Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2000
[ ] 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 0-29416
UNIFAB International, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-1382998
- -------------------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
5007 Port Road
New Iberia, LA 70562
- -------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(337) 367-8291
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share
---------------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.
-----
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at June 15, 2000 was approximately $27.6 million.
The number of shares of the registrant's common stock, $0.01 par value per
share, outstanding at June 15, 2000 was 6,820,305.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed in connection with the
registrant's 2000 annual meeting of shareholders are incorporated by reference
into Part III of this report.
3
UNIFAB INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED MARCH 31, 2000
TABLE OF CONTENTS
PAGE
----
PART I
Items 1 and 2. Business and Properties................................................. 1
Item 3. Legal Proceedings....................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..................... 12
Executive Officers of the Registrant.................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.............................................................. 13
Item 6. Selected Financial Data................................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............. 20
Item 8. Financial Statements and Supplementary Data............................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................. 20
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 20
Item 11. Executive Compensation.................................................. 20
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 20
Item 13. Certain Relationships and Related Transactions.......................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 21
FINANCIAL STATEMENTS.......................................................................... F-1
SIGNATURES.................................................................................... S-1
EXHIBIT INDEX................................................................................. E-1
i
4
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
UNIFAB International, Inc. (together with its subsidiaries "the Company") is
an industry leader in the custom fabrication of decks and modules of drilling
and production equipment weighing up to 6,500 tons for offshore oil and gas
platforms, and has special expertise in the fabrication of decks with complex
piping requirements. The Company designs and fabricates drilling rigs, including
first of a kind barges using proprietary designs. The Company also designs and
manufactures production process systems and drilling masts under ASME and ISO
9001 quality certifications.
Decks and modules fabricated by the Company can be installed on fixed and
floating platforms regardless of water depth. The Company also fabricates
jackets for fixed platforms, pilings and other rolled tubular steel sections,
compressor and generator packages, platform living quarters, subsea templates,
bridges for connecting offshore platforms, wellhead protectors and modules for
the onshore petrochemical and refining industries. In addition, the Company
refurbishes and retrofits existing jackets and decks and performs offshore
piping hook-up and platform maintenance services. Allen Process Systems, LLC, a
wholly owned subsidiary, designs and manufactures specialized process systems
and provides engineering and field commissioning services related to production
systems. 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 in New Iberia, Louisiana. Through a wholly owned subsidiary,
UNIFAB International West, LLC, in Lake Charles, Louisiana, the Company provides
industrial maintenance services and repair, refurbishment and conversion
services for oil and gas drilling rigs. Structures fabricated by the Company are
installed in oil and gas producing waters around the world, primarily the U.S.
Gulf of Mexico (the "Gulf of Mexico") and offshore West Africa. The Company's
ability to provide high quality fabrication services and maintain control over
costs has enabled it to be profitable nearly every year since its founding in
1980.
Demand for the Company's services is primarily a function of worldwide
offshore oil and gas activity. Improvements in production techniques and seismic
and drilling technology, including three-dimensional seismic and directional
drilling techniques, have resulted in increased drilling success rates and
reduced costs. While the average number of active offshore rigs in the Gulf of
Mexico and worldwide increased in 1999 over 1998, there were fewer projects
available during the year. This decrease in demand resulted in a decrease in
revenue in the Company's fiscal year ended March 31, 2000 versus fiscal year
ended March 31, 1999.
Due to the time required to drill an exploratory offshore well, formulate a
development plan and design offshore platforms, the fabrication and installation
of such platforms usually lag exploratory drilling by one to three years. As a
result, an increase in drilling activity may not immediately result in increased
demand for the Company's custom fabrication services. The Company believes its
strong presence in both overseas markets and the Gulf of Mexico market, coupled
with an expected increase in oil and gas activity in these markets, will enable
it to remain competitive, obtain work and benefit from increased pricing levels.
1992 EXPANSION TRANSACTION. The Company's predecessor, Universal Partners,
Inc. ("Universal Partners"), was organized in 1980 by its founder, Dailey J.
Berard. In 1992, in order to expand its capabilities at the Port of Iberia and
meet increasing demand for its services, Universal Partners entered into an
agreement with McDermott Incorporated, a subsidiary of McDermott International,
Inc. ("McDermott"). Universal Partners contributed as a going concern to the
then newly formed Universal Fabricators, Incorporated ("Universal Fabricators")
approximately 50 acres of leased land, its buildings and fabrication equipment,
and $2.4 million in cash. McDermott contributed an inactive fabrication yard
directly across a canal from the land leased by Universal Partners, which
included approximately 85 acres of land, 200,000 square feet of covered
fabrication space and various equipment. This transaction (the "Expansion
Transaction") substantially enlarged the Company's yard space and increased
covered fabrication area from 25,000 square feet to approximately 225,000 square
feet. In exchange for those
1
5
assets, Universal Partners and McDermott received 51% and 49%, respectively, of
the outstanding stock of Universal Fabricators.
PUBLIC OFFERING. UNIFAB International, Inc. was formed in July 1997 to serve
as the parent corporation for Universal Fabricators. Prior to the completion of
the initial public offering of the Company (the "Initial Public Offering") in
September 1997, Universal Partners exchanged its shares of Universal Fabricators
common stock for 1,785,000 shares of Company Common Stock and distributed those
shares of Company Common Stock to its stockholders upon its dissolution.
McDermott also exchanged its shares of Universal Fabricators common stock for
1,715,000 shares of Company Common Stock, which it sold in the Initial Public
Offering at the initial public offering price.
ACQUISITIONS. The Company expanded its operations through the acquisition of
the assets and business of Professional Industrial Maintenance, LLC effective
January 1, 1998, which provides industrial plant maintenance and construction
services to the southwest Louisiana area. As part of this acquisition, the
Company also acquired lease rights to a 60-acre fabrication yard on an
industrial canal, 12 miles southwest of Lake Charles, Louisiana. This facility
has 40-foot water depth and access to the Gulf of Mexico through the Calcasieu
Ship Channel, which is maintained by the U.S. Army Corp of Engineers.
Effective July 24, l998, the Company acquired all of the outstanding common
stock of Allen Tank, Inc. ("Allen Tank"), in exchange for 819,000 shares of the
Company's common stock, plus $1.2 million in cash and notes paid to a dissenting
shareholder. Allen Tank (which has been converted to a limited liability company
and renamed Allen Process Systems, LLC) is located in New Iberia, Louisiana on
property near the Company's Port of Iberia facilities. Allen Process Systems,
LLC designs and manufactures specialized process systems related to the
development of oil and gas reserves. This acquisition expanded the Company's
ability to offer quality services and products in its core competencies and
further strengthened its technological base.
On July 24, 1998 the Company acquired LATOKA Engineering, Ltd. ("LATOKA")
from certain of the Allen Tank Shareholders for 79,000 shares of UNIFAB common
stock. LATOKA, whose name has been changed to Allen Process Systems, Ltd., is
headquartered in London, England, and provides engineering and project
management services primarily in Europe and the Middle East.
On April 29, 1999, the Company acquired all of the outstanding common stock
of Oil Barges, Inc. ("OBI") and substantially all assets of Southern Rentals,
LLC, an affiliate of OBI in exchange for approximately 700,000 shares of the
Company's common stock. OBI designs and fabricates drilling rigs from its
22-acre facility in New Iberia, Louisiana, which is near the Company's Port of
Iberia facilities. OBI has completed a first-of-a-kind drilling barge for an
international drilling company, which will be utilized in Nigeria. This drilling
rig incorporates OBI's proprietary substructure technology, which makes it
uniquely suited to address some of the problems encountered in oil and gas
production in Nigeria, and has applications worldwide. OBI furnished all design,
fabrication and equipment for the drilling rig and 84-man living quarters,
including equipment that had been renovated at the Company's refurbishment
facility in Parks, Louisiana. Superior Derrick Services, a wholly owned
subsidiary of OBI, manufactured the 1.5 million-pound hookload mast used on the
drilling rig.
On June 24, 1999, the Company acquired the assets of Compression Engineering
Services, Inc. ("CESI") for 60,000 shares of the Company's common stock. CESI
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. CESI operates as a division of Allen Process Systems, LLC.
