Gulf Island Fabrication Inc (GIFI) 2002 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication, Inc.'s 2002 first quarter teleconference. At this time, I wish to inform you that all participants are in the listen only mode. At the request of the company, we will open up the conference to questions and answers after the presentation.

I will turn the conference over to . Please go head ma'am.

Good morning everyone. I would like to welcome to you Gulf Island 2002 first quarter teleconference. Please keep in mind that any statements made in this conference or not statements of historical fact are considered forward looking statements.

These statements are subject to factors that could cause actual results to differ materially from the results contained in the forward looking statements. The facts will include time and , the timing of new projects and the accountability to obtain and other details that have been described on the cautionary and the company's 10-K that was filed March 22nd, 2002.

The 10-K is included and will record is filed with the Securities and Exchange Commission early this year. The company assumes no obligation to forward looking statements. This morning we have Mr. Kerry Chauvin, our Chairman and CEO along with Mr. Duke Gallagher, our CFO.

Good morning everyone. I want to review the press release quickly. On the first page, I wanted to point out the and backlog of March 31 of 2002 was $82.3 million of revenue which represents 1.3 million man hours work.

From selected balance sheet information, is cash and short term investments at March 31, 2002 was $29 million. Current assets were $59 million. Current liabilities was $12 million with a shortstop in working capital $46.8 million and a current ratio of 4.9 to 1. That remains at zero and was exactly with a $85.5 million.

The second page of the press release concerns the revenue, called the income spread comparing the first quarter of 2002, to the first quarter of 2001, revenues of 2002, was $27.2 million compared to $27.6 million last year which was about 1% revenue.

Gross profit was $2.8 million for this current quarter which represents 10.3% of revenue compared to $2.3 million of last years first quarter which equals 8.3% of revenue or 22.6% increase. Our for the current quarter was $908,000 or 3.3% of the revenue compared to $1.1 million or 4.1% of revenue last year.

Income report taxes of $2.1 million this quarter or 7.7% of revenue compared to 1.4 million or 5.2 of revenue. It is a 45% increase in revenue. And then income before the cumulative effort of change in accounting principle for $1.4 million for the current quarter compared to $918,000 last year which 3.3% of the revenue, 50% increase at this level.

I also wanted to point out that the rate, the effective tax for this year, we are using 34% and that will continue into the near future. Last year's first quarter was 36%. We had a cumulative of effect of a change in accounting principle of 4.8 million. This figure rose for our new accounting regulations about how to handle goodwill.

It was effective January 1, since we are a calendar year company. And we understand a lot of companies are taking this charge. (Audio gap) looking in the newspaper, had a $54 billion dollar due to the same accounting principle change.

The bottom line net income was $3.4 million loss compared to $918,000 income last year. Dropping down to diluted income per share before the cumulative change was 12 cents and this is compared eight cents last quarter and half of the cumulative change is a loss of 29 cents per share compared to the profit of eight cents a share last year.

We use $11.8 million adjusted rate average a share for both of the quarters and for the current quarter was $3.1 million, 11.3% of revenue compared to last year's 2.3 million of or 8.4% of revenue which represents a 33% increase in . With revenue completed, we are going to open up for questions from (audible). Operator.

Yes.

OK. They are on live. Anyone that has a question.

I'll jump in, Kerry.

Yes.

This is , .

Good. Good.

Now obviously the thing that sticks out is the increase in your backlog. And I was going back trying to figure this out. It seems that your backlog is as high as it has been since maybe '98. Is that right?

That is correct. The last time it was that high. It was higher than that higher . We got a little high while the backlog was 1.7 million man hours. We were over 100 million in our revenue backlog.

Yes, and in terms of the makeup of your backlog and I'm not sure if this matters or not but I am going to ask it anyway. The customers, that the type of work that you are booking right now that represents the increase. Can you just give us a little of flavor for the type of work that you are seeing, a lot of small projects or some big projects in your deep water , customer mix, that type of thing?

