10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 0-22303

GULF ISLAND FABRICATION, INC.

(Exact name of registrant as specified in its charter)

LOUISIANA	72-1147390
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

583 THOMPSON ROAD,
HOUMA, LOUISIANA	70363
(Address of principal executive offices)	(Zip Code)

(985) 872-2100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the Registrant’s common stock, no par value per share, outstanding as of October 27, 2008 was 14,278,015.

GULF ISLAND FABRICATION, INC.

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2008 (unaudited) and December 31, 2007	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)	4
	Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2008 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (unaudited)	6
	Notes to Consolidated Financial Statements	7-9
	Report of Independent Registered Public Accounting Firm	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 6.	Exhibits	17
SIGNATURES		18
EXHIBIT INDEX		E-1

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

	(Unaudited) September 30, 2008		December 31, 2007
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	5,559	$	24,640
Contracts receivable, net		80,244		78,748
Contract retainage		788		430
Costs and estimated earnings in excess of billings on uncompleted contracts		29,676		17,690
Prepaid expenses		1,289		2,776
Inventory		6,019		7,427
Deferred tax assets		3,158		4,036
Total current assets		126,733		135,747
Property, plant and equipment, net		204,246		188,766
Other receivables		7,593		—
Other assets		700		700
Total assets	$	331,679	$	325,213
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,536	$	18,080
Billings in excess of costs and estimated earnings on uncompleted contracts		22,004		44,301
Accrued employee costs		8,581		7,421
Accrued expenses		4,128		2,419
Income taxes payable		4,992		6,142
Total current liabilities		57,241		78,363
Deferred income taxes		19,669		17,937
Total liabilities		76,910		96,300
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, 14,278,015 and 14,214,736 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		9,703		9,560
Additional paid-in capital		89,717		87,853
Retained earnings		155,349		131,500
Total shareholders’ equity		254,769		228,913
Total liabilities and shareholders’ equity	$	331,679	$	325,213

The accompanying notes are an integral part of these statements.

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GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Revenue	$	92,657		$	124,900		$	334,309		$	371,845
Cost of revenue		86,349			106,904			284,746			331,196
Gross profit		6,308			17,996			49,563			40,649
General and administrative expenses		2,070			2,771			7,339			7,888
Operating income		4,238			15,225			42,224			32,761
Other income (expense):
Interest expense		(18	)		(14	)		(31	)		(33	)
Interest income		42			63			187			343
Other		(42	)		(5	)		(97	)		(10	)
		(18	)		44			59			300
Income before income taxes		4,220			15,269			42,283			33,061
Income taxes		1,384			5,229			14,135			10,745
Net income	$	2,836		$	10,040		$	28,148		$	22,316
Per share data:
Basic earnings per share	$	0.20		$	0.71		$	1.98		$	1.58
Diluted earnings per share	$	0.20		$	0.70		$	1.97		$	1.56
Weighted-average shares		14,278			14,170			14,249			14,150
Effect of dilutive securities: employee stock options and restricted stock		66			114			65			122
Adjusted weighted-average shares		14,344			14,284			14,314			14,272
Cash dividend declared per common share	$	0.10		$	0.10		$	0.30		$	0.30

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)

	Common Stock					Additional Paid-In Capital			Retained Earnings			Total Shareholders’ Equity
	Shares		Amount
	(in thousands, except share data)
Balance at January 1, 2008	14,214,736		$	9,560		$	87,853		$	131,500		$	228,913
Exercise of stock options	63,000			97			865			—			962
Income tax benefit from exercise of stock options	—			—			579			—			579
Net income	—			—			—			28,148			28,148
Issuance of common shares restricted stock vesting	400			—			—			—			—
Cancellation of common shares restricted stock vesting	(121	)		(1	)		(6	)		—			(7	)
Compensation expense restricted stock	—			35			318			—			353
Compensation expense non-qualified stock options	—			12			108			—			120
Dividends on common stock	—			—			—			(4,299	)		(4,299	)
Balance at September 30, 2008	14,278,015		$	9,703		$	89,717		$	155,349		$	254,769

The accompanying notes are an integral part of these statements.

