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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended March 31, 2001
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period From to
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Commission file number 0-29416
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UNIFAB International, Inc.
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(Exact name of registrant as specified in its charter)
Louisiana 72-1382998
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(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
5007 Port Road
New Iberia, LA 70562
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(Address of principal executive offices) (Zip Code)
(337) 367-8291
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Common Stock, $0.01 Par Value -- 8,132,283 shares outstanding as of May 10,
2001.
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UNIFAB INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-- March 31, 2001 and December 31,
2000.................................................................... 1
Condensed Consolidated Statements of Operations-- Three Months Ended
March 31, 2001 and 2000................................................. 2
Condensed Consolidated Statements of Cash Flows-- Three Months Ended
March 31, 2001 and 2000................................................. 3
Notes to Condensed Consolidated Financial Statements-- March 31, 2001...... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 6
Item 3. Quantitative and Qualitative Disclosure of Market Risk..................... 8
PART II. OTHER INFORMATION
Item 5. Other Information.......................................................... 9
Item 6. Exhibits and Reports on Form 8-K........................................... 9
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UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31 DECEMBER 31
2001 2000
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(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 99 $ 1,004
Accounts receivable, net of allowance for doubtful accounts
of $1,000 and $958, respectively 18,977 15,101
Costs and estimated earnings in excess of billings on uncompleted contracts 7,823 2,840
Income tax receivable 6,416 6,416
Prepaid expenses and other assets 2,724 3,116
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Total current assets 36,039 28,477
Property, plant and equipment, net 34,670 34,549
Goodwill, net 15,269 15,496
Deferred income taxes 1,272 606
Other assets 3,570 3,526
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Total assets $ 90,820 $ 82,654
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,597 $ 8,318
Billings in excess of costs and estimated earnings on uncompleted contracts 3,173 2,500
Accrued liabilities 5,142 3,543
Notes payable 23,344 2,303
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Total current liabilities 44,256 16,664
Noncurrent notes payable -- 18,000
Shareholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized, 8,132,283 and 8,127,283
shares outstanding 81 81
Additional paid-in capital 46,765 46,713
Retained earnings (accumulated deficit) (15) 1,586
Currency translation adjustment (267) (390)
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Total shareholders' equity 46,564 47,990
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Total liabilities and shareholders' equity $ 90,820 $ 82,654
======== ========
See accompanying notes.
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UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
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2001 2000
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(In thousands except per share data)
Revenue ..................................... $ 21,703 $ 17,307
Cost of revenue ............................. 21,575 17,489
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Gross profit (loss) ......................... 128 (182)
Selling, general and administrative
expense ................................... 2,110 1,982
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Loss from operations ........................ (1,982) (2,164)
Other income (expense):
Interest expense .......................... (569) (533)
Interest income ........................... 7 52
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Loss before income taxes .................... (2,544) (2,645)
Provision for income tax (benefit) .......... (941) (783)
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Net (loss) .................................. $ (1,603) $ (1,862)
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Basic and diluted loss per share ............ $ (0.20) $ (0.27)
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Basic and diluted weighted average
shares outstanding ........................ 8,132 6,723
======== ========
See accompanying notes.
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UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
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2001 2000
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(IN THOUSANDS)
Net cash used in operating activities $(3,233) $(1,157)
Investing activities:
Net cash acquired in acquisition of business -- (34)
Purchases of equipment (734) (2,413)
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(734) (2,447)
Financing activities:
Net change in borrowings 3,062 3,766
Payments on noncurrent notes payable -- (1,344)
Distributions to dissenting shareholder -- (360)
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3,062 2,062
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Net change in cash and cash equivalents (905) (1,542)
Cash and cash equivalents at beginning of period 1,004 1,731
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Cash and cash equivalents at end of period $ 99 $ 189
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See accompanying notes.
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UNIFAB INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
UNIFAB International, Inc. (the Company) fabricates and assembles jackets,
decks, topside facilities, quarters buildings, drilling rigs and equipment for
installation and use offshore in the production, processing and storage of oil
and gas. Through a wholly-owned subsidiary, Allen Process Systems, LLC, the
Company designs and manufactures specialized process systems such as oil and gas
separation systems, gas dehydration and treatment systems, oil dehydration and
desalting systems, and other production equipment related to the development and
production of oil and gas reserves. Compression Engineering Services, Inc.
(CESI), a division of Allen Process Systems, LLC, provides compressor project
engineering from inception through commissioning, including project studies and
performance evaluation of new and existing systems, on-site supervision of
package installation, and equipment sourcing and inspection. Through a wholly
owned subsidiary, Oil Barges, Inc., the Company designs and fabricates drilling
rigs, including first of a kind barges using proprietary designs. The Company's
main fabrication facilities are located at the Port of Iberia at New Iberia,
Louisiana. Through a wholly-owned subsidiary, UNIFAB International West, LLC,
the Company provides repair, refurbishment and conversion services for oil and
gas drilling rigs and industrial maintenance services. Through a wholly-owned
subsidiary, Allen Process Systems, Ltd., headquartered in London, England, the
Company provides engineering and project management services primarily in Europe
and the Middle East.
