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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 June 30, 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 70560
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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 [ ]
Common Stock, $0.01 Par Value ---- 8,132,283 shares outstanding as of July 25,
2001.
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UNIFAB INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- June 30, 2001 and
December 31, 2000 .................................................... 1
Condensed Consolidated Statements of Operations -- Three Months
Ended June 30, 2001 and 2000; Six Months Ended June 30, 2001
and 2000 ............................................................. 2
Condensed Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 2001 and 2000 ......................................... 3
Notes to Condensed Consolidated Financial Statements -- June 30, 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
JUNE 30 DECEMBER 31
2001 2000
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(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 204 $ 1,004
Accounts receivable, net of allowance for doubtful accounts
of $871 and $958, respectively 17,149 15,101
Costs and estimated earnings in excess of billings on uncompleted contracts 6,961 2,840
Income tax receivable 6,416 6,416
Prepaid expenses and other assets 2,062 3,116
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Total current assets 32,792 28,477
Property, plant and equipment, net 35,422 34,549
Goodwill, net 15,026 15,496
Other assets 3,868 4,132
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Total assets $ 87,108 $ 82,654
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 12,618 $ 8,318
Billings in excess of costs and estimated earnings on uncompleted contracts 1,914 2,500
Accrued liabilities 3,457 3,543
Notes payable 23,338 2,303
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Total current liabilities 41,327 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 46,695 46,713
Retained earnings (accumulated deficit) (605) 1,586
Currency translation adjustment (390) (390)
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Total shareholders' equity 45,781 47,990
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Total liabilities and shareholders' equity $ 87,108 $ 82,654
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See accompanying notes.
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UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
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2001 2000 2001 2000
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(In thousands except per share data)
Revenue $ 22,861 $ 20,232 $ 44,564 $ 37,539
Cost of revenue 21,126 18,220 42,701 35,709
------------ ------------ ------------ ------------
Gross profit 1,735 2,012
1,863 1,830
Selling, general and administrative
Expense 1,940 1,956 4,050 3,937
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Income (Loss) from operations (205) 56 (2,187) (2,107)
Other income (expense):
Interest expense (704) (524) (1,273) (1,058)
Interest income 2 88 9 140
------------ ------------ ------------ ------------
Loss before income taxes (907) (380) (3,451) (3,025)
Provision for income tax expense
(benefit) (316) 144 (1,258) (927)
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Net loss $ (591) $ (236) $ (2,193) $ (2,098)
============ ============ ============ ============
Basic and diluted loss per share $ (0.07) $ (0.03) $ (0.27) $ (0.31)
============ ============ ============ ============
Basic and diluted weighted average
shares outstanding out 8,132 6,824 8,132 6,813
============ ============ ============ ============
See accompanying notes.
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UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
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2001 2000
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(IN THOUSANDS)
Net cash used in operating activities $ (1,734) $ (1,319)
Investing activities:
Net cash acquired in acquisition of business -- (34)
Proceeds from sale of equipment 27 105
Purchases of equipment (2,128) (3,835)
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(2,101) (3,764)
Financing activities:
Net change in borrowings 3,035 5,750
Payments on noncurrent notes payable -- (1,844)
-- (360)
Distributions to dissenting shareholder 3,035 3,546
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Net change in cash and cash equivalents (800) (1,537)
Cash and cash equivalents at beginning of period 1,004 1,731
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Cash and cash equivalents at end of period $ 204 $ 194
============ ============
See accompanying notes.
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UNIFAB INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June
30, 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 six-month period ended June 30, 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 revolving
credit facility, subject to certain borrowing base limitations based on 50% of
the appraised value of fixed assets (approximately $14.5 million at June 30,
2001) plus 80% of eligible accounts receivable (approximately $7.4 million at
June 30, 2001). Borrowings under the credit facility bear interest at the prime
lending rate established by the banks plus a variable interest margin. The
Credit Agreement requires the Company to make monthly interest payments,
currently approximately $225,000 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 for 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 as defined in
the Credit Agreement. 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 (10.25%
at July 25, 2001). The Company was not in compliance with the amended covenants
as of June 30, 2001. 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
under this amendment. A commitment fee of $100,000 is to be paid for any month
in which the agreed commitment reduction is not met. At June 30, 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, the entire $23.3 million
outstanding under the Credit Agreement has been classified as current in the
June 30, 2001 balance sheet. The Company expects to replace this commercial bank
facility with alternative forms of debt or equity financing. The Company has
engaged a financial advisor to assist in replacing the credit facility. The cost
of maintaining the facility is high, and management recognizes the importance of
replacing it as soon as possible.
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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 Transition Period Report
on Form 10-K.
RESULTS OF OPERATIONS
Revenue for the three months ended June 30, 2001 increased 13.4% to $22.9
million from $20.2 million for the three months ended June 30, 2000. For the
six-month periods ended June 30, 2001 and 2000, revenue was $44.6 million and
$37.5 million, respectively, an increase in the current period of 18.9%. This
increase is primarily due to increased activity in the structural fabrication
market. Revenue from the design and fabrication of process equipment decreased
in the current six-month period by nearly 40% compared to the same period last
year, mainly due to reduced demand for design and fabrication of process
equipment in the March 31, 2001 quarter compared to the March quarter last year.