2
6
DESCRIPTION OF OPERATIONS
The Company's primary activity is the fabrication of decks and modules for
offshore oil and gas drilling and production platforms, including the design and
manufacturing of production processing systems for application throughout the
world. The Company has extensive experience in the fabrication of decks and
modules with complex piping requirements and believes that its reputation for
efficient, timely and high quality production of these structures gives it a
competitive advantage in obtaining projects of this type. The Company can build
and load out decks and modules weighing up to 6,500 tons. The Company also
fabricates jackets for fixed production platforms for use in up to 300 feet of
water. Other structures fabricated by the Company include buoyancy cans for deep
water oil and gas production facilities, pilings and other rolled tubular steel
sections, modules of drilling and production equipment, compressor and generator
packages, platform living quarters, subsea templates, bridges for connecting
offshore platforms, wellhead protectors, other structures used in production and
development activities and production processing systems and other modules for
the onshore petrochemical and refining industries. The Company can construct and
has in the past constructed platform drilling rigs, posted drilling rigs and
barges.
FABRICATION OF DECKS AND OTHER OFFSHORE PLATFORM COMPONENTS. The Company
fabricates decks and modules for fixed and floating offshore platforms as well
as jackets for fixed offshore platforms. A fixed platform is the traditional
type of platform used for the offshore drilling and production of oil and gas.
Most fixed platforms currently in use are of the traditional jacket-type design.
Recently there has been an increase in the use of floating platforms as a result
of increased drilling and production activities in deeper waters. Floating
platforms are of three basic types: tension-leg platforms, spar platforms and
floating production facilities. See "Glossary of Certain Technical Terms." Fixed
platforms are generally better suited for shallower water depths, whereas
floating platforms, although they can be used in any water depth, are primarily
used in water depths greater than 1,000 feet. Because they are mobile (and can
therefore be reused), floating platforms are sometimes used in water depths that
could accommodate fixed platforms, particularly where the petroleum reservoir
has a relatively short production life.
The Company also fabricates subsea templates which often form a part of a
subsea production system. Subsea production systems, which are systems that
contain primary well control equipment and rest directly on the ocean floor, are
becoming more prevalent in very deep water, in areas subject to severe weather
conditions and in smaller fields with relatively short production lives that are
located near existing pipelines and infrastructures. These systems are generally
connected to existing surface facilities, which augment subsea hydrocarbon
processing and transportation operations.
The most common type of fixed platform consists of a deck structure located
above the level of the storm waves and supported by a jacket. A jacket is a
tubular steel, braced structure extending from the mudline on the seabed to a
point above the water surface which is in turn supported on tubular steel
pilings driven deep into the seabed. The deck structure is designed to
accommodate multiple functions including drilling, production, separating,
gathering, piping, compression, well support and crew quartering. Most fixed
platforms built today can accommodate both drilling and production operations.
These combination platforms are generally larger and more costly than
single-purpose structures. However, because directional drilling techniques
permit a number of wells to be drilled from a single platform and because
drilling and production can take place simultaneously, combination platforms are
often more cost effective.
Decks are built as either a single structure or in modular units. The
composition and quantity of petroleum in the well stream generally determine the
design of the production deck on a processing platform. Typical deck production
equipment includes crude oil pumps, gas and oil separators, gas compressors and
electricity generators. Much of this equipment involves the use of complex
piping and electrical components. The equipment, piping and controls associated
with major process subsystems are often joined together in modules which can
then be installed on the deck as a unit either on land or offshore. Platforms
can be joined by bridges to form complexes of platforms to service very large
projects and to improve safety by dividing functions among specialized
platforms. Floating platforms, like fixed platforms, support decks or modules
with equipment to perform oil and gas processing and may support drilling
operations as well.
3
7
Most of the structural steel used in the Company's operations arrives at the
Company's fabrication yards as standard steel shapes and steel plate. The
standard shapes and plate are cut to appropriate sizes or shapes and, in some
cases, rolled into tubular sections by the Company's rolling mill. These
sections are welded together into structures that become part of decks, modules,
jackets and other platform structures.
Through its wholly owned subsidiary, Allen Process Systems, LLC, the Company
designs and manufacturers equipment and pressure vessels to customer
specifications. Production process systems include oil and gas separation
systems, dehydrators and desalters, glycol dehydrators and the associated
mechanical, structural and electrical instrumentation and components of these
systems. The Company can fabricate these systems using a wide range of alloys as
well as carbon steel. The design process utilizes state-of-the-art,
computer-aided design and drafting technology to deliver high quality, accurate
design and fabrication drawings. In some instances, the customer may supply
equipment and pressure vessels. Compression Engineering Services, a division of
Allen Process Systems, 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.
While the structural portion of a deck or module is being assembled, process
piping is fabricated in the Company's pipe shop. Piping is made into spools by
fitting and welding together pipe and pipe fittings. To the extent possible,
pipe supports and pipe spools are installed onto the various structural
subassemblies of a deck or module before final assembly. The completed
structural subassemblies are then lifted, positioned and welded together.
Finally, the oil and gas process equipment along with the remaining pipe
supports and pipe spools, valves and electrical and instrumentation components
are installed and connected. The Company has installed both carbon and alloy
steel piping and has also installed process piping for sour gas service, which
requires adherence to more stringent industry code requirements. The Company
typically procures most of the piping, pipe fittings, valves, instrumentation
and electrical materials in accordance with the customer's specifications as
part of its contract.
The Company performs a wide range of testing and commissioning activities.
Virtually every contract requires, at a minimum, nondestructive testing of
structural and piping welds, piping hydrostatic pressure testing and loop
testing of instrumentation and electrical systems. The Company also commonly
performs commissioning of certain process subsystems. A series of protective
coatings is applied to the critical areas of the deck or module to resist the
extremely corrosive conditions in an offshore environment. The Company generally
subcontracts certain parts of the work to qualified subcontractors, particularly
electrical, instrumentation and painting.
Jackets are generally built in sections so that, to the extent possible,
much of their fabrication is done on the ground. As each section of legs and
bracing is completed it is lifted by a crawler crane and then joined to another
upright section. When a deck, module or jacket is complete and ready for load
out, it is moved along a skidway and loaded onto a cargo barge. Using
ocean-going tugs, the barge and its cargo are transported to the offshore site
for installation by a marine construction contractor.
PLATFORM REFURBISHMENT. The Company is active in the market for the
refurbishment of existing jackets and decks. Platform operators occasionally
remove platforms previously installed in the Gulf of Mexico and return the
platforms to a fabricator for refurbishment, which usually consists of general
repairs and maintenance work and, in some cases, modification. There are a
substantial number of structures stored by customers on Company premises,
pending instructions from the customer to commence refurbishment. Because
refurbishment is generally not time-critical, the Company is able to use this
work as a means of keeping employees productively occupied between other more
time-critical projects. Refurbishment work is most often conducted on a time and
materials basis.
DRILLING RIG CONSTRUCTION AND REFURBISHMENT. The Company designs and
fabricates drilling rigs at a 22-acre facility in New Iberia, Louisiana, through
a wholly owned subsidiary, OBI. The Company also performs maintenance,
refurbishment and upgrade services on deep-water drilling rigs and jack ups at
its
4
8
deep-water facility near Lake Charles, Louisiana. The Company has been
developing the capabilities of this facility to support refurbishment upgrades
of jack up and semi submersible drilling rigs for deep water use and, as
required by customer demand, to support new construction of drilling rigs,
platforms and platform components. At this time, the facility is approximately
95% complete and is expected to be fully functional by the middle of 2000.
PLANT MAINTENANCE. The Company provides maintenance, construction and
fabrication services to industrial plants in the southwest Louisiana area. These
services are performed under fixed price, time and material and maintenance
agreement contracts, generally pursuant to competitive bids. The number of
employees providing these services varies from time to time with the size and
duration of the projects.
FIELD SERVICE AND COMMISSIONING. The Company maintains a staff of
experienced, highly trained technicians to provide 24-hour services for trouble
shooting and commissioning of oil and gas production facilities around the
world.
OFFSHORE SERVICES. The Company also has a number of employees (ranging from
approximately 25 to 50) whom it contracts to send offshore in crews to perform
piping interconnect and general maintenance and repair services on offshore
platforms.
FACILITIES AND EQUIPMENT
FACILITIES. The Company's corporate headquarters and main fabrication
facilities are located at the Port of Iberia in New Iberia, Louisiana,
approximately 20 miles southeast of Lafayette, Louisiana and 30 miles north of
the Gulf of Mexico. These fabrication facilities include approximately 217 acres
developed for fabrication, one 12,000 square-foot office building that houses
administrative staff, approximately 335,000 square feet of covered fabrication
area, and approximately 45,500 square feet of warehouse and other storage area.
The facilities also have approximately 11,000 linear feet of water frontage, of
which 4,100 feet is steel bulkhead which permits outloading of heavy structures.