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GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
	2008			2007
	(in thousands)
Cash flows from operating activities:
Net income	$	28,148		$	22,316
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		13,045			9,912
Amortization on intangible assets		—			544
Deferred income taxes		2,610			296
Compensation expense—stock compensation plans		473			538
Excess tax benefit from share-based payment arrangements		(579	)		(629	)
Changes in operating assets and liabilities:
Contracts receivable		(1,496	)		(48,335	)
Contract retainage		(358	)		1,538
Costs and estimated earnings in excess of billings on uncompleted contracts		(11,986	)		(7,646	)
Prepaid expenses and other assets		1,487			1,016
Inventory		1,408			(1,010	)
Other receivables		(7,593	)		—
Accounts payable		(544	)		14,733
Billings in excess of costs and estimated earnings on uncompleted contracts		(22,297	)		15,859
Accrued employee costs		1,160			1,066
Accrued expenses		1,709			(24	)
Income taxes payable		(571	)		8,841
Net cash provided by operating activities		4,616			19,015
Cash flows from investing activities:
Capital expenditures, net		(20,939	)		(33,436	)
Net cash used in investing activities		(20,939	)		(33,436	)
Cash flows from financing activities:
Proceeds from exercise of stock options		962			943
Excess tax benefit from share-based payment arrangements		579			629
Payments of dividends on common stock		(4,299	)		(4,265	)
Net borrowings against notes payable, Revolver		—			10,990
Net cash provided by (used in) financing activities		(2,758	)		8,297
Net change in cash and cash equivalents		(19,081	)		(6,124	)
Cash and cash equivalents at beginning of period		24,640			10,302
Cash and cash equivalents at end of period	$	5,559		$	4,178

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, 2008 AND 2007

NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES

Gulf Island Fabrication, Inc., together with its subsidiaries (the “Company”), is a leading fabricator of offshore drilling and production platforms and other specialized structures used in the development and production of offshore oil and gas reserves. The Company’s corporate offices and two major subsidiaries are located in Houma, Louisiana, and another major subsidiary is located in San Patricio County, Texas. The Company's principal markets are concentrated in the offshore regions and along the coast of the Gulf of Mexico. The consolidated financial statements include the accounts of Gulf Island Fabrication, Inc. and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Structures and equipment fabricated by the Company include jackets and deck sections of fixed production platforms; hull, tendon, and/or deck sections of floating production platforms (such as TLPs, SPARs, FPSOs and MinDOCs); piles; wellhead protectors; subsea templates; various production, processing, compressor and utility modules; offshore living quarters; brown water towboats; tanks and barges. The Company also provides services such as offshore interconnect pipe hook-up; inshore marine construction; manufacture and repair of pressure vessels; heavy lifts such as ship integration and TLP module integration, loading and offloading jack-up drilling rigs, semi-submersible drilling rigs, TLPs, SPARs or other similar cargo; steel warehousing and sales; onshore and offshore scaffolding and piping insulation services.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008.

The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain items in 2007 have been reclassified to conform to the 2008 financial statement presentation.

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, 2007.

NOTE 2 – CONTINGENCIES

In December 2004, we received notice from Louisiana Department of Environmental Quality (“LDEQ”) that the Corrective Action Plan submitted in October 2004 was not acceptable. The Corrective Action Plan was developed to provide remediation to several isolated areas located on property we sold in 2001. In mid 2005, the LDEQ approved a sampling plan with the proposed

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sampling to begin in September of 2005. Due to the hurricanes that struck the Louisiana coast in 2005, the scheduled sampling was cancelled. In mid October 2006, the sampling was completed. This sampling plan was rejected by the LDEQ in April 2008. We submitted a revised sampling plan to LDEQ on June 25, 2008 and await their review. At September 30, 2008, we included in Accrued Expenses $450,000 compared to $230,000 at December 31, 2007, which is the current estimated cost to remediate the site and includes professional fees such as engineering and consulting costs.

At September 30, 2008, we have recorded $7.6 million in “Other Receivables” as the result of two insurance claims. The insurance claims are for damages and related cost for an accident in our Texas facility involving four cranes and the damages related to the hurricanes that recently struck the Gulf Coast.

