accounts payable (2,102,630) Due to related party (178,769) Accrued expenses (125,946) ----------- Net cash used in operating activities (657,079) ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (21,809) ----------- Net cash used in investing activities (21,809) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on line of credit 695,000 ----------- Net cash provided by financing activities 695,000 ----------- Net increase in cash 16,112 Cash at beginning of period 34,458 ----------- Cash at end of period $ 50,570 =========== Supplemental disclosures: Interest paid $ 150,560 Income taxes paid $ 49,000 The accompanying notes are an integral part of these financial statments. SOUTHPORT, INC. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended September 30, 1997 NOTE 1 - THE COMPANY Southport, Inc. constructs living quarters placed on offshore rigs used in the oil and gas industry. During 1996, in conjunction with an expansion of the Company's operations resulting from significant new construction projects, the Company relocated its operations to a much larger facility, entered into a land lease for the new facility with a related corporation, and constructed a new administrative building. The Company incurred approximately $53,000 in moving expenses related to this relocation during 1996. An additional $49,000 of moving expenses was recorded during the nine months ended September 30, 1997, and the Company wrote off the remaining book value of leasehold improvements at the former facility, which approximated $71,000. The information presented as of September 30, 1997 and for the nine-month period ended September 30, 1997, is unaudited. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for the fair presentation of the Company's financial position as of September 30, 1997 and the results of its operations and its cash flows for the nine-month period ended September 30, 1997. The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of Southport, Inc. and its wholly-owned subsidiary, Southport International, Inc. All material intercompany transactions and balances have been eliminated in the consolidation. Revenue Recognition Revenue is recognized on significant construction contracts using the percentage-of-completion method, based upon engineering estimates of the status of individual contracts. On minor construction or repair contracts, revenue is recognized using the completed contract method whereby billings and costs are accumulated during the period of construction, but profits are not recorded until completion of the contract. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. At September 30, 1997, the Company had made no such provisions on incomplete contracts, as all such contracts were projected to be profitable. Assets and liabilities related to construction contracts are included in the accompanying balance sheet. The asset "Cost and estimated earnings in excess of billings on incomplete contracts" represents revenue recognized in excess of amounts billed. The liability "Billings in excess of cost and estimated earnings on incomplete contracts" represents amounts billed in excess of revenue recognized. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's significant estimates include those regarding the valuation of contract receivables, assets and liabilities related to incomplete contracts, and self-insured workers' compensation liabilities. Self-Insured Workers' Compensation The Company is self-insured for potential losses up to $25,000 per claim related to state and federal workers' compensation. The Company expenses claims as they are paid, and records a liability for estimated costs to be incurred in the future on claims existing at the date of the financial statements. In addition, the Company has issued a letter of credit of $60,000 to its workers' compensation administrator for its obligations under this arrangement. Contracts Receivables In the opinion of management, all contract receivables are fully collectible, and no allowance for doubtful accounts has been provided for in the accompanying financial statements. Contract receivables are charged directly against earnings when they are determined to be uncollectible. Use of this method does not result in a material difference from the valuation method required by generally accepted accounting principles. Materials and Supply Inventory Materials and supply inventory is valued at cost using the first-in, first-out cost method. Property and Equipment Depreciation and amortization are provided on the straight-line method based on the