OK, sure, I can. Basically the increase about 40% of off Mexico. (Inaudible) in West Africa. It is some sizable projects that we have big sometime back and just come out to where we can start fabrication. The majority of it is in bulk. (Inaudible) and things of that nature. So at least 50% of it is involved deep water and 40% is in international type work.

I can not give you specific jobs but and we also have a topsides from , and we also have the topsides on the project for Nova Scotia. Some of the other projects I have not been so I don't want to talk about specific projects.

That was a great run down. One of the things, obviously, that I see potential is the new found interest gas valves and stuff. Helium bell from and that may be a little ways out before we see whether those particular wells are successful or not. This is the type of drilling that you all like to see. In all likelihood, some bread and butter type platforms.

That is correct. What we will probably will see is some of these platforms can not built off of all these deep wells and the additional structures built for the shelf type projects. When we come I might see our crew. I don't know. The hope is going to be . We would see some projects because of that.

One thought here, your increase in your backlog, I know that the company has made a lot of progress and improvement in your margin in the businesses over the last few years, productivity enhancements, that type of thing and is it safe to say that if you had revenues that you had a few years ago, I would expect to earned money this time versus three or four years ago.

There is nothing unusual in the pricing or anything like that in the backlog that would change that, is there?

(Inaudible). These projects for bid are a little more competitive times than when we saw when we had that very, very large backlog that people were throwing work at you. So, I do not know if we are going to obtain those margins. We sure are going to give it a try. And we hope to obtain those types of margins. I do not know if we will increase them.

But we always try to do better and that is what we are going to do. Just remember it has been more competitive bid on these particular projects.

Very good comment. Thanks.

All right.

Kerry, this is .

How are you doing?

Could I start with a couple of housekeeping items, do you have the hours worked in the quarter?

(Inaudible) that level of 400,000.

I guess that is probably a little more than expected. I guess, I thought if the first quarter would have a little bit higher materials component giving the start up of some of these new projects. Can you elaborate on that, maybe, Kerry?

Yes. I understand the project. All the material is being supplied by the customer. Most of the material from , a lot of it, has hit our revenue streams. So we are looking at more labor in that area. But we, we do have some products and, I think, probably in the second quarter you will see a little more revenue recognition because of the material.

OK. And in the same quarter, you will, Kerry?

Well, we probably will. Because we will be responding to these projects and just understand they are customers and some of them and our national projects do supply material and they ship in for our facility from all parts of the world.

I guess, in the past, the material and the labor component tends to be high margin so if your mix overall is more maybe labor intensive than it has been over last four or five quarters, then you could translate that into better margins in the second and third and fourth quarters of this year?

Well, at there have been fairly competitive situations so we hope that would be the case and the has been in the case but I can not verify what it would be in the future but we would hope that it would be.

OK. The staffing of people in the yards swung pretty wildly through the quarter. Could you comment on that and then also tell us, how many people you have now?

Well, during the quarter, we hired an additional 100 people and we are looking for a total increase of around 150 to 160 employees . And our appearance right now, in fact to date we are 872 employees. So we would like to hire an additional 50 or 60 from that level.

OK. Can you elaborate on the timing of the backlog in terms of how much of that will be used 2002 versus 2003?

I would say, I don't have it computed but probably somewhere around 85% would be in this particular year.

My last question, the SG&A drop in the quarter, could that be also high due to the fact that you had your staff down and are in the process of staffing it back up. So will that number, maybe move back up in the second quarter?

We had a rebate, you might say, in a lawsuit that was settled where we were able to get the insurance to carry it to pay some of our prior legal fees. And that did have an effect on our SG&A and brought it down somewhat. So, I think, just more leveling it off to previous quarters where we have seen SG&A.

One thing to add to that is realize that with that new announcement that there is new law in the amortization of goodwill. That was about 100,000 a quarter. That will be a permanent reduction from that SG&A lag.

Can you quantify it, all the rebate amount, Duke?

It was about a little over $7,000.