NOTE 3 – LINE OF CREDIT AND NOTES PAYABLE

Effective August 6, 2008, we entered into the Seventh Amendment to the Ninth Amended and Restated Credit Agreement (the “Revolver”) which, among other things, increased the amount of the Revolver from $50 million to $60 million and extended the term of the Revolver from December 31, 2009 to December 31, 2010. The Revolver is secured by our real estate, machinery and equipment, and fixtures, and amounts borrowed under the Revolver bear interest, at our option, at the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 1.5%. We pay a fee on a quarterly basis of three-sixteenths of one percent per annum on the weighted-average unused portion of the Revolver. At September 30, 2008, no amounts were borrowed under the Revolver, but we had letters of credit outstanding totaling $32.9 million, which reduced the unused portion of the Revolver. More of our customers, especially in larger fabrication projects, are requiring us to issue letters of credit in lieu of retainage. Thus, the Company is issuing letters of credit for larger amounts and for longer periods of time than it did in past years. We are required to maintain certain covenants, including balance sheet and cash flow ratios. As of September 30, 2008, we were in compliance with these covenants.

NOTE 4 – RELATED PARTY TRANSACTIONS

On January 31, 2006, we, through an indirect subsidiary, purchased the facilities, machinery and equipment of Gulf Marine Fabricators, an indirect subsidiary of Technip-Coflexip USA Holdings, Inc. (“Technip”). As consideration for the acquisition, we paid a combination of cash and common stock. Technip currently owns 789,067 shares or approximately 5.6% of our outstanding common stock.

Since 2006, Technip has awarded us contracts to fabricate various oil and gas industry items totaling $40.1 million, and as of December 31, 2007, we had recognized revenue of $33.0 million on these contracts. During the three-month and nine-month periods ended September 30, 2008, we recognized additional revenue of $700,000 and $ 7.1 million, respectively, on these contracts. During the three-month and nine-month periods ended September 30, 2007, the Company recognized revenue of $6.1 million and $19.0 million, respectively, on these contracts. As of September 30, 2008, all contracts awarded by Technip had been completed.

As of September 30, 2008, Technip owed us a total of $1.2 million of contracts receivable or 1.4% of the total contracts receivable outstanding. As of December 31, 2007, Technip owed us a total of $7.5 million of contracts receivable or 9.5% of the total contracts receivable outstanding.

NOTE 5 – PASS THROUGH COSTS

Pass-through costs are material and sub-contract costs associated with projects that are included as revenue of a project, but add little or no margin to the project. Pass-through costs, as a percentage of revenue, for the three-month and nine-month periods ended September 30, 2008 were 42.8% and 40.4%, compared to 51.0% and 55.9%, respectively, for the three-month and nine-month periods ended September 30, 2007.

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NOTE 6 – INCOME TAXES

Our effective income tax rate for the three-month and nine-month periods ended September 30, 2008 was 32.8% and 33.4%, respectively, compared to an effective tax rate of 34.2% and 32.5% for the comparable periods of 2007. The decrease from the previous three-month period relates primarily to prior period adjustments to income tax expense recorded in the third quarter of 2008. The increase from the previous nine-month period relates primarily to the employment hiring credits that were available to us in 2007 for both state and federal taxes that began to phase-out in the third and fourth quarters of 2007.

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Report of Independent Registered

Public Accounting Firm

The Board of Directors and Shareholders

Gulf Island Fabrication, Inc.

We have reviewed the condensed consolidated balance sheet of Gulf Island Fabrication, Inc. as of September 30, 2008, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2008 and 2007, the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2008 and 2007 and the condensed consolidated statement of changes in shareholders’ equity for the nine-month period ended September 30, 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Gulf Island Fabrication, Inc. as of December 31, 2007, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended (not presented herein) and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

New Orleans, Louisiana

October 23, 2008

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Statements under “Backlog,” “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 are subject to certain risks and uncertainties that could cause actual results and outcomes to differ materially from the results and outcomes predicted in the statement and investors are cautioned not to place undue reliance upon them. Important factors that may cause our actual results to differ materially from expectations or projections include those described under the heading “Cautionary Statements” in Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2007. Such factors include, among others, the timing and extent of changes in the prices of crude oil and natural gas; the timing of new projects and our ability to obtain them; competitive factors in the heavy marine fabrication industry; and our ability to attract and retain qualified production employees at acceptable compensation rates.

In addition to the cautionary statements above, we are closely monitoring the recent disruption in the global financial and credit markets, as well as the recent significant decline in the market price of oil, which has been widely publicized and may ultimately have a material effect on our operations and those of our significant customers. As these events continue to unfold, we will be in a better position to evaluate their potential impact on our operations and develop any responsive strategies that may be necessary, particularly if energy prices continue to decline.

Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions (see Note 1 to the consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2007). We believe that of our significant accounting policies, revenue recognition involves a higher degree of judgment and complexity. Critical accounting policies are discussed more fully in our Annual Report on Form 10-K for the year ended December 31, 2007. There have been no changes in our evaluation of our critical accounting policies since that date.

Backlog

Our backlog is based on management’s estimate of the direct labor hours required to complete, and the remaining revenue to be recognized with respect to, those projects as to which a customer has authorized us to begin work or purchase materials pursuant to written contracts, letters of intent or other forms of authorization. Often, however, management’s estimates are based on incomplete engineering and design specifications. As engineering and design plans are finalized or changes to existing plans are made, management’s estimate of the direct labor hours required to complete and price at completion for such projects is likely to change. In addition, all projects currently included in our backlog are subject to termination at the option of the customer, although the customer, is generally required to pay us for work performed and materials purchased through the date of termination and, in some instances, pay us cancellation fees. However, due to the large dollar amounts of backlog estimated for certain projects, a termination of any one of these projects could substantially decrease our backlog, and could have a material adverse effect on our revenue, net income and cash flow.

As of September 30, 2008, we had a revenue backlog of $422.4 million and a labor backlog of approximately 4.6 million man-hours, which consists of work remaining at September 30, 2008 and commitments received through the third quarter earnings release issued October 23, 2008, compared to the revenue backlog of $330.4 million and a man-hour backlog of 3.7 million hours reported in our Form 10-K at December 31, 2007.

Of the backlog at September 30, 2008, $243.2 million, or 57.6%, represented projects destined for deepwater locations compared to $185.4 million, or 56.1%, of

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projects destined for deepwater locations in the December 31, 2007 backlog. Included in the backlog are $12.1 million or 2.9% and $62.6 million and 18.9% at September 30, 2008 and December 31, 2007, respectively, related to projects destined for foreign locations.

Of the backlog at September 30, 2008, we expect to recognize revenues of approximately $83.0 million in the remainder of 2008, and approximately $339.4 million in 2009 and thereafter.

Workforce

As of September 30, 2008, we had approximately 1,985 employees and approximately 194 contract employees, compared to approximately 1,820 employees and approximately 550 contract employees as of December 31, 2007.

Results of Operations

Our revenue for the three-month and nine-month periods ended September 30, 2008 was $92.7 million and $334.3 million, a decrease of 25.8% and 10.1% respectively, compared to $124.9 million and $371.8 million in revenue for the three-month and nine-month periods ended September 30, 2007.

There were several factors contributing to the reduction of revenues for the three-month and nine-month periods ended September 30, 2008.

• Due to the hurricanes that struck the Gulf Coast during the quarter ended September 30, 2008, our Houma, Louisiana facility experienced approximately three weeks of down time and our Texas facility experienced approximately 5 days of down time.

• Pass-through costs, as a percentage of revenue, for the three-month and nine-month periods ended September 30, 2008 were 42.8% and 40.4%, compared to 51.0% and 55.9%, respectively, for the three-month and nine-month periods ended September 30, 2007. We consider material and sub-contract cost associated with projects as pass-through costs because they add to the revenue of a project, but add little or no margin to the project.

• During the quarter ended September 30, 2008, we expended a significant number of man-hours on the completion and preparation for the load-out of the Tombua Landana project that were not considered part of the original scope of the project. We incurred a substantial amount of labor and other costs that were not currently billable to the customer, thus were not included in revenue. We anticipate that through negotiation with the customer, a portion of those costs will be reimbursed to us in a future period.

• With a large number of manpower resources concentrating on the completion of the Tombua Landana project, progress on the MinDOC Mirage hull project was substantially less during the quarter ended

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September 30, 2008 compared to the progress on the MinDOC hull during the quarter ended September 30, 2007. Since we recognize revenue on man-hours expended, revenue and profit recognition is impacted by the progress or the lack of progress on a project. With the completion of the Tombua Landana project, we anticipate the completion progress of the MinDOC hull to return to levels similar to prior quarters in 2008 which is based on a scheduled delivery of mid first quarter 2009.

At September 30, 2008, the Company recorded revenue totaling $1.6 million related to certain change orders, somewhat equally split on three separate projects, which have been approved as to scope but not price. Although the Company believes the collection of these change orders is probable based on past experience, the Company is in the process of negotiating resolution of these change orders with the customers, and recovery of the revenue is dependent upon these negotiations. If the Company collects amounts different than the $1.6 million of revenue that has been recorded, that difference will be recognized as income or loss. The Company expects to resolve these matters in the fourth quarter of 2008.