estimated useful lives of the related assets, ranging from three to ten years. Profit-Sharing Plan The Company has a non-contributory profit-sharing plan covering substantially all of its employees. Under the plan, the Company's contribution is determined annually by the Board of Directors. No contribution to the profit- sharing plan was declared for the first nine months ended September 30, 1997. Income Taxes Temporary differences between the financial statement and tax bases of assets and liabilities are insignificant. Therefore, the Company does not record deferred income taxes on temporary differences. The Company does record the deferred tax assets associated with any available carryforward tax benefits. NOTE 3 - CONCENTRATIONS Certain customers are significant to the Company's operations. Four customers comprised approximately 87% of the Company's revenue for the first nine months of 1997 and, at September 30, 1997, the Company had extended credit to a customer whose individual account represents approximately 47% of the contract receivables balance. Additionally, one incomplete contract comprises 45% of costs and estimated earnings in excess of billings on incomplete contracts and two incomplete contracts comprise 86% of billings in excess of cost and estimated earnings. NOTE 4 - CONTRACT AND OTHER RECEIVABLES Contract receivables at September 30, 1997 are categorized as follows: Billed receivables on contracts in progress $3,780,272 Billed receivables on completed contracts 1,611,531 ------------- Total $5,391,803 ============= Contract receivables include approximately $326,422 of change orders and include $774,602 of amounts receivable under retainage provisions in contracts with customers. NOTE 5 - COSTS AND ESTIMATED EARNINGS ON INCOMPLETE CONTRACTS Information with respect to incomplete contracts at September 30, 1997 follows: Costs incurred on incomplete contracts $23,335,503 Estimated earnings 4,389,590 ------------- 27,725,093 Less billings to date (28,163,102) ------------- Total $ (438,009) ============= The above amounts are included in the accompanying balance sheet under the following captions: Costs and estimated earnings in excess of billings on incomplete contracts $ 724,481 Billings in excess of costs and estimated earnings on incomplete contracts (1,162,490) ------------- Total $ (438,009) ============= NOTE 6 - PROPERTY AND EQUIPMENT The major classes of property and equipment at September 30, 1997 were as follows: Building $ 416,623 Equipment 417,564 Furniture and fixtures 299,701 Vehicles 5,408 Leasehold improvements 382,332 ------------- 1,521,628 Less: Accumulated depreciation and amortization (535,351) ------------- $ 986,277 ============= NOTE 7 - INCOME TAXES At September 30, 1997, the Company had net operating loss carryforwards of approximately $400,000 that may be offset against future taxable income through 2009. The following amounts related to these carryforwards have been recorded in the accompanying balance sheet: Net deferred tax asset $139,105 ======== The entire valuation allowance was recorded as a deferred tax asset in 1997, in order for the net asset to approximate the tax effect of the carryforwards which were utilized in 1997. The effects of these carryforwards, and the tax savings generated by the Company's subsidiary, caused the total tax provision to differ from that which would result from applying statutory rates to pretax income. NOTE 8 - LINE OF CREDIT At September 30, 1997, the Company had a line of credit agreement with a bank for borrowings not to exceed the lesser of $3,500,000 or 80% of eligible contract receivables. Interest is payable monthly at the Whitney National Bank prime rate plus 1%. The line of credit is secured by a first priority security interest and liens on the Company's contract receivables, by all other Company assets, and by personal guarantees of a shareholder. In addition, the agreement contains restrictive covenants, which prohibits the Company from paying dividends or purchasing treasury stock without prior bank approval. The agreement expires in March 1998. Interest expense for the nine months ended September 30, 1997 was $149,245. NOTE 9 - OPERATING LEASES The Company is obligated under certain long-term operating leases for land and equipment used in its operations. The monthly base rent under one of these leases increases annually, and includes an additional component for taxes, insurance and a security service. Additionally, the Company subleases land used in its primary operations under a three year operating lease from a related