The structures that the Company fabricates are transported from the New
Iberia facilities by barge to the Gulf of Mexico by offshore construction
companies. Barges loaded with completed structures weighing up to 3,500 tons can
travel through any of several currently available water routes from the
Company's facilities at the Port of Iberia to the Gulf of Mexico. Although
recent improvements to the Company's slip, bulkhead and loadout facilities
enable the Company to produce decks and deck components weighing up to 6,500
tons, special efforts, including dredging, would be needed to permit barges
carrying structures from 3,500 to 6,500 tons to travel from the Port of Iberia
facility to the Gulf of Mexico, which would add costs to the project that the
customer may be unwilling to bear. One main route to the Gulf of Mexico, the
Freshwater Bayou Channel, provides 12 feet of water depth to the Gulf of Mexico,
but the dimensions of locks on this channel prevent the transport of structures
more than 80 feet in width. There is a by-pass channel around these locks,
recently dredged to remove silt build up, which permits continuous passage to
the Gulf of Mexico with at least 12 feet of water depth at all points and
without any material width restrictions. This water depth would generally permit
the transportation of structures weighing up to 6,000 tons.
The Company's facility in Lake Charles, Louisiana is located on an
industrial canal at the intersection of the Intracoastal Canal and the Calcasieu
Ship Channel, 12 miles south of Lake Charles and 20 miles from the Gulf of
Mexico. The industrial canal is dredged to a 40-foot water depth with a bottom
width of 400 feet. The facility is currently being leased from the Lake Charles
Harbor & Terminal District under a 17-year lease, including option periods, and
with options to lease up to 69 acres. The facility has 92,300 square feet of
covered fabrication area, approximately 9,400 square feet of covered warehouse
area and administrative support facilities on the site. The facility has 1,100
linear feet of steel bulkhead water frontage. The access of this facility to the
Gulf of Mexico imposes no weight or size limitations on any structure fabricated
or refurbished there.
5
9
The Company also leases administrative offices in Wimbledon, England and a
sales office in Houston, Texas.
EQUIPMENT. The Company's main fabrication facilities house its Bertsch steel
plate bending rolls with capacities to roll up to four-inch steel plate into
structural components. These plate rolls allow the Company to provide 100% of
its rolling needs and enable the Company to reduce the risk of cost overruns and
delays in project completion. In addition, the Company sells roll steel goods to
other fabricators on a subcontracting basis. The Company also uses a Huber oven
for stress relief and heat treatment of high-pressure vessels. This oven allows
the Company to bend steel plate up to 5 1/2" thickness. The Company owns a grit
blast system that can blast steel at a rate approximately ten times faster than
conventional sandblasting. This greatly reduces labor costs and also decreases
the Company's use of conventional sandblasting, which is considered to be a more
hazardous and slower method of preparing steel for painting.
The Company also has an automatic plate cutting machine used for cutting
steel in complex geometric sections and various other equipment used in the
Company's fabrication business. The Company currently owns eleven crawler
cranes, which range in tonnage capacity from 50 to 250 tons. The Company
performs routine maintenance on all of its equipment.
MATERIALS
The principal materials used by the Company in its fabrication business --
standard steel shapes, steel plate, piping, pipe fittings, valves, welding
gases, fuel oil, gasoline and paint -- are currently available in adequate
supply from many sources. The Company does not depend upon any single supplier
or source.
SAFETY AND QUALITY ASSURANCE
Management is concerned with the safety and health of the Company's
employees and maintains a safety assurance program to reduce the possibility of
costly accidents. The Company's safety department establishes guidelines to
ensure compliance with all applicable state and federal safety regulations. The
Company provides training and safety education through orientations for new
employees and subcontractors, daily crew safety meetings and training programs
as required by OSHA regulations. The Company also employs several safety
technicians. The Company has a comprehensive drug-testing program and conducts
periodic employee health screenings. A safety committee, whose members consist
of management representatives and peer elected field representatives, meets
monthly to discuss safety concerns and suggestions that could prevent future
accidents. The Company has at times contracted with a third-party safety
consultant to provide training and suggestions and a licensed emergency medical
technician in its ongoing commitment to a safe and healthy work environment. The
Company believes that its safety program and commitment to quality are vital to
attracting and retaining customers and employees.
The Company fabricates to the standards of the American Petroleum Institute,
the American Welding Society, the American Society of Mechanical Engineers, the
American Bureau of Shipping and specific customer specifications. The Company
uses welding and fabrication procedures in accordance with the latest technology
and industry requirements. Training programs are conducted to upgrade skilled
personnel and maintain high quality standards. In addition, the Company
maintains on-site facilities for the x-ray of all pipe welds, which process is
performed by an independent contractor. Management believes that these programs
generally enhance the quality of its products and reduce their repair rate.
Allen Process Systems, LLC and Superior Derricks, Inc. are certified as ISO
9001 fabricators. ISO 9001 is an internationally recognized verification system
for quality management overseen by the International Standards Organization
based in Geneva, Switzerland. The certification is based on a review of the
Company's programs and procedures designed to maintain and enhance quality
production and is subject to annual review and recertification. Universal
Fabricators and Unifab International West, LLC are in the process of applying
for ISO 9001 certification.
6
10
CUSTOMERS AND CONTRACTING
The Company's customers are primarily major and independent oil and gas
companies and offshore marine construction contractors. Fixed platforms and
other structures fabricated by the Company are used primarily offshore West
Africa and in the Gulf of Mexico. Process equipment manufactured by the Company
are in use world wide.
A large portion of the Company's revenue has historically been generated by
a few customers, although not necessarily the same customers from year-to-year.
The following table provides information with respect to customers who accounted
for more than 10% of the Company's revenue for each of the three fiscal years
ending March 31, 2000:
YEAR ENDED MARCH 31, CUSTOMER % OF REVENUE
-------------------- -------- ------------
2000 Amoco Trinidad, ENPPI 26
1999 Amoco Trinidad, Shell Offshore, Inc. 20
1998 Bouygues Offshore, Shell Offshore, Inc. 30
Although the Company's direct customers on many projects are installation
contractors, each project is ultimately fabricated for use by an oil and gas
company. The Company, from time to time, contracts with multiple installation
contractors who may be supplying structures to the same oil and gas company and,
in some instances, contracts directly with the oil and gas companies. Thus,
concentration among the Company's customers may be greater when the customer is
viewed as the oil and gas company rather than the installation contractor.
The level of fabrication that the Company may provide, directly or
indirectly, to any particular oil and gas company depends, among other things,
on the size of that company's capital expenditure budget devoted to platform
construction in a particular year and the Company's ability to meet the
customer's delivery schedule. Similarly, the level of fabrication that the
Company may provide as a subcontractor to an offshore construction company
depends, among other things, on the ability of that company to successfully
obtain prime contracts with oil and gas companies and the ability of the Company
to meet the delivery schedule of the prime contractor. For these reasons, the
oil and gas companies and the prime contractors who account for a significant
portion of revenue in one fiscal year may represent an immaterial portion of
revenue in subsequent years. However, the loss of any significant customer
(whether an oil and gas company with which the Company directly contracts or a
prime contractor for which the Company has provided services on a subcontract
basis) for any reason, including a sustained decline in an oil and gas company's
capital expenditure budget or the prime contractor's inability to successfully
obtain contracts, or other competitive factors, could result in a substantial
loss of revenue and have a material adverse effect on the Company's operating
performance.
Most of the Company's projects are awarded on a fixed-price basis, and while
customers may consider other factors, including the availability, capability,
reputation and safety record of a contractor, price and the ability to meet a
customer's delivery schedule are the principal factors on which the Company is
awarded contracts. The Company's contracts generally vary in length from one to
18 months depending on the size and complexity of the project.
Most of the Company's fabrication work is performed pursuant to fixed-price
contracts, although some projects are performed on a time and materials basis.
Under fixed-price contracts, the Company receives the price fixed in the
contract, subject to adjustment only for change orders placed by the customer.
As a result, with respect to fixed-price contracts, the Company retains all cost
savings but is also responsible for all cost overruns. Under time and materials
arrangements, the Company receives a specified hourly rate for direct labor
hours worked (which exceeds its direct labor costs) and a specified percentage
mark-up over its cost for materials. As a result, under time and materials
contracts, the Company is protected against cost overruns but does not benefit
directly from cost savings. As the Company is typically able to obtain prices
for materials in excess of its costs, the cost and productivity of the Company's
labor force are the key
7
11
factors affecting the Company's operating profits. Consequently, it is essential
that the Company control its costs and maximize the productivity of its
workforce. Each project is reviewed on at least a weekly basis by the Company's
top management to assist in identifying and correcting difficulties and cost
overruns early in the project. Although no assurance can be given that the
Company will realize profits on its current or future contracts, the Company
believes that the active involvement of its top management reduces the
likelihood of significant cost overruns.