The Company’s cost in excess of billings and estimated earnings on uncompleted contracts balance at September 30, 2008 includes $14.1 million related to one project. This amount has not been invoiced to the customer because the project was not 100% complete at September 30, 2008. This amount will be billed to the customer in the fourth quarter of 2008.

For the three-month and nine-month periods ended September 30, 2008, gross profit was $6.3 million (6.8% of revenue) and $49.6 million (14.8% of revenue), compared to gross profit of $18.0 million (14.4% of revenue) and $40.6 million (10.9% of revenue) for the three-month and nine-month periods ended September 30, 2007. For the three-month and nine-month periods ended September 30, 2008, man-hours worked were 931,000 and 2.9 million, compared to 887,000 and 2.7 million for the three-month and nine-month periods ended September 30, 2007.

The change in the gross margin is related to the partial reimbursement to us of costs associated with specific capital projects required by the fabrication process included in some contracts. Since these capital projects provide future benefits to us, the cost to build these projects is capitalized, thus the revenue associated with the capital project directly increases the estimated profit on the contract. For the three-month and nine-month periods ended September 30, 2008, these costs were $207,000 and $5.3 million, compared to $1.9 million and $4.8 million, for the three-month and nine-month periods ended September 30, 2007. Depreciation expense related to these capital expenditures was $0.7 million and $2.0 million for the three months and nine months ended September 30, 2008 compared to no related depreciation expense for the three months and nine months ended September 30, 2007.

There were other factors contributing to the reduction of margins for the three-month period ended September 30, 2008.

• Man-hours were lost due to down time related to the hurricanes that struck the Gulf Coast during the quarter ended September 30, 2008. In addition, we recorded approximately $700,000 for insurance deductibles related to insurance claims caused by the hurricanes.

• We incurred $800,000 of additional costs associated with the Tahiti project and we were not successful in negotiating reimbursement of these costs.

• We incurred $2.1 million in labor and other costs in excess of revenues recognized necessary to complete and prepare for the load-out of the Tombua Landana project. We anticipate that through negotiation with the customer, a portion of these costs will be reimbursed to us in a future period.

• In addition to the loss of profit recognition due to the lack of progress on the MinDOC hull, we incurred $1.1 million of costs in excess of contract price associated with the expanded scope of the project.

The Company’s general and administrative expenses were $2.1 million for the three-month period ended September 30, 2008 and $7.3 million for the nine-month period ended September 30, 2008. This compares to $2.8 million for the three-month period ended September 30, 2007 and $7.9 million for the nine-month period ended

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September 30, 2007. As a percentage of revenue, general and administrative expenses were 2.2% compared to 2.2% and 2.2% compared to 2.1% of revenue for the three-month and nine-month periods ended September 30, 2008 and 2007, respectively. The reduction in general and administrative expenses for the three-month period ended September 30, 2008 compared to September 30, 2007 was related to a reduction of wage and wage related costs. The reduction in general and administrative expenses for the nine-month period ended September 30, 2008 compared to September 30, 2007 was mainly related to amortization expense (from the Gulf Marine acquisition) incurred through August 2007.

The Company had net interest income of $24,000 and $156,000 for the three-month and nine-month periods ended September 30, 2008, respectively, compared to net interest income of $49,000 and $310,000 for the three-month and nine-month periods ended September 30, 2007. The reduction in interest income is related to having less cash available for investing in 2008 compared to 2007.

Other Income (Expense) net for the three-month and nine-month periods ended September 30, 2008 were losses of $42,000 and $97,000, respectively, compared to losses of $5,000 and $10,000 for the three-month and nine-month periods ended September 30, 2007. The losses for the periods ended September 30, 2008 and 2007 were related to the sale of miscellaneous equipment.

The effective income tax rate for the three-month and nine-month periods ended September 30, 2008 was 32.8% and 33.4%, respectively, compared to an effective tax rate of 34.2% and 32.5% for the comparable periods of 2007. The decrease from the previous three-month period relates primarily to prior period adjustments to income tax expense recorded in the third quarter of 2008. The increase from the previous nine-month period relates primarily to the employment hiring credits that were available to us in 2007 for both state and federal taxes that began to phase-out in the third and fourth quarters of 2007.