The operating cycle of the Company's contracts is typically less than one
year, although some large contracts may exceed one year's duration. Assets and
liabilities have been classified as current and noncurrent under the operating
cycle concept, whereby all contract-related items are regarded as current
regardless of whether cash will be received within a 12-month period. At March
31, 2001, it was anticipated that substantially all contracts in progress, and
receivables associated therewith, would be completed and collected within a
12-month period.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001.
These financial statements should be read in conjunction with the financial
statements and footnotes thereto for the period ended December 31, 2000 included
in the Company's Transition Period Report on Form 10-K.
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3. CREDIT FACILITY
AMENDED AND RESTATED CREDIT AGREEMENT. On October 19, 2000, the Company
restructured its secured senior credit facility, which was originally entered
into on November 30, 1999, by entering into an amended and restated loan
agreement with the same syndicate of commercial banks led by Bank One,
Louisiana, N.A., as agent (the "Credit Agreement"). The Credit Agreement, which
is secured by substantially all the assets of the Company, provides a $30
million revolving credit facility, which is subject to certain borrowing base
limitations based on 50% of the appraised value of fixed assets (approximately
$14.5 million at March 31, 2001) plus 80% of eligible accounts receivable
(approximately $9.2 million at March 31, 2001). Borrowings under the credit
facility bear interest at the prime lending rate established by the banks or
LIBOR, at the option of the Company, plus a variable interest margin based on
the ratio of the total funded indebtedness to EBITDA, as defined in the Credit
Agreement. The Credit Agreement requires the Company to make monthly interest
payments, currently approximately $200,000 per month. Up to $10 million is
available under the credit facility for standby letters of credit. The variable
fee range for issued letters of credit is 1.25% to 2.75% per annum on the
principal amount of letters of credit issued for performance or payment, or 2%
to 4% per annum on the principal amount if the letter of credit is a financial
letter of credit. The unused commitment fee range is 1/4% to 1% per annum. The
letter of credit fees and unused commitment fees are variable based on the
funded indebtedness to EBITDA ratio described above. The credit facility matures
in November 2002.
At the request of the Company, the Bank Group executed an amendment to the
credit agreement on April 2, 2001. Under the terms of the amendment, all new
advances as well as all existing advances bear interest at the prime lending
rate plus a variable and escalating margin as defined in the amendment (11.5% at
April 2, 2001). The Company determined it was not in compliance with the amended
covenants as of March 31, 2001 as a result of an adjustment to total estimated
contract costs on a liftboat under construction in the OBI yard. This adjustment
resulted from the completion in April 2001 of a comprehensive internal review of
the status of the project in conjunction with the inspection and approval of
work peformed to date by the U.S. Coast Guard and a survey performed by an
independent marine appraiser. The Company exceeded the maximum Funded
Indebtedness to EBITDA ratio covenant, and did not meet the minimum fixed charge
coverage ratio covenant or the minimum pre tax loss covenant, as defined in the
amendment. The amendment calls for scheduled reductions of the aggregate
revolving commitment of $3.0 million, $3.0 million and $4.0 million on March 31,
April 30 and May 31, 2001, respectively, and $1.0 million each month thereafter.
The Company reduced the aggregate commitment $3.0 million at March 31, 2001 and
by $2.0 million on April 30, 2001. Although management is working to meet these
scheduled reductions, the Company may not be able to reduce the commitment as
required at May 31, 2001. A commitment fee of $100,000 is to be paid for any
month in which the agreed commitment reduction is not met. At March 31, 2001,
the Company had $23.3 million in borrowings and $1.8 million in letters of
credit outstanding under the revolving credit facility. As a result of
noncompliance with the terms of the amendment referred to above, $23.3 million
outstanding under the Credit Agreement has been classified current and included
in Notes payable in the March 31, 2001 balance sheet. The Company expects to
replace this commercial bank facility with alternative forms of debt or equity
financing.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related disclosures included elsewhere
herein and Management's Discussion and Analysis of Financial Condition and
Results of Operations included as part of the Company's Annual Report on Form
10-K.