The following table sets forth for the periods presented the percentage of
the Company's revenue derived from each type of contract used by the Company:
YEAR ENDED MARCH 31,
--------------------
TYPE OF CONTRACT (1) 2000 1999 1998
-------------------- ---- ---- ----
Fixed-Price........ 75.7% 69.6% 67.3%
Time and Materials. 24.2% 30.3% 32.6%
- ----------
(1) Remaining revenues were derived from storage fees.
SEASONALITY
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Because most of the Company's construction
activities take place outdoors, the number of direct labor hours worked
generally declines in winter months due to an increase in rainy and cold
conditions and a decrease in daylight hours. Operations may also be affected by
the rainy weather, hurricanes and other storms prevalent along the U.S. Gulf
Coast throughout the year. As a result, the Company's revenue, gross profit and
net income during the third quarter of each fiscal year, the December quarter,
are subject to being disproportionately low as compared to the first and second
quarters, the June and September quarters, and full year results may not in all
cases be a direct multiple of any particular quarter or combination of quarters.
The table below indicates for each quarter of the Company's last three fiscal
years the percentage of annual revenue and net income earned and the number of
direct labor hours worked in each quarter.
2000 1999 1998
---- ---- ----
1ST. 2ND 3RD 4TH 1ST. 2ND 3RD 4TH 1ST. 2ND 3RD 4TH
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Revenue................ 22% 29% 25% 24% 30% 30% 23% 17% 20% 33% 20% 27%
Net income (loss)...... 5% 4% (19%) (90%) 51% 34% 26% (11%) 15% 35% 21% 29%
Direct labor hours worked
(in thousands)....... 318 277 210 235 413 344 299 268 322 323 295 469
Recent reductions in industry activity levels may tend to increase the affects
of seasonality on the Company's operations.
COMPETITION
The offshore platform fabrication industry is highly competitive and
influenced by events largely outside of the control of offshore platform
fabrication companies. Projects are generally awarded on a competitive bid basis
with customers usually requesting bids on projects one to three months prior to
commencement. Since 1992, there has been a consolidation in the industry as
several marine fabrication companies have combined with other companies or
ceased operations altogether. As a result of this consolidation, there are
approximately eight remaining domestic competitors for custom fabrication
projects, several of which are substantially larger and have greater resources
and capabilities than the Company. These companies compete intensely for
available projects. For international projects, the Company competes with many
of the same domestic fabricators, as well as with several foreign fabricators,
some of which are substantially larger and have greater financial resources and
capabilities than the Company.
8
12
The Company's marketing staff contacts offshore construction contractors and
oil and gas companies to obtain information as to upcoming projects so that the
Company will be well positioned to bid for the projects. Price and the
contractor's ability to meet a customer's delivery schedule are the principal
factors in determining which qualified fabricator is awarded a contract for a
project. Customers also consider, among other things, the availability of
technically capable personnel and facility space, a fabricator's efficiency,
condition of equipment, reputation, safety record and customer relations. The
Company believes that the limited availability of experienced supervisory and
management personnel, as well as skilled laborers, presents the greatest barrier
to entry to new companies trying to enter the fabrication industry.
The Company believes that its competitive pricing, expertise in fabrication
of offshore marine structures and in design and manufacture of production
process systems and its long-term relationships with international customers
will enable it to continue to compete effectively for projects destined for
international waters. The Company recognizes, however, that foreign governments
often use subsidies and incentives to create jobs where oil and gas production
is being developed. The additional transportation costs that will be incurred
when exporting structures from the U.S. to foreign locations may hinder the
Company's ability to successfully bid for projects against foreign competitors.
Because of subsidies, import duties and fees, taxes on foreign operators and
lower wage rates in foreign countries along with fluctuations in the value of
the U.S. dollar and other factors, the Company may find it increasingly
difficult to remain competitive with foreign contractors for projects designed
for use in international waters.
BACKLOG
As of March 31, 2000, the Company's backlog was approximately $19.2 million,
all of which management expects to be performed before April 2001.
The Company's backlog is based on management's estimate of the remaining
labor, material and subcontracting costs to be incurred with respect to those
projects as to which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts, letters of intent or other
forms of authorization. Often, however, original contract prices are based on
incomplete engineering and design specifications. As engineering and design
plans are finalized or changes to existing plans are made, the total contract
price to complete such projects is likely to change. In addition, most projects
currently included in the Company's backlog are subject to termination at the
option of the customer, although the customer in that case is generally required
to pay the Company for work performed and materials purchased through the date
of termination and, in some instances, pay the Company termination fees.
GOVERNMENT AND ENVIRONMENTAL REGULATION
Many aspects of the Company's operations and properties are materially
affected by federal, state and local regulation, as well as certain
international conventions and private industry organizations. The exploration
and development of oil and gas properties located on the outer continental shelf
of the United States is regulated primarily by the Mineral Management Services
("MMS"). The MMS has promulgated federal regulations under the Outer Continental
Shelf Lands Act requiring the construction of offshore structures located on the
outer continental shelf to meet stringent engineering and construction
specifications. The Company is not directly affected by regulations applicable
to offshore construction operations as are its customers which install and
operate the structures fabricated by the Company, but the Company is required to
construct these structures in accordance with customer design which must comply
with applicable regulations; to the extent such regulations detrimentally affect
customer activities, the operations of the Company may be adversely affected.
Violations of the laws and related regulations directly affecting the Company's
operations can result in substantial civil and criminal penalties as well as
injunctions curtailing operations. The Company believes that its operations are
in compliance with these and all other laws and related regulations affecting
the fabrication of structures for delivery to the outer continental shelf of the
United States and the laws and related regulations governing other areas of the
world. In addition, the Company depends on the demand for its services from the
oil and gas industry and,
9
13
therefore, is affected by changing taxes, price controls and other laws and
regulations relating to the oil and gas industry. In addition, offshore
construction and drilling in certain areas has been opposed by environmental
groups and, in certain areas, has been restricted or prohibited. To the extent
laws or regulations are enacted or other governmental actions are taken that
prohibit or restrict offshore construction and drilling or impose environmental
protection requirements that result in increased costs to the oil and gas
industry in general and the offshore construction industry in particular, the
business and prospects of the Company could be adversely affected. Such
restrictions in the areas where the Company's products are used have not been
substantial to date. The Company cannot determine to what extent future
operations and earnings of the Company may be affected by new legislation, new
regulations or changes in existing laws or regulations.
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent federal, state and local environmental laws
and regulations, including those governing discharges into the air and water,
the handling and disposal of solid and hazardous wastes, the remediation of soil
and groundwater contaminated by hazardous substances and the health and safety
of employees. These laws may provide for "strict liability" for damages to
natural resources and threats to public health and safety, rendering a party
liable for environmental damage without regard to negligence or fault on the
part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, cease and desist orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide for
strict, joint and several liability, without regard to fault or negligence, for
remediation of spills and other releases of hazardous substances. In addition,
the Company may be subject to claims alleging personal injury, property damage
or natural resource damage as a result of the handling of hazardous substances.
Such laws and regulations may also expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and similar laws provide for responses to and liability for
releases of hazardous substances into the environment. Additionally, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Safe Drinking Water Act, the Emergency Planning and Community Right to Know Act,
each as amended, and similar state or local counterparts to these federal laws,
regulate air emissions, water discharges, hazardous substances and wastes and
require public disclosure related to the use of various hazardous substances.
Compliance with such environmental laws and regulations requires the acquisition
of permits and other authorizations for certain activities and compliance with
various standards and procedural requirements. The Company believes that its
facilities are in substantial compliance with current regulatory standards.
In addition to the Company's operations, in the past other industrial
operations have been conducted by other entities on the properties now utilized
by the Company. Although the Company does not believe that there is any material
remediation requirements on its properties, it is possible that these past
operations may have caused unknown environmental conditions that might require
future remediation.
The Company's operations are also governed by laws and regulations relating
to workplace safety and worker health, primarily the Occupational Safety and
Health Act and regulations promulgated thereunder. In addition, various other
governmental and quasi-governmental agencies require the Company to obtain
certain miscellaneous permits, licenses and certificates with respect to its
operations. The kind of permits, licenses and certificates required in the
Company's operations depend upon a number of factors. The Company believes that
it has all such miscellaneous permits, licenses and certificates that are
material to the conduct of its existing business.