corporation for $8,300 per month through April 1997; then increased to $25,000 per month for the remainder of the lease period. The Company guarantees payments on this lease on behalf of the related entity. This lease agreement expires in May 1999, with two three-year renewal options at adjusted rates. In addition, the agreement contains an option for the Company to purchase the land at a specified price at any time during the initial term. The Company paid a total of $158,200 in rental payments to this related party during the nine months ended September 30, 1997. Future minimum rental payments under the noncancelable operating leases are as follows: Remainder of 1997 $ 52,334 1998 209,334 1999 63,239 2000 10,500 ------------- $ 335,407 NOTE 10 - COMMITMENTS AND CONTINGENCIES The Company has an agreement with its stockholders that should any stockholder desire to sell or transfer shares, he must sell the shares to the Company, which must redeem all of the withdrawing stockholder's stock. The redemption value of the stock shall be equal to book value of the shares plus stated adjustments for certain events. In order to guarantee compliance with any warranty work or specified contract provisions, letters of credit may be given to customers. At September 30, 1997, the Company had issued letters of credit totaling $1,170,142. A $517,382 portion of two such letters matured in December 1997, at which time the Company's contingent obligations under the letter were reduced by that amount. The Company does not believe that any funds will be advanced on these letters of credit. The Company is party to certain claims filed by former employees. Management believes that the outcome of these claims will not have a material effect on the Company's financial position or results of operations. NOTE 11 - BACKLOG The Company had backlog of approximately $23,060,682 on signed contracts in existence at September 30, 1997. GULF ISLAND FABRICATION, INC. Unaudited Pro Forma Condensed Combined Financial Statements INTRODUCTION The following unaudited pro forma condensed combined financial statements give effect to the January 1, 1998 acquisition (the "Acquisition") of all the shares of Southport, Inc. and its wholly owned subsidiary Southport, International, Inc., (collectively "Southport"), pursuant to a Stock Purchase Agreement between Gulf Island Fabrication, Inc. ("the Company") and the shareholders of Southport. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of Gulf Island Fabrication, Inc. and Southport's notes thereto. This pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results which actually would have been obtained if the Acquisition had been effected on the pro forma dates, nor is it necessarily indicative of future results. The unaudited pro forma condensed combined financial statements are based on the purchase method of accounting for the Acquisition. The Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 1997 assumes that the Acquisition was effected on September 30, 1997. The Unaudited Pro Forma Condensed Combined Statement of Income for the nine months ended September 30, 1997 assumes that the Acquisition was effected on January 1, 1997. The Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 1996 assumes that the Acquisition was effected on January 1, 1996. GULF ISLAND FABRICATION, INC. PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED) September 30, 1997 (in thousands)
Gulf Island Fabrication, Southport, Pro Forma Pro Forma Inc. Inc. Adjustments Combined ------------ ---------- ----------- --------- (Note 1) ASSETS ------ Current assets: Cash $ 4,774 $ 51 $ (2,570)(a)$ 825 4,570 (b) (6,000)(c) Receivables 24,986 5,406 30,392 Costs and estimated earnings in excess of billings on uncompleted contracts 3,333 724 4,057 Other current assets 1,800 286 2,086 ------------ ---------- ----------- --------- Total current assets 34,893 6,467 (4,000) 37,360 Property, plant and equipment, net 31,533 986 656 (c) 33,175 Other assets 428 14 4,413 (c) 4,855 ------------ ---------- ----------- --------- $ 66,854 $ 7,467 $ 1,069 $ 75,390 ============ ========== =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 5,499 $ 2,227 $ - $ 7,726 Notes payable - 2,570 (2,570)(a) 4,570 4,570 (b) Billings in excess of costs and estimated earnings on uncompleted contracts 5,635 1,162 6,797 Accrued employee costs 3,072 267 3,339 Accrued expenses 2,359 64 2,423 Income taxes payable 1,441 1,441 ------------ ---------- ----------- --------- Total current liabilities 18,006 6,290 2,000 26,296 Deferred income taxes 1,218 - 246 (c) 1,464 ------------ ---------- ----------- --------- Total liabilities 19,224 6,290 2,246 27,760 Shareholders' equity 47,630 1,177 (1,177)(c) 47,630 ------------ ---------- ----------- --------- $ 66,854 $ 7,467 $ 1,069 $ 75,390 ============ ========== =========== ========= See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