RESULTS OF OPERATIONS
Revenue for the three months ended March 31, 2001 increased 25.4% to $21.7
million from $17.3 million for the three months ended March 31, 2000. This
increase is primarily due to increased activity in the structural fabrication
and drilling rig fabrication and repair markets partially offset by a decrease
in revenue from the design and fabrication of process equipment compared to last
year. Total direct labor hours worked increased 34.3% from the levels
experienced in the same period last year. Direct labor hours worked by the
Company's structural fabrication and drilling rig fabrication facilities
increased by 11% and 402%, respectively. In particular, structural fabrication
revenue increased 87.1% to $9.5 million, while revenue generated from drilling
rig fabrication and repair operations increased 148.3% to $5.8 million from $2.3
million from the same period last year. At March 31, 2001 backlog was
approximately $32.1 million.
Cost of revenue was $21.6 million for the three months ended March 31, 2001
compared to $17.5 million for the same period last year. Cost of revenue
consists of costs associated with the fabrication process, including direct
costs (such as direct labor costs and raw materials) and indirect costs that can
be specifically allocated to projects (such as supervisory labor, utilities,
welding supplies and equipment costs). These costs decreased in the March
quarter as a percentage of revenue to 99.4% from 101.1% in 2000. This decrease
in costs as a percentage of revenues reflects slightly higher margins
specifically for structural fabrication and drilling rig repair services offset
by decreased margins for process equipment design and fabrication. Cost of sales
for the quarter included $1.1 million contract loss reserve on the new build
liftboat under construction in the OBI yard. This adjustment to total estimated
contract costs on the liftboat resulted from a comprehensive internal review of
the status of the project in conjunction with the inspection and approval of
work peformed to date by the U.S. Coast Guard and a survey per formed in April
2001 by an independent marine appraiser. The scheduled completion and delivery
of the liftboat is July 2001.
Gross profit for the three months ended March 31, 2001 increased to
$128,000 from ($182,000) for the same period last year. The increase in gross
profit is primarily due to slightly higher margins on structural fabrication
work, offset by lower margins on all other services. Lower margins are mainly
due to competitive pricing for the few projects being awarded caused by the
increased competition for these projects and the contract cost adjustment
referred to above. Additionally, increased man hour levels at all Company
facilities, with the exception of the process equipment operation, cause hourly
fixed overhead rates to decrease and result in decreased costs relative to
revenue.
Selling, general and administrative expense remained relatively constant at
$2.1 million in the three months ended March 31, 2001 compared to $2.0 million
in the corresponding period in 2000. The Company's selling, general and
administrative expense as a percentage of revenue decreased to 9.7% in the three
months ended March 31, 2001 from 11.4% in the three months ended March 31, 2000
due mainly to specific management initiatives to hold steady or reduce overhead
cost and higher revenue in the March 2001 quarter.
Interest expense for the three months ended March 31, 2001 was higher than
the same period in 2000. Funds drawn on the Company's credit facility and the
interest rates charged for those funds where higher than in the prior year.
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As of March 31, 2001, the Company has deferred tax assets of $5.5 million,
net of a valuation allowance related to the operating loss carryforwards of the
Company's foreign subsidiary of $392,000. As a result of the loss recorded in
the quarter ended March 31, 2001, the net deferred tax assets exceed existing
taxable temporary differences by $711,000 dollars, however, no valuation
allowance is provided as management expects that the Company's results over the
remainder of 2001 and 2002 will reflect net income. However, should the
Company's future operating performance result in cumulative losses in recent
years, then, in accordance with FAS 109, a valuation allowance for a portion of
the Company's deferred tax assets may be required.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its business activities through funds
generated from operations, short-term borrowings on its revolving credit
facilities for working capital needs and individual financing arrangements for
equipment, facilities improvements, insurance premiums, and long-term needs.
During the three months ended March 31, 2001, the Company's available funds and
cash generated from financing activities together funded cash used in operations
of $3.2 million and investing activities of $0.7 million. Investing activities
consisted of capital expenditures, primarily for machinery and equipment for use
at the Company's deep-water fabrication facility in Lake Charles, Louisiana.
On October 19, 2000, the Company restructured its secured senior credit
facility, which was originally entered into on November 30, 1999, by entering
into an amended and restated loan agreement with the same syndicate of
commercial banks led by Bank One, Louisiana, N.A., as agent (the "Credit
Agreement"). The Credit Agreement, which is secured by substantially all the
assets of the Company, provided a $30 million revolving credit facility, subject
to certain borrowing base limitations based on 50% of the appraised value of
fixed assets (approximately $14.5 million at March 31, 2001) plus 80% of
eligible accounts receivable (approximately $9.2 million at March 31, 2001).