The Company's compliance with the laws and regulations discussed in this
section have entailed certain additional expenses and changes in operating
procedures. These expenses have not been substantial over the past 10 years, and
the Company believes that compliance with these laws and regulations will not
have a material adverse effect on the Company's business or financial condition
for the foreseeable future. However, future events, such as changes in existing
laws and regulations or their interpretation, more
10
14
vigorous enforcement policies of regulatory agencies, stricter or different
interpretations of existing laws and regulations or adoption of new laws and
regulations, may require additional expenditures by the Company, which
expenditures may be material.
The Company also has employees engaged in offshore operations which are
covered by provisions of the Jones Act, the Death on the High Seas Act and
general maritime law, which laws operate to make the liability limits
established under state workers' compensation laws (which are applicable to the
Company's other employees) inapplicable to these employees and, instead, permit
them or their representatives to pursue actions against the Company for damages
or job related injuries, with generally no limitations on the Company's
potential liability.
In addition to government regulation, various private industry
organizations, such as the International Standards Organization, the American
Bureau of Shipping, the American Petroleum Institute, the American Society of
Mechanical Engineers and the American Welding Society, promulgate technical
standards that must be adhered to in the fabrication process.
INSURANCE
The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities. The Company also maintains
general liability insurance, workers' compensation liability and maritime
employer's liability insurance. All policies are subject to deductibles and
other coverage limitations. Although management believes that the Company's
insurance is adequate, there can be no assurance that the Company will be able
to maintain adequate insurance at rates which management considers commercially
reasonable, nor can there be any assurance such coverage will be adequate to
cover all claims that may arise.
EMPLOYEES
The Company's workforce varies based on the level of ongoing operating
activity at any particular time. As of June 15, 2000, the Company employed
approximately 600 full-time production employees at its four operating
facilities, three of which are located in New Iberia, Louisiana and one in Lake
Charles, Louisiana. The Company also engages the services of subcontractors to
perform specific tasks in connection with certain projects. Management estimates
these subcontractors have in the past provided over 250 workers depending on the
volume and nature of Company projects. None of the Company's employees is
employed pursuant to a collective bargaining agreement, and the Company believes
that its relationship with its employees is good.
The Company's ability to remain productive and profitable depends
substantially on its ability to attract and retain skilled construction workers,
primarily welders, fitters and equipment operators. In addition, the Company's
ability to expand its operations depends primarily on its ability to increase
its workforce. While the supply of production workers has been historically
limited, the recent reduced demand for the Company's products and services has
stabilized the demand for such services. While the Company believes its
relationship with its skilled labor force is good, a significant increase in the
wages paid by competing employers could result in a reduction in the Company's
skilled labor force, increases in the wage rates paid by the Company, or both.
If either of these occurs, in the near-term, the profits expected by the Company
from work in progress could be reduced or eliminated and, in the long-term, to
the extent such wage increases could not be passed on to the Company's
customers, the production capacity of the Company could be diminished and the
growth potential of the Company could be impaired.
The Company has taken an active role in the movement to create a more
business-oriented educational system in Louisiana. For example, Dailey J.
Berard, the Company's President, Chief Executive Officer and Chairman of the
Board, has been appointed by Louisiana Governor Mike Foster to the Louisiana
Workforce Commission, a group consisting of 25 members, 11 of whom are
representatives of business and industry. This Commission, which was established
by recent Louisiana legislation, will oversee the
11
15
spending of $630 million in job training funds appropriated by the legislature.
The Commission will coordinate federal worker training programs, exercise
authority over policy and funding decisions for worker training programs,
oversee an occupational information system and create regional employer-oriented
workforce boards. Although there can be no assurance that such initiatives will
enable the Company to meet its hiring needs, management believes that, in the
long-term, initiatives like these are the best methods for increasing the pool
of skilled workers from which it can draw employees.
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 sections entitled "Business and Properties,"
"Legal Proceedings," and "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. LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims, workers' compensation claims, and claims for
personal injury under the 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 all
such proceedings, even if determined adversely, would not have a material
adverse effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
16
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages and offices of each of the executive
officers of the Company as of June 20, 2000:
NAME AGE POSITION
---- --- --------
Dailey J. Berard...... 70 President, Chief Executive Officer
and Chairman of the Board
Vincent Cuevas........ 52 Vice President
Philip Patout......... 52 Vice President
Peter J. Roman........ 49 Vice President and Chief Financial Officer
Dailey J. Berard has served as President, Chief Executive Officer and
Chairman of the Board of the Company since its founding in 1980. He was trained
as a civil engineer and has over 47 years of experience in the oil service
industry, working with several different companies, including Houston-New
Orleans, Inc., Houston Systems Manufacturing Company and Norman Offshore
Pipelines, Inc.
Vincent J. Cuevas is one of the founders of Allen Tank in 1988. Mr. Cuevas
is a Mechanical Engineer with a BSME from the University of Mississippi with 30
years of experience in the oil and gas industry. He currently serves as
President of Allen Process Systems. He began his career with National Tank Co.
where he last held the position of Regional Sales and Marketing Manager. He was
also with McDermott International, Inc., most recently as Middle East Project
Coordinator. Mr. Cuevas was appointed Vice President effective June 20, 2000 by
the Board of Directors of the Company.
Philip J. Patout is one of the former owners of OBI and currently serves as
the President of OBI. He is a Mechanical Engineer with a degree from the
University of Southwest Louisiana and is a registered professional engineer in
Louisiana. Mr. Patout has nearly 30 years experience in the oil and gas industry
serving from sales to executive management. He was founder and President of
Mardrill, Inc. and President of Mallard Drilling. Mr. Patout was appointed Vice
President effective June 20, 2000 by the Board of Directors of the Company.
Peter J. Roman was appointed Vice President and Chief Financial Officer on
June 30, 1997. Since June 1984, Mr. Roman has been a certified public accountant
with the international accounting firm of Ernst & Young LLP, most recently as a
senior manager. Mr. Roman graduated from Louisiana State University in 1984 with
a B.S. in Accounting and is a member of the Louisiana State Society of Certified
Public Accountants and the American Institute of Certified Public Accountants.
Mr. David Berard served as Vice President Operations and as an executing
officer of the Company through June 20, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock, $.01 par value per share (the "Common Stock"),
is traded on the Nasdaq National Market under the symbol "UFAB." At June 15,
2000, the Company had approximately 857 holders of record of its Common Stock .
13
17
The following table sets forth the high and low bid prices per share of the
Common Stock, as reported by the Nasdaq National Market, for each fiscal quarter
since trading in the Common Stock began on September 19, 1997.
HIGH LOW
---- ---
Fiscal Year 2000
First Quarter $12.25 $6.38
Second Quarter 9.75 6.75
Third Quarter 8.03 5.13
Fourth Quarter 9.75 5.63
Fiscal Year l999
First Quarter $24.50 $14.50
Second Quarter 16.00 7.00
Third Quarter 12.81 7.00
Fourth Quarter 9.38 6.25
Fiscal Year l998
Second Quarter (commencing September 19, 1997) $41.00 $28.88
Third Quarter 43.88 15.88
Fourth Quarter 20.88 13.38
The Company intends to retain earnings, if any, to meet its working capital
requirements and to finance the future operations and growth of its business
and, therefore, does not plan to pay any cash dividends to holders of its Common
Stock in the foreseeable future.
14
18
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED MARCH 31 (1)
------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ------------ ----------- ----------- -------------
(Dollars in thousands, except per share data)
Statement of Operations Data:
Revenue ....................................... $ 73,124 $ 103,866 $ 109,170 $ 92,310 $ 65,719
Cost of revenue ............................... 66,431 85,311 91,777 79,891 52,549
----------- ----------- ----------- ----------- -----------
Gross profit .................................. 6,693 18,555 17,393 12,419 13,170
General and administrative expense ............ 8,160 9,058 6,807 4,579 4,088
----------- ----------- ----------- ----------- -----------
Operating income (loss) ....................... (1,467) 9,497 10,586 7,840 9,082
Other income (expense), net ................... (1,289) (890) (470) (974) (584)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ............. (2,756) 8,607 10,116 6,866 8,498
Income tax expense ............................ (685) 2,264 2,896 2,554 3,888
----------- ----------- ----------- ----------- -----------
Net income (loss) ............................. $ (2,071) $ 6,343 $ 7,220 $ 4,312 $ 4,610
=========== =========== =========== =========== ===========
Earnings (loss) per share .....................
Basic ........................................ $ (0.31) $ 1.06 $ 1.39 $ 0.98 $ 1.05
=========== =========== =========== =========== ===========
Diluted ...................................... $ (0.31) $ 1.06 $ 1.38 $ 0.98 $ 1.05
=========== =========== =========== =========== ===========
Weighted average shares outstanding ...........