Liquidity and Capital Resources

Historically we have funded our business activities primarily through cash generated from operations. We also maintain a revolving line of credit with our commercial banks. Effective August 6, 2008, we entered into the Seventh Amendment to the Ninth Amended and Restated Credit Agreement (the “Revolver”) which, among other things, increased the amount of the Revolver from $50 million to $60 million and extended the term of the Revolver from December 31, 2009 to December 31, 2010. The Revolver is secured by our real estate, machinery and equipment, and fixtures, and amounts borrowed under the Revolver bear interest, at our option, at the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 1.5%. We pay a fee on a quarterly basis of three-sixteenths of one percent per annum on the weighted-average unused portion of the Revolver. At September 30, 2008, no amounts were borrowed under the Revolver, but we had letters of credit outstanding totaling $32.9 million, which reduced the unused portion of the Revolver. More of our customers, especially in larger fabrication projects, are requiring us to issue letters of credit in lieu of retainage. Thus, the Company is issuing letters of credit for larger amounts and for longer periods of time than it did in past years. We are required to maintain certain covenants, including balance sheet and cash flow ratios. As of September 30, 2008, we were in compliance with these covenants.

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At September 30, 2008, our cash balance was $5.6 million and working capital was $69.5 million, resulting in a current ratio of 2.21 to 1. Net cash provided by operating activities was $4.6 million for the nine-months ended September 30, 2008. Net cash used in investing activities for the nine-months ended September 30, 2008, was $20.9 million, which related to capital expenditures for equipment and improvements to our production facilities. Net cash used in financing activities for the nine-month period ended September 30, 2008, was $2.8 million, consisting of $962,000 provided by the exercise of stock options, $579,000 provided by the tax benefit of stock options exercised and $4.3 million used to pay dividends on common stock.

Capital expenditures for the remaining three months of 2008 are estimated to be approximately $2.0 million and primarily relate to machinery and equipment and various infrastructure improvements to the facilities.

We had an additional $18.6 million of committed capital expenditure costs at September 30, 2008 that will not be incurred until 2009. These costs include $1.9 million for the completion of phase II of the graving dock to be incurred in the first quarter of 2009, $2.4 million representing the remaining balance for the purchase of two cranes to be incurred in the second quarter of 2009, and $14.3 million for the construction of a dry dock to be incurred as progress payments during all quarters of 2009, with the expected completion of the dry dock in the fourth quarter of 2009.

Management believes that our available funds, cash generated by operating activities and funds available under the Revolver will be sufficient to fund our capital expenditures and working capital needs through the end of 2008 and commitments through 2009. However, we may expand our operations through acquisitions in the future, which may require additional equity or debt financing. Also, job awards may require us to issue additional letters of credit, further reducing the unused portion of the Revolver.

On October 10, 2008, we received, from the State of Louisiana, an award of $2.3 million under their Economic Development Award Program. The award will be for infrastructure improvements, such as a paved road, sewer and water lines, adjacent to the property line in our Houma, Louisiana, West Yard facility. The award is a performance award based on creating and maintaining 200 new jobs during a three to five year period associated with the expansion of our marine division.

On July 25, 2008, our Board of Directors declared a dividend of $0.10 per share of our common stock, payable August 19, 2008 to shareholders of record on August 7, 2008. The future declaration and payment of dividends, if any, is at the discretion of the Board of Directors and will depend on our retained earnings, working capital requirements and the future operation and growth of our business.

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Contractual Obligations

There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Off-Balance Sheet Arrangements

There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company’s market risks during the nine months ended September 30, 2008. For more information on market risk, refer to Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 4. Controls and Procedures.

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of such date to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.

There have been no changes during the fiscal quarter ended September 30, 2008 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

Item 1A. Risk Factors

There have been no material changes to the Company’s risk factors during the nine months ended September 30, 2008. For additional information on risk factors, refer to Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Item 6. Exhibits

The exhibits to this report are listed in the Exhibit Index beginning on page E-1 hereof.

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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.
By:	/s/ Robin A. Seibert
	Robin A. Seibert Vice President – Finance, Chief Financial Officer and Treasurer (Principal Financial Officer and Duly Authorized Officer)

Date: October 27, 2008

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GULF ISLAND FABRICATION, INC.