Borrowings under the credit facility bear interest at the prime lending rate
established by the banks or LIBOR, at the option of the Company, plus a variable
interest margin based on the ratio of the total funded indebtedness to earnings
before interest, taxes, depreciation and amortization ("EBITDA"), as defined in
the Credit Agreement. The Credit Agreement requires the Company to make monthly
interest payments, currently approximately $200,000 per month. Up to $10 million
is available under the credit facility for standby letters of credit. The
variable fee range for issued letters of credit is 1.25% to 2.75% per annum on
the principal amount of letters of credit issued for performance or payment, or
2% to 4% per annum on the principal amount if the letter of credit is a
financial letter of credit. The unused commitment fee range is 1/4% to 1% per
annum. The letter of credit fees and unused commitment fees are variable based
on the funded indebtedness to EBITDA ratio described above. The credit facility
matures in November 2002.
At the request of the Company, the Bank Group executed an amendment to the
credit agreement on April 2, 2001. Under the terms of the amendment, all new
advances as well as all existing advances bear interest at the prime lending
rate plus a variable and escalating margin as defined in the amendment (11.5% at
April 2, 2001). The Company determined it was not in compliance with the amended
covenants as of March 31, 2001 as a result of an adjustment to total estimated
contract costs on a liftboat under construction in the OBI yard. This adjustment
resulted from the completion in April 2001 of a comprehensive internal review of
the status of the project in conjunction with the inspection and approval of
work peformed to date by the U.S. Coast Guard and a survey performed by an
independent marine appraiser. The Company exceeded the maximum Funded
Indebtedness to EBITDA ratio covenant, and did not meet the minimum fixed charge
coverage ratio covenant or the minimum pre tax loss covenant, as defined in the
amendment. The amendment calls for scheduled reductions of the aggregate
revolving commitment of $3.0 million, $3.0 million and $4.0 million on March 31,
April 30 and May 31, 2001, respectively, and $1.0 million each month thereafter.
The Company reduced the aggregate commitment $3.0 million at March 31, 2001 and
by $2.0 million on April 30, 2001. Although management is working to meet these
scheduled reductions, the Company may not be able to reduce the commitment as
required at May 31, 2001. A commitment fee of $100,000 is to be paid for any
month in which the agreed commitment reduction is not met. At March 31, 2001,
the Company had $23.3 million in borrowings and
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$1.8 million in letters of credit outstanding under the revolving credit
facility.
As a result of noncompliance with the terms of the amendment referred to
above, $23.3 million outstanding under the Credit Agreement has been classified
current and included in Notes payable in the March 31, 2001 balance sheet,
resulting in a working capital deficit of $8.2 million. The Company is working
on alternative forms of financing which are longer term in nature, including
asset financing, subordinated debt or equity financing and strategic alliance
relationships. Any such financing would result in reducing or replacing the
commercial bank facility and reclassifying the amounts outstanding to
noncurrent. A new credit agreement or financing arrangement may require higher
interest and principal repayments, requiring the Company to use more of its cash
flow from operations to meet these obligations. A new credit agreement or
financing arrangement could further restrict Company operations by, for example,
limiting the ability of the Company to make acquisitions and acquire assets. An
alternative debt or equity arrangement would likely involve the issuance of debt
or preferred equity securities that are convertible into shares of Company
common stock. As a result of any such conversion, existing shareholders could
lose the control of the Company that they now enjoy and earnings per Company
share could decline. Any of these new financing arrangements could reduce the
market value of Company shares. Management believes that its available funds,
cash generated by operating and financing activities will be sufficient to fund
planned capital expenditures and its working capital needs for the next 12
months. Expansion of the Company's operations through future acquisitions may
require additional equity or debt financing.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, is effective for the quarter ended March 31,
2001. The Company does not currently use derivative financial instruments and,
therefore, this pronouncement had no effect on the Company's financial
statements.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Certain statements included in this report and in oral statements made from
time to time by management of the Company that are not statements of historical
fact are forward-looking statements. In this report, forward-looking statements
are included primarily in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operation." The words "expect,"
"believe," "anticipate," "project," "plan," "estimate," "predict," and similar
expressions often identify forward-looking statements. All such statements are
subject to factors that could cause actual results and outcomes to differ
materially from the results and outcomes predicted in the statements and
investors are cautioned not to place undue reliance upon them.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are in Item 7A
of the Company's Form 10-K for the period ended December 31, 2000. Refer to Note
7 to the Condensed Consolidated Financial Statements for a discussion of the
Credit Arrangement. No other material changes have occurred since December 31,
2000.
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PART II
ITEM 5. OTHER INFORMATION
On May 14, 2001 the Company announced operating results and related matters
for the first quarter ending March 31, 2001. The press release making this
announcement is attached hereto as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
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99.1 Press release issued by the Company on
May14, 2001 announcing its operating results
and related matters for the first quarter
ending March31, 2001.
(b) The Company filed no reports on Form 8-K during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFAB International, Inc.
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Date May 15, 2001 /s/ Peter J. Roman
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Peter J. Roman
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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99.1 Press release issued by the Company on May14, 2001 announcing its
operating results and related matters for the first quarter
ending March31, 2001.