Basic ........................................ 6,723 5,972 5,192 4,400 4,400
Diluted ...................................... 6,723 5,972 5,213 4,400 4,400
Cash dividends declared per common share (2) ... $ -- $ -- $ 1.03 $ 1.66 $ 0.55
Pro forma data: (3)
Income before income taxes .................... $ 8,607 $ 10,116 $ 6,866 $ 8,498
Pro forma provision for income taxes .......... 2,863 3,595 2,666 3,195
----------- ----------- ----------- -----------
Pro forma net income .......................... $ 5,744 $ 6,521 $ 4,200 $ 5,303
=========== =========== =========== ===========
Pro forma basic earnings per share ............ $ 0.96 $ 1.26 $ 0.95 $ 1.21
=========== =========== =========== ===========
Pro forma diluted earnings per share .......... $ 0.96 $ 1.25 $ 0.95 $ 1.21
=========== =========== =========== ===========
Other Financial Data:
Depreciation and amortization ................. $ 2,757 $ 2,142 $ 1,265 $ 980 $ 882
Capital expenditures .......................... 7,557 9,640 5,472 1,291 749
Net cash provided by (used in)
operating activities ......................... (678) 1,997 8,661 964 (538)
Net cash provided by (used in)
investing activities ......................... (7,358) (11,112) (10,273) (1,304) (818)
Net cash provided by (used in)
financing activities ......................... 7,100 1,878 9,001 (3,607) 3,034
Operating Data:
Direct labor hours worked ..................... 1,040,000 1,324,000 1,409,000 1,177,000 877,000
Number of employees (at end of period) ........ 600 416 685 510 420
Backlog (at end of period) .................... $ 19,231 $ 27,088 $ 50,340 $ 44,903 $ 51,111
AS OF MARCH 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ------------ ----------- ----------- -------------
(In Thousands)
Balance Sheet Data:
Working capital (deficit) ...................... $ (3,789) $11,009 $12,925 $ 2,795 $ 4,833
Property, plant and equipment, net.............. 31,708 23,259 13,333 7,947 7,646
Total assets ................................... 84,651 70,021 59,710 42,786 35,430
Debt ........................................... 24,720 17,579 12,177 14,500 12,300
Shareholders' equity ........................... 44,268 39,567 33,202 10,540 12,035
- ----------
(1) All financial information has been restated for the pooling with Allen
Tank. The effects of all other acquisitions were accounted for as purchase
transactions and have been included from the effective date of the
acquisition.
(2) Under the provisions of a shareholders' agreement, unless otherwise
approved by the board of directors, Universal Fabricators was to distribute
to its shareholders 90% of its net income for the prior fiscal year. This
agreement was terminated upon completion of the Initial Public Offering.
The Company intends to retain earnings, if any, to meet its working capital
requirements and to finance the future operation and growth of its
business, and therefore, does not plan to pay cash dividends to holders of
its common stock in the foreseeable future.
(3) Includes pro forma effect for the application of federal and state income
taxes on the earnings of Allen Tank, Inc. as if it had always been a C
Corporation. Prior to the merger with the Company, Allen Tank, Inc. had
operated as an S Corporation. Allen Tank, Inc. elected to terminate its S
Corporation status on the date of the transaction and as a result became
subject to corporate level income taxation.
15
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion presents management's discussion and analysis of
the Company's financial condition and results of operations and should be read
in conjunction with the Consolidated Financial Statements.
The Company's results of operations depend primarily on (i) the level of oil
and gas exploration and development activity of oil and gas companies in the
Gulf of Mexico, offshore West Africa, South and Central America and the Middle
East; (ii) the Company's ability to win contracts through competitive bidding or
alliance/partnering arrangements; and (iii) the Company's ability to manage
those contracts to successful completion. The level of exploration and
development activity is related to several factors, including trends of oil and
gas prices, exploration and production companies' expectations of future oil and
gas prices and changes in technology which reduce costs and improve expected
returns on investment. In addition, improvements in three-dimensional seismic,
directional drilling, production techniques and other advances in technology
have increased drilling success rates and reduced costs. Prior to 1998, the
average number of active offshore rigs worldwide and in the Gulf of Mexico had
increased annually since December 31, 1992. However, declining commodity prices,
reduced drilling budgets and a lack of confidence in the recovery of commodity
prices in 1998 caused a reduction in the level of drilling activity and a delay
or suspension in projects being planned. These commodity prices increased in
1999 and remain at elevated levels, which should increase drilling activity in
the future.
During the fiscal years ended March 31, 2000, 1999 and 1998, 62%, 51% and
40%, respectively, of the Company's revenue was derived from projects fabricated
for installation in international areas, with the remainder designed for
installation in the Gulf of Mexico. The Company believes that its strong
presence in both overseas markets and the Gulf of Mexico market has enabled it
to remain competitive and obtain fabrication work worldwide. The Company expects
that an increased activity level in the Gulf of Mexico will lead to an
increasing percentage of the Company's revenue coming from projects intended for
installation in the Gulf of Mexico, although no assurance can be given as to
continued strong commodity price or any resulting increased drilling activity by
the oil and gas companies.
Most of the Company's revenue and expenses are recognized on a
percentage-of-completion basis determined by the ratio that labor, labor and
subcontracting costs, or total contract costs incurred bear to the total
estimated labor, labor and subcontracting costs or total contract costs required
for completion. Accordingly, expected labor and subcontracting costs and other
contract costs are reviewed monthly as the work progresses, and adjustments
proportionate to the percentage of completion are reflected in revenue for the
period when such estimates are revised. To the extent that these adjustments
result in a reduction of previously reported profits, the Company would have to
recognize a charge against current earnings, which may be significant depending
on the size of the project or the adjustment. Revenue from time and materials
contracts is recognized on the basis of direct labor hours worked at fixed
hourly rates and the cost of materials or subcontract costs incurred plus
mark-up.
16
20
RESULTS OF OPERATIONS
Comparison of the Years Ended March 31, 2000 and 1999
During the year ended March 31, 2000, the Company's revenue was $73.1
million, a 30% decrease from the $103.9 million generated in the year ended
March 31, 1999. This decrease was primarily caused by the general reduction in
demand for the Company's structural fabrication services, and, to a lesser
degree, process equipment design and fabrication services, both in the Gulf of
Mexico and internationally. Generally, these reduced levels of demand were the
result of continued delay in award of construction projects in spite of the
recovery of the price of oil and gas. Total direct labor hours worked decreased
56% from the levels experienced in the prior fiscal year. In particular,
structural fabrication and process equipment design and fabrication revenue
decreased 31.8% to $63.2 million from $92.6 million. International project
management revenue decreased 44.8% to $2.6 million. Rig refurbishment and plant
maintenance revenue increased 10.7% over the prior fiscal year to $7.3 million,
mainly due to the operations of OBI, acquired in April 1999.
Cost of revenue was $66.4 million in fiscal 2000 compared to $85.3 million
in fiscal 1999. These costs increased as a percentage of revenues to 90.8% in
fiscal 2000 from 82.1% in fiscal 1999. 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). The increase in costs as a percentage of revenues reflects
reduced margins for all services from the same period last year caused by the
decreased demand noted above and the increased competition for the projects
being awarded. This lower level of activity has resulted in a reduced number of
man-hours worked at the Company's main fabrication facilities, thereby reducing
profits available to cover the fixed overhead of those facilities.
Selling, general and administrative expense was $8.2 million in fiscal 2000
compared to $9.1 million in fiscal 1999. This reduction in selling, general and
administrative costs was mainly due to cost reductions resulting from
consolidation of administrative functions and facilities, including elimination
of certain duplicative administrative positions. These reductions were offset in
part by the additional selling, general and administrative costs of OBI and
CESI, which were acquired in fiscal 2000.
Interest income decreased to $115,000 in fiscal 2000 from $306,000 in fiscal
1999, as the weighted average of invested funds was lower in fiscal 2000 as
compared to fiscal 1999, mainly from the investment of the Company's available
cash in facilities and equipment in fiscal 2000 and the overall reduced activity
levels and profits in fiscal 2000 compared to fiscal 1999.
Interest expense increased to $1.4 million in 2000 from $0.9 million in
1999. This increase is the result of increased borrowings under the Company's
line of credit, which funded asset expenditures and continued development of the
Company's deep-water facility in Lake Charles, Louisiana.