GULF ISLAND FABRICATION, INC. PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) For the Nine Months Ended September 30, 1997 (in thousands, except share and per share data)
Gulf Island Fabrication, Southport, Pro Forma Pro Forma Inc. Inc. Adjustments Combined ------------ ----------- ----------- ---------- (Note 1) Revenue $ 101,556 $ 14,395 $ - $ 115,951 Cost of revenue 83,282 12,253 33 (h) 95,568 ------------ ----------- ----------- ---------- Gross profit 18,274 2,142 (33) 20,383 General and administrative expenses 3,262 1,131 221 (g) 4,403 (211)(i) ------------ ----------- ----------- ---------- Operating income 15,012 1,011 (43) 15,980 Interest expense (income), net 212 124 (164)(d) 613 291 (e) 150 (f) ------------ ----------- ----------- ---------- Income before income taxes 14,800 887 (320) 15,367 Provision for income taxes 4,210 110 (120)(j) 4,200 Cumulative deferred tax provision 1,144 - 1,144 ------------ ----------- ----------- ---------- Net income $ 9,446 $ 777 $ (200) $ 10,023 ============ =========== =========== ========== Pro forma data Income before income taxes $ 14,800 $ 15,367 Provision for income taxes 4,210 4,200 Pro forma provision for income taxes related to operations as an S Corporation 1,379 1,379 ------------ ---------- Pro forma net income $ 9,211 $ 9,788 ============ ========== Pro forma per share data Pro forma net income per share $ 0.89 $ 0.94 ============ ========== Pro forma weighted average common shares 10,370,000 10,370,000 ============ ========== See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
GULF ISLAND FABRICATION, INC. NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS September 30, 1997 (UNAUDITED) NOTE 1: ACQUISITION OF SOUTHPORT, INC. Effective January 1, 1998, the Company acquired all of the outstanding shares of Southport, Inc. and its wholly owned subsidiary Southport International, Inc., collectively Southport. The purchase price was $ 6.0 million cash, plus contingency payments of up to an additional $5.0 million based on Southport's net income over a four year period ending December 31, 2001.In addition to the purchase price the Company paid approximately $101,000 of direct expenses, which cumulatively exceeds the book value of assets acquired and liabilities assumed by $4.413 million. The purchase price was allocated to acquired assets and liabilities based on estimated fair values. Pro forma adjustments to record the Southport Acquisition under the purchase method of accounting reflect: (a) To record the payment to retire the outstanding debt on Southport's line of credit. (b) To record the borrowing under the Company's line of credit to acquire the shares of Southport, Inc. (c) To allocate the purchase price based on the estimated fair values of the assets acquired and liabilities assumed, eliminate shareholders' equity of Southport, record the excess of acquisition cost over the fair value of net assets acquired (goodwill), record the related deferred tax effect of the acquisition, and record the payment of cash to acquire the shares of Southport. (d) To record the adjustment to interest expense to reflect the retirement of Southport's outstanding debt as of the beginning of the period. (e) To record the adjustment to interest expense to reflect the borrowing on the Company's line of credit as of the beginning of the period. (f) To record the adjustment to interest income for cash usage on the acquisition as of the beginning of the period. (g) To record the amortization of cost in excess of fair value of net assets acquired of $4.413 million in the transaction (amortized over 15 years) as of the beginning of the period. (h) To record the adjustment for additional depreciation expense on the new basis of property and equipment acquired in the acquisition of Southport. (i) To record the elimination of salary expense and associated payroll burden on the employees who retired as of the effective date of this transaction as of the beginning of the period. (j) To record the income tax provision related to the pro forma adjustments using the Company's effective tax rate. GULF ISLAND FABRICATION, INC. PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) Year Ended December 31, 1996 (in thousands, except share and per share data)