OK.

Thanks a lot.

This is . How are you?

Good morning.

Good. Just one quick macro-question for you. I was wondering if you could take us through the effects that the duly enacted steel will have on the overall raw material costs? And in translation what effect it might have for you in the Gulf Of Mexico marketplace, the international marketplace, etc.?

OK. We have not seen a lot of effect yet. However, we have, the future would be affected. We are seeing an increase in steel prices at of course, we will be subject to the tariffs which would put us a little less competitive on the international market. In the Gulf Of Mexico, however, we have been very fortunate in maintaining front lower levels of price . The price increase that is on is rapid as 30% cap you would see on slab steel.

So the effects, thus far, have become rather minimal. But we do perceive that we will have some problems. No, Gulf Island does have an inventory of of steel at our facility. And hope that this will help carry us through some difficult times especially in the first year when we are seeing a 30% cap. Now the overall cap in only the real fixed slabs of sheets of steel that we use on the fabrication of .

There are no caps on structural members such as beams, hang line and things of that nature . We do have piping of a 15% cap and these caps are for the first year. They are reduced by 50% for the second year and again 50% for third year. So when you look at the mix of our business right after the effect of material and the jacket material, and some go the .

But when you at the overall mix of our products and the question now, we are doing a lot more topsides, the , they are all important but it will probably be an increase in just watching some of that in the neighborhood of 5% to 10% on the overall project, material costs. In fact, in labor is will be even less than management. But it will be and I think it will be more so on the international work than the Gulf Of Mexico work so we will see effects to that nature.

But by and large, we do lock in firm prices when we do a project. So we are not subject to actual losses because of an increase because of . So when we bid a project, we are a firm pricing house. So for a little job, we are not subject to heavy losses because of the increase in steel cost. We have got it covered up front.

Thanks.

All right.

Any more questions, now?

Duke, this is Gray Acres, again.

Hi.

You mentioned that you have 872 people right now and you are talking still about adding another 50 or 60 more, what about in terms of the six running or Saturday work, where do we see ourselves as far as that. Do we see a need to add another shift possibly to start working more Saturdays, more Sundays? Are we there yet, Kerry?

We all are actually working our people about 60 hours a week. From, in the first quarter, we were having tough time making 45 to 50 hours a week. But we are all working approximately 60 hours a week whenever possible. We are looking at installing night shifts wherever we see the need in some areas that we .

From would probably see that in the base area which is a small part of our business. And we will probably see some night shifts in our fabrication drops where we are building the sections for these large modules.

Kerry, when was the last time you built it up. They will work for us up to 925 last year at kind of the second, third quarter or has that been since '98 since you have been that high?

It's been since '98 actually. And the highest we went was 1250.

OK. Do you have any thoughts on how long? Just trying to isolate one thing or do you see this given the backlog for the next three, six, seven, eight months or so?

Well, I have still got the same because of the present right now we will be working pretty hot and heavy until September.

OK. Then I guess I am going to change gears a little bit. The permanent the large VP projects , have there been any subcontract components for that. We bid out the more conventional fabrication yards that you have seen yet?

No. We haven't seen that yet. It is pretty slow coming.

Last question: The West Africa work that you referred to, was that deep water or international? Or deep water or shallow water?

Pretty much deep water.

OK. Great. Thanks a lot, guys.

OK.

We are now going to open up the phone to the general audience.

Thank you the question and answer session will begin now. If you using a speaker phone, please pick up the handset before pressing any numbers. Should you have a question, please press one followed by the four on your push button phone. Should you wish to withdraw your question, press one followed by three. Your question will be taken in the order it is received. Please stand by for your first question.

Ladies and gentlemen as a reminder, if you have a question, please press one followed by four at this time. If there are no questions, I will turn the conference back to Mr. Gallagher to conclude.

OK. Thank you. We want to thank everyone for comments first quarter conference call and we will look forward to seeing you all next quarter. Thank you.

Ladies and gentlemen, that concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.