Comparison of the Years Ended March 31, 1999 and 1998
During the year ended March 31, 1999, the Company's revenue was $103.9
million, a 4.9% decrease from the $109.2 million generated in the year ended
March 31, 1998. This decrease was primarily caused by the general reduction in
demand for the Company's structural fabrication services brought on by continued
low oil prices and a downturn in natural gas prices. Total direct labor hours
worked decreased 6% from the levels experienced in the prior year. In
particular, structural fabrication revenue decreased 15.2% to $53.1 million from
$62.7 million. This decrease was offset in part by international project
management revenue of $5.7 million, and an increase in rig refurbishment and
plant maintenance revenue of $0.7 million over the prior year.
Cost of revenue was $85.3 million in fiscal 1999 compared to $91.8 million
in fiscal 1998. These costs decreased as a percentage of revenues to 82.1% in
1999 from 84.1% in fiscal 1998. This relative decrease is mainly due to higher
margins on production process system design and fabrication work in fiscal 1999.
17
21
This was offset in part by reduced margins on structural fabrication and rig
refurbishment and plant maintenance in fiscal 1999 compared to 1998.
Selling, general and administrative expense was $9.1 million in fiscal 1999
compared to $6.8 million in fiscal 1998. The Company's selling, general and
administrative expense as a percentage of revenue increased to 8.7% in 1999 as
compared to 6.2% in fiscal 1998. This increase is mainly due to regulatory,
reporting and other costs associated with being a corporation with publicly
traded securities for a full year, increased amortization of goodwill from the
PIM and LATOKA acquisitions, and the additional selling, general and
administrative costs associated with the Company's operations in Lake Charles,
Louisiana and London, England.
Interest income decreased to $306,000 in fiscal 1999 from $589,000 in fiscal
1998, as the weighted average of invested funds was lower in fiscal 1999 as
compared to fiscal 1998, mainly from the use of the net proceeds of the
Company's initial public offering being invested in facilities and equipment in
fiscal 1999. These funds were available for investment for the last six months
of fiscal 1998.
Interest expense decreased to $0.9 million in fiscal 1999 from $1.1 million
in fiscal 1998. This decrease is the result of capitalized interest of
approximately $0.4 million, offset in part by increased borrowings under the
Company's line of credit and debt acquired in the acquisitions of Allen Tank and
Latoka.
Other expense in fiscal 1999 includes costs of $303,000 associated with the
pooling of Allen Tank. This business combination was accounted for as a pooling
of interests, and accordingly, the costs associated with the pooling were
expensed as incurred.
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. The
Company's available funds and $7.1 million generated from financing activities
together funded cash used in operations of $0.7 million and investing activities
of $7.4 million during the fiscal year ended March 31, 2000. Investing
activities consisted mainly of capital expenditures of $7.6 million.
Capital expenditures included costs of expansion and improvements to the
Company's fabrication facility in New Iberia, construction of a 67,500 square
foot covered fabrication shop, 9,400 square foot covered warehouse and mechanic
shop, stabilization of 22.8 acres at the Company's Lake Charles development,
purchases of modern, labor-saving equipment and heavy machinery. The Company's
growth has also required capital expenditures for equipment to update
telecommunication and data processing capabilities.
The Company is developing a deep-water fabrication and drilling
rig-refurbishing facility on property leased from the Lake Charles Harbor and
Terminal District in Lake Charles, Louisiana. Estimated completion of the
facility is July 2000. Under the terms of the lease, the Company is committed to
fund capital expenditures totaling $8.0 million to develop the facility and
acquire equipment necessary for operations. Through March 31, 2000 the Company
has funded $7.0 million toward this development. The Company has funded these
capital expenditures through draws on its credit facility and cash from
operations.
On November 30, l999, the Company entered into a Secured Senior Credit
Facility Agreement (the "Agreement") with a syndicated group of financial
institutions (the "Bank Group") for $40 million in total credit facilities (the
Secured Senior Credit Facility). Under the terms of the facility, the Company
can borrow up to $30.0 million for general corporate purposes under a revolving
credit facility. Up to $17.5 million is available under the revolving facility
for standby letters of credit. Additionally, the Secured Senior Credit Facility
provides for a $10.0 million term loan with monthly principal payments of
$167,000, plus interest, beginning December 1999. Borrowings under the Secured
Senior Credit Facility bear interest
18
22
at the prime lending rate established by the banks or LIBOR, at the Company's
option, plus a variable interest margin determined based on the ratio of the
total funded indebtedness to EBITDA, as defined in the Agreement. At March 31,
2000, the applicable borrowing rates, including the margin, were 10.25% and
9.13%, respectively. The fee for issued letters of credit is 2% per annum on the
principal amount of letters of credit issued for performance or payment, or 3%
per annum on the principal amount if the letter of credit is a financial letter
of credit. The unused commitment fee is 1/2 of 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 revolving portion of the
Secured Senior Credit Facility matures November 2002 and the term portion
matures November 2004.
At March 31, 2000, the Company was not in compliance with certain financial
covenants in the Secured Senior Credit Facility. The Company exceeded the
maximum Funded Indebtedness to EBITDA ratio covenant and did not meet the
minimum fixed charge coverage ratio covenant, as defined in the Agreement. At
the request of the Company, the Bank Group has executed a waiver for these
financial covenants for the period ended March 31, 2000. Under the terms of the
waiver, all new advances as well as all existing advances currently bearing
interest at LIBOR plus the applicable margin shall bear interest at the prime
lending rate plus margin (12.3% at June 1, 2000). In addition, certain financial
reporting requirements required quarterly under the Secured Senior Credit
Facility will be reported monthly. As a result of this noncompliance and
anticipated noncompliance during fiscal year 2001, $22,349,000 outstanding under
the Secured Senior Credit Facility has been classified current and included in
Notes Payable in the March 31, 2000 balance sheet. This reclassification
resulted in a working capital deficit of $3.9 million at March 31, 2000. The
Company expects to execute an amendment to the Secured Senior Credit Facility
prior to August 31, 2000, which will establish a borrowing base agreeable to the
Bank Group and the Company, and which will establish financial covenants which
are consistent with the Company's current financial condition and anticipated
outlook. The Company expects that execution of this amendment will allow the
amounts outstanding under the Secured Senior Credit Facility to be classified as
noncurrent. In the event such an amendment does not occur, which management
believes is unlikely, the Company expects adequate operating cash flows or
believes it has the ability to access other sources of capital. Accordingly,
management does not believe this working capital deficit will affect the normal
operations of the Company during fiscal year 2001.
At March 31, 2000, the Company had $15.0 million in borrowings and $4.1
million in letters of credit outstanding under the revolving credit facility and
$9.3 million outstanding under the term loan.
Management believes that its available funds, cash generated by operating
activities, and funds available under the Credit Facility will be sufficient to
fund planned capital expenditures, scheduled payments under the term credit
facility and its working capital needs for the next 12 months. In the normal
course of business, the Company is evaluating its capital structure and is
considering alternatives to the current credit facility structure. Additionally,
any expansion of the Company's operations through future acquisitions may
require additional equity or debt financing.
INTANGIBLE ASSETS
At March 31, 2000 the Company had net intangible assets which represented
18.7% of total assets and 35.8% of stockholders' equity. These net intangible
assets represent goodwill recorded in connection with the Company's
acquisitions. Goodwill is being amortized over periods ranging from 15 to 30
years. In assigning such amortization periods, the Company considered the
following factors: (i) projected future cash flows of the acquired business;
(ii) effects of obsolescence, demand, competition and other economic factors
that may reduce a useful life; and (iii) the expected actions of competitors and
others that may restrict present competitive advantages. Management periodically
assesses the recoverability of goodwill and considers whether it should be
completely or partially written off or the amortization period accelerated. See
Note 1 to the Company's Consolidated Financial Statements for a complete
discussion of the policy for evaluating goodwill for impairment. At March 31,
2000, management determined that there is no persuasive evidence that any
material portion of goodwill acquired will dissipate over a shorter period than
the amortization period used.
19
23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the risk of changing interest rates and foreign
currency exchange rate risks. The Company does not use derivative financial
instruments to hedge the interest or currency risks. Interest on approximately
$24.3 million, substantially all of the Company's notes payable was variable,
based on short-term interest rates. A general increase of 1.0% short-term market
interest rates would result in additional interest cost of $243,000 per year if
the Company were to maintain the same debt level and structure.
The Company has a subsidiary located in the United Kingdom for which the
functional currency is the British Pound. The Company typically does not hedge
its foreign currency exposure. Historically, fluctuations in British Pound/US
Dollar exchange rates have not had a material effect on the Company. Future
changes in the exchange rate of the US Dollar to the British Pound may
positively or negatively impact earnings; however, due to the size of its
operations in the United Kingdom, the Company does not anticipate its exposure
to foreign currency rate fluctuations to be material in fiscal 2001.