Gulf Island Dolphin Pro Pro Pro Fabrication, Services, Forma Southport, Forma Forma Inc. Inc. Adjustments Inc. Adjustments Combined ----------- --------- ------------ ---------- ---------- --------- (Note 5) (Note7) Revenue $ 79,004 $ 26,802 $ (2,799)(d) $ 17,838 $ - $ 120,845 Cost of revenue 68,673 22,950 (2,770)(b,d) 16,218 44 (e) 105,115 ----------- --------- ------------ ---------- ---------- --------- Gross profit 10,331 3,852 (29) 1,620 (44) 15,730 General and administrative expense 2,661 1,642 1,207 294 (d) 5,524 - - (280)(f) ----------- --------- ------------ ---------- ---------- --------- Operating income 7,670 2,210 (29) 413 (58) 10,206 Interest expense (income), net 384 4 511 (a) - (218)(a) 1,269 388 (b) 200 (c) ----------- --------- ------------ ---------- ---------- --------- Income before income taxes 7,286 2,206 (540) 413 (428) 8,937 Provision for income taxes (benefit) - 822 (203)(c) (164) (161)(g) 294 ----------- --------- ------------ ---------- ---------- --------- Net income $ 7,286 $ 1,384 $ (337) $ 577 $ (267) $ 8,643 =========== ========= ============ ========== ========== ========= Pro forma data: Income before income taxes (Note 3) $ 7,286 $ 8,937 Provision for income taxes - 294 Pro forma provision for income taxes related to operations as an S Corporation 2,934 2,934 ----------- --------- Pro forma net income $ 4,352 $ 5,709 =========== ========= Pro forma per share data: (Note 6) Pro forma net income per share $ 0.55 $ 0.73 =========== ========= Pro forma weighted average common shares 7,854,000 7,854,000 =========== =========
GULF ISLAND FABRICATION, INC. NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF INCOME December 31, 1996 NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES On January 2, 1997, the Company acquired all outstanding shares of Dolphin Services, Inc., Dolphin Steel Sales, Inc. and Dolphin Sales and Rentals Inc. for $5.9 million (the "Dolphin Acquisition"). The acquired corporations perform fabrication, sandblasting, painting and construction for offshore oil and gas platforms in inland and offshore regions of the coast of the Gulf of Mexico. On April 30, 1997, Dolphin Steel Sales, Inc. and Dolphin Sales and Rentals, Inc. merged into Dolphin Services, Inc. The three corporations are referred to hereinafter collectively as "Dolphin Services." The Dolphin Acquisition was financed by borrowings under the Company's line of credit. The Company acquired assets with a fair value of $9.6 million and assumed liabilities of $3.8 million. The acquisition was accounted for under the purchase method of accounting. Accordingly, the operations of Dolphin Services are included in the company's operations from January 2, 1997. On February 13, 1997, the Board of Directors approved the filing of an initial registration statement on Form S-1 with the Securities and Exchange Commission to register and sell 4.6 million shares of common stock. Shortly before closing of the offering on April 9, 1997, the Company's current shareholders elected to terminate its status as an S Corporation, and the Company has become subject to federal and state income taxes. (See Note 2.) On April 3, 1997, the Securities and Exchange Commission declared the Company's Registration Statement on Form S-1 (Registration No. 333-21863) effective. On April 9, 1997, the Company sold 2.3 million common shares pursuant to the registration statement, increasing the total shares outstanding to 5.8 million (the "Initial Public Offering"). The Company received net proceeds from the sale of $31.3 million. NOTE 2: TERMINATION OF S CORPORATION STATUS On April 4, 1997, the Company's shareholders elected to terminate the Company's status as an S Corporation, and the Company became subject to federal and state income taxes. In conjunction with the termination of S Corporation status, the Company paid a distribution of $14 million to its current shareholders representing substantially all of the Company's remaining undistributed S Corporation earnings through April 4, 1997. The S Corporation earnings for the period April 1, 1997 to April 4, 1997 were an immaterial part of the total distribution. The balance sheet of the Company as of December 31, 1996 reflects a deferred income tax liability of $1.2 million, which includes $1.1 million of deferred income tax liability resulting from the termination of the S Corporation status. The amount of the Company's retained earnings represents primarily the C Corporation earnings prior to the Company's election of S Corporation status in 1989 and earnings after April 4, 1997. The