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
3.1	Amended and Restated Articles of Incorporation of the Company, incorporated by reference to the Company’s Registration Statement on Form S-1 filed on February 14, 1997 (Registration No. 333-21863).
3.2	Bylaws of the Company, as amended and Restated through February 28, 2008, incorporated by reference to the Company’s Form 8-K filed on March 4, 2008.
4.1	Specimen Common Stock Certificate, incorporated by reference to Amendment No. 2 to the Company’s Form S-1 filed March 19, 1997 (Registration No. 333-21863).
15.1	Letter regarding unaudited interim financial information.
31.1	CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2	CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32	Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1	Press release issued by the Company on October 14, 2008, announcing the scheduled time for the release of its 2008 third quarter earnings and its quarterly conference call.

E-1

EX-15.1

Exhibit 15.1

The Board of Directors and Shareholders

Gulf Island Fabrication, Inc.

We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 333-46155) pertaining to the Long-Term Incentive Plan, the Registration Statement (Form S-8 No. 333-88466) pertaining to the 2002 Long-Term Incentive Plan, and the Registration Statement (Form S-3 No. 333-144672) of Gulf Island Fabrication, Inc., of our reports dated April 23, 2008, July 24, 2008 and October 23, 2008, relating to the unaudited condensed consolidated interim financial statements of Gulf Island Fabrication, Inc. that are included in its Forms 10-Q for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008.

/s/ Ernst & Young LLP

New Orleans, Louisiana

October 23, 2008

EX-31.1

Exhibit 31.1

Certifications

I, Kerry J. Chauvin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gulf Island Fabrication, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 27, 2008

/s/ Kerry J. Chauvin

Kerry J. Chauvin

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certifications

I, Robin A. Seibert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gulf Island Fabrication, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 27, 2008

/s/ Robin A. Seibert

Robin A. Seibert

Chief Financial Officer

EX-32

Exhibit 32

Certification Furnished Pursuant to

18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Gulf Island Fabrication, Inc. (the “Company”) for the period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, who are the Chief Executive Officer and Chief Financial Officer of the Company, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

By:	/s/ Kerry J. Chauvin
	Kerry J. Chauvin
	Chief Executive Officer
	October 27, 2008
By:	/s/ Robin A. Seibert
	Robin A. Seibert
	Chief Financial Officer
	October 27, 2008

A signed original of this written statement required by Section 906 has been provided to Gulf Island Fabrication, Inc. and will be retained by Gulf Island Fabrication, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

NEWS RELEASE

For further information contact:

Kerry J. Chauvin	Robin A. Seibert
Chief Executive Officer	Chief Financial Officer
985.872.2100	985.872.2100

FOR IMMEDIATE RELEASE

OCTOBER 14, 2008

GULF ISLAND FABRICATION, INC.

TO ANNOUNCE EARNINGS RESULTS

AND QUARTERLY CONFERENCE CALL

Houma, LA — (BUSINESS WIRE) –– October 14, 2008––Gulf Island Fabrication, Inc. (NASDAQ: GIFI), will announce 2008 third quarter earnings after the market close on Thursday, October 23, 2008.

The management of Gulf Island Fabrication, Inc. will hold a conference call on Friday, October 24, 2008, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) to discuss the Company’s financial results for the quarter ended September 30, 2008.

The call is accessible by webcast through CCBN and by dialing the following:

Dial In:	1.888.778.8903
Webcast:	www.gulfisland.com

A digital rebroadcast of the call is available two hours after the call and ending November 7, 2008 by dialing:

Phone Number:	1.888.203.1112
Replay Passcode:	9473494

Gulf Island Fabrication, Inc., based in Houma, Louisiana, is a leading fabricator of offshore drilling and production platforms, hull and/or deck sections of floating production platforms and other specialized structures used in the development and production of offshore oil and gas reserves. These structures include jackets and deck sections of fixed production platforms; hull and/or deck sections of floating production platforms (such as tension leg platforms (“TLPs”)), “SPARs, FPSOs”, piles, wellhead protectors, subsea templates and various production, compressor and utility modules, offshore living quarters, tanks and barges. The Company also provides offshore interconnect pipe hook-up, inshore marine construction, manufacture and repair of pressure vessels, heavy lifts such as ship integration and TLP module integration, loading and offloading of jack-up drilling rigs, semi-submersible drilling rigs, TLPs, SPARs, or other similar cargo, onshore and offshore scaffolding, piping insulation services, and steel warehousing and sales.