While the Company does not currently use derivative financial instruments,
it may use them in the future if deemed appropriate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In this report, the consolidated financial statements and supplementary
data of the Company appear on pages F-1 through F-18 and are incorporated herein
by reference. See Index to Consolidated Financial Statements on Page 21.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and executive officers
called for by Item 10 will be included in the Company's definitive Proxy
Statement prepared in connection with the 2000 Annual Meeting of Shareholders
and is incorporated herein by reference. For additional information regarding
executive officers of the Company, see "Executive Officers of the Registrant" in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of the Company's executives called
for by Item 11 will be included in the Company's definitive Proxy Statement
prepared in connection with the 2000 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management called for by Item 12 will be included in the Company's definitive
Proxy Statement prepared in connection with the 2000 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
called for by Item 13 will be included in the Company's definitive Proxy
Statement prepared in connection with the 2000 Annual Meeting of Shareholders
and is incorporated herein by reference.
20
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following financial statements, financial statement schedules and
exhibits are filed as part of this report:
(i) Financial Statements
PAGE
----
Reports of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations for the Years Ended
March 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Shareholders' Equity for the Years
Ended March 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
(ii) Financial Statement Schedules
Other schedules have not been included because they are not
required, not applicable, immaterial or the information required has
been included elsewhere.
(iii) Exhibits
See Index on page E-1. The Company will furnish to any eligible
stockholder, upon written request, a copy of any exhibit listed upon
payment of a reasonable fee equal to the Company's expenses in
furnishing such exhibit. Such requests should be addressed to Mr. Peter
Roman, UNIFAB International, Inc., P.O. Box 11308, New Iberia, LA
70562.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended March
31, 2000.
21
25
Reports of Independent Auditors
The Board of Directors and Shareholders
UNIFAB International, Inc.
We have audited the accompanying consolidated balance sheets of UNIFAB
International, Inc. as of March 31, 2000 and 1999 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Allen Process Systems, LLC (formerly Allen Tank,
Inc.), a wholly owned subsidiary, which statements reflect total revenues of
$40,606,000 for the year ended December 27, 1997. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to data included for Allen Process Systems, LLC (formerly
Allen Tank, Inc.), is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of UNIFAB International, Inc. at March 31,
2000 and 1999, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended March 31, 2000 in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
New Orleans, Louisiana
May 25, 2000
* * * * *
The Board of Directors
Allen Tank, Inc.
We have audited the statements of income, retained earnings (operating deficit)
and cash flows of Allen Tank, Inc. for the fifty-two week period ended December
27, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Allen Tank,
Inc. for the fifty-two week period ended December 27, 1997 in conformity with
generally accepted accounting principles.
LaPorte, Sehrt, Romig & Hand
A Professional Accounting Corporation
March 4, 1998
F-1
26
UNIFAB International, Inc.
Consolidated Balance Sheets
MARCH 31
2000 1999
-------- --------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 189 $ 1,125
Accounts receivable 17,794 22,997
Costs and estimated earnings in excess of billings on uncompleted contracts 6,353 4,388
Prepaid expenses and other assets 8,709 4,060
-------- --------
Total current assets 33,045 32,570
Property, plant and equipment, net 31,708 23,259
Goodwill, net 15,857 10,234
Other assets 4,041 3,958
-------- --------
Total assets $ 84,651 $ 70,021
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,335 $ 4,075
Billings in excess of costs and estimated earnings on uncompleted contracts 2,436 4,853
Accrued liabilities 2,343 1,661
Notes payable 24,720 10,972
-------- --------
Total current liabilities 36,834 21,561
Deferred income taxes 3,549 2,286
Noncurrent notes payable -- 6,607
Shareholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized, 6,820,305 and
6,020,736 shares outstanding 68 60
Additional paid-in capital 35,395 28,542
Retained earnings 8,852 10,923
Currency translation adjustment (47) 42
-------- --------
Total shareholders' equity 44,268 39,567
-------- --------
Total liabilities and shareholders' equity $ 84,651 $ 70,021
======== ========
See accompanying notes.
F-2
27
UNIFAB International, Inc.
Consolidated Statements of Operations
YEARS ENDED MARCH 31
2000 1999 1998
--------- --------- ---------
(In Thousands,
Except Per-Share Amounts)
Revenue $ 73,124 $ 103,866 $ 109,170
Cost of revenue 66,431 85,311 91,777
--------- --------- ---------
Gross profit 6,693 18,555 17,393
Selling, general and administrative expense 8,160 9,058 6,807
--------- --------- ---------
Income (loss) from operations (1,467) 9,497 10,586
Other income (expense):
Other expense 38 (303) --
Interest expense (1,442) (893) (1,059)
Interest income 115 306 589
--------- --------- ---------
Income (loss) before income taxes (2,756) 8,607 10,116
Income tax provision (benefit) (685) 2,264 2,896
--------- --------- ---------
Net income (loss) $ (2,071) $ 6,343 $ 7,220
========= ========= =========
Basic earnings (loss) per share $ (0.31) $ 1.06 $ 1.39
========= ========= =========
Basic weighted average shares outstanding 6,723 5,972 5,192
========= ========= =========
Diluted earnings (loss) per share $ (0.31) $ 1.06 $ 1.38
========= ========= =========
Diluted weighted average shares outstanding 6,723 5,972 5,213
========= ========= =========
Pro forma data:
Income before income taxes, as reported above $ 8,607 $ 10,116
Pro forma provision for income taxes 2,863 3,595
--------- ---------
Pro forma net income $ 5,744 $ 6,521
========= =========
Pro forma basic earnings per share $ 0.96 $ 1.26
========= =========
Pro forma diluted earnings per share $ 0.96 $ 1.25
========= =========
See accompanying notes.
F-3
28
UNIFAB International, Inc.
Consolidated Statements of Shareholders' Equity
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
-------- -------- ---------- -------- ------------- --------
(In Thousands)
Balance at April 1, 1997 4,400 $ 44 $ 6,476 $ 4,020 $ -- $ 10,540
Net income -- -- -- 7,220 -- 7,220
Cash dividends ($1.03 per common
share) -- -- -- (3,622) -- (3,622)
Stock issued:
Initial public offering 1,522 15 24,849 -- -- 24,864
PIM acquisition 27 -- 500 -- -- 500
Payment for shareholder rights -- -- (6,300) -- -- (6,300)
-------- -------- -------- -------- -------- --------
Balance at March 31, 1998 5,949 59 25,525 7,618 -- 33,202
Adjustment to conform fiscal year of
Allen Tank, Inc. -- -- -- 1,027 -- 1,027
Distributions:
Undistributed Sub S earnings -- -- -- (1,500) -- (1,500)
Dissenting shareholder (81) (1) (1,199) -- -- (1,200)
Capitalization of undistributed Sub
S earnings -- -- 2,565 (2,565) -- --
Stock issued:
PIM acquisition 43 1 337 -- -- 338
LATOKA, USA acquisition 79 1 996 -- -- 997
Stock awards and stock options
exercised 31 -- 318 -- -- 318
Net income -- -- -- 6,343 -- 6,343
Currency translation adjustment -- -- -- -- 42 42
--------
Comprehensive income -- -- -- -- -- 6,385
-------- -------- -------- -------- -------- --------
Balance at March 31, 1999 6,021 60 28,542 10,923 42 39,567
Stock issued:
PIM acquisition 47 -- 337 -- -- 337
OBI acquisition 680 7 5,922 -- -- 5,929
CESI acquisition 60 1 488 -- -- 489
Stock awards and stock options
exercised 12 -- 106 -- -- 106
Net income (loss) -- -- -- (2,071) -- (2,071)
Currency translation adjustment -- -- -- -- (89) (89)
--------
Comprehensive income (loss) -- -- -- -- -- (2,160)
-------- -------- -------- -------- -------- --------
Balance at March 31, 2000 6,820 $ 68 $ 35,395 $ 8,852 $ (47) $ 44,268
======== ======== ======== ======== ======== ========
See accompanying notes.
F-4
29
UNIFAB International Inc.
Consolidated Statements of Cash Flows
YEAR ENDED MARCH 31
2000 1999 1998
-------- -------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,071) $ 6,343 $ 7,220
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 1,953 1,571 1,121
Amortization 804 571 144
Provision for doubtful accounts 266 -- --
Deferred income taxes 1,877 1,568 (368)
Changes in operating assets and liabilities, net of effects