pro forma income statement presentation reflects an additional provision for income taxes as if the Company had been subject to federal and state income taxes since January 1, 1996 using an assumed effective tax rate of approximately 38%. NOTE 3: PRO FORMA PER SHARE DATA Pro forma per share data for year ended December 31, 1996 consists of the Company's historical income, adjusted to reflect income taxes as if the Company had operated as a C Corporation for the year ended December 31, 1996. This calculation excludes the charge of $1,144,000 related to cumulative deferred income taxes resulting from conversion to a C Corporation on April 4, 1997. The weighted average share calculations include the assumed issuance of additional shares sufficient to pay he distributions made to shareholders in connection with the Company's Initial Public Offering in 1997, to the extent such distributions exceeded net income for the year ended December 31, 1996. NOTE 4: STOCK SPLIT On October 6, 1997, the Company's Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend that became effective on October 28, 1997 to shareholders of record on October 21, 1997. All share and per share data included in the financial statements have been restated to reflect the stock split increasing the total shares outstanding to 11.6 million. NOTE 5: ACQUISITION OF DOLPHIN Pro forma adjustments to record the Dolphin Acquisition under the purchase method of accounting reflect: (a) To record the adjustment to interest charges on additional borrowings of $5,886,083 at an estimated average interest rate of 8.69%. (b) To record the adjustment for additional depreciation of property, plant and equipment using the straight-line method over estimated useful lives of 3 to 5 years for machinery and equipment and 30 years for buildings. (c) To record the tax benefit related to interest and additional depreciation charges. (d) To record elimination of intercompany sales between the Company and Dolphin Services. NOTE 6: NET INCOME PER SHARE Pro forma net income per share is calculated by dividing the pro forma net income ($5,709,000) by the weighted average shares outstanding (7,000,000), which gives retroactive effect to the stock splits authorized on February 14, 1997 and October 6, 1997, and increased to reflect sufficient additional shares to pay the distributions to shareholders in excess of 1996 historical net income (854,000 shares). All such additional shares are based on an assumed offering price of $7.50 per share, net of offering expenses. The pro forma net income per share does not give effect to distributions that may be paid from earnings generated subsequent to December 31, 1996. NOTE 7: ACQUISITION OF SOUTHPORT, INC. Effective January 1, 1998, the Company acquired all of the outstanding shares of Southport, Inc. and its wholly owned subsidiary Southport International, Inc., collectively Southport ("the Southport Acquisition"). The purchase price was $ 6.0 million cash, plus contingency payments of up to an additional $5.0 million based on Southport's net income over a four year period ending December 31, 2001.In addition to the purchase price the Company paid approximately $101,000 of direct expenses, which cumulatively exceeds the book value of assets acquired and liabilities assumed by $4.413 million. The purchase price was allocated to acquired assets and liabilities based on estimated fair values. Pro forma adjustments to record the Southport Acquisition under the purchase method of accounting reflect: (a) To record the adjustment to interest expense to reflect the retirement of Southport's outstanding debt as of the beginning of the year. (b) To record the adjustment to interest expense to reflect the borrowing on the Company's line of credit as of the beginning of the year. (c) To record the adjustment to interest income for cash usage on the acquisition as of the beginning of the year. (d) To record the amortization of cost in excess of fair value of net assets acquired of $4.413 million in the transaction (amortized over 15 years) as of the beginning of the year. (e) To record the adjustment for additional depreciation expense on the new basis of property and equipment acquired in the acquisition of Southport. (f) To record the elimination of salary expense and associated payroll burden on the employees who retired as of the effective date of this transaction as of the beginning of the year. (g) To record the income tax provision related to the pro forma adjustments using the Company's effective tax rate. -----END PRIVACY-ENHANCED MESSAGE-----