In the June 2001 quarter revenue for design and fabrication of process equipment
was at the same level as in the June quarter last year, as demand for these
services has been increasing. Direct labor hours worked at all facilities in the
six-month period ended June 30, 2001 increased 21.5% from the levels experienced
in the same period last year. At June 30, 2001 backlog was approximately $31.4
million.
Cost of revenue was $21.1 million for the three months ended June 30, 2001
compared to $18.2 million for the same period last year. For the six-month
periods ended June 30, 2001 and 2000, cost of sales was $42.7 million and $35.7
million, respectively. 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 increased overall in the June quarter as a percentage of revenue to
92.4% from 90.1% in the June 2000 quarter, and slightly increased to 95.8% of
revenue in the six months ended June 30, 2001 from 95.1% in the same period last
year. This increase in costs as a percentage of revenues reflects facility costs
in the deep water facility in Lake Charles and in the barge repair facility in
New Iberia caused by under-utilization of those facilities. This increase in
operating costs as a percentage of revenue was offset by higher margins being
obtained from the Company's structural fabrication operations. Cost of sales for
the six month period ended June 30, 2001 also included a $1.1 million contract
loss reserve on a new build liftboat under construction. This adjustment was
recorded in the March quarter. The scheduled completion and delivery of the
liftboat is September 2001.
Gross profit for the three months ended June 30, 2001 decreased to $1.7
million from $2.0 million for the same period last year. In the six-month
periods ended June 30, 2001 and 2000, gross profit was $1.9 million and $1.8
million, respectively. Gross profit as a percentage of revenue decreased in the
June 30, 2001 quarter and six-month periods compared to the same periods last
year. This decrease is primarily due to costs related to under utilized
facilities in Lake Charles and in the barge repair facility in New Iberia and a
$1.1 million contract loss reserve on a new build liftboat under construction,
offset by increased margins in the Company's structural fabrication operations.
Selling, general and administrative expense remained relatively constant at
$1.9 million in the three months ended June 30, 2001 and 2000, and increased
slightly to $4.1 million in the six-month period ended June 30, 2001 compared to
$3.9 million in the corresponding six-month period in 2000. The Company's
selling, general and administrative expense as a percentage of revenue decreased
to 8.5% in the three months ended June 30, 2001 from 9.7% in the same period
last year, and to 9.1% in the six month period ended June 30, 2001 from 10.5% in
the same period last year. These decreases relative to revenue are due mainly to
specific management initiatives to hold steady or reduce general and
administrative overhead costs during this period of increasing revenue.
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Interest expense for the three and six month periods ended June 30, 2001
were higher than the same period in 2000. Funds drawn on the Company's credit
facility and the interest rates charged for those funds were higher than in the
prior year.
As of June 30, 2001, the Company has deferred tax assets of $5.9 million,
net of a valuation allowance related to the operating loss carryforwards of the
Company's foreign subsidiary of $403,000. As a result of the loss recorded in
the six months ended June 30, 2001, the net deferred tax assets exceed existing
taxable temporary differences by $1.0 million 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 losses, 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 six months ended June 30, 2001, the Company's available funds and
cash generated from financing activities together funded cash used in operations
of $1.7 million and investing activities of $2.1 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, provides a revolving credit facility, subject to certain
borrowing base limitations based on 50% of the appraised value of fixed assets
(approximately $14.5 million at June 30, 2001) plus 80% of eligible accounts
receivable (approximately $7.4 million at June 30, 2001). Borrowings under the
credit facility bear interest at the prime lending rate established by the banks
plus a variable interest margin. The Credit Agreement requires the Company to
make monthly interest payments, currently approximately $225,000 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 as defined in the Credit
Agreement. 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 (10.25%
at July 25, 2001). The Company was not in compliance with the amended covenants
as of June 30, 2001. 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
under this amendment. A commitment fee of $100,000 is to be paid for any month
in which the agreed commitment reduction is not met. At June 30, 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
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has been classified current and included in Notes payable in the June 30, 2001
balance sheet.
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 June 30, 2001 balance sheet,
resulting in a working capital deficit of $8.5 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 and
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. The Company has engaged a financial
advisor to assist in replacing the credit facility. The cost of maintaining the
facility is high, and management recognizes the importance of replacing it as
soon as possible.
NEW ACCOUNTING STANDARD
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and
("SFAS") No. 142, "Goodwill and Other Intangible Assets", effective for fiscal
years beginning after December 15, 2001. Under the new rules, goodwill will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives. The Company currently does not have any other intangible
assets deemed to have indefinite lives.
The Company will apply the new rules on accounting for goodwill beginning in
the first quarter of 2002. Application of the nonamortization provisions of the
Statement is expected to result in an increase in net income of $558,000 ($0.07
per share) per year. During 2002, the Company will perform the first of the
required impairment tests of goodwill as of January 1, 2002, but has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
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 July 26, 2001 the Company announced operating results and related matters
for the second quarter ending June 30, 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
99.1 Press release issued by the Company on July
26, 2001 announcing its operating results
and related matters for the second quarter
ending June 30, 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 August 13, 2001 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 July 26, 2001
announcing its operating results and related matters for the
second quarter ending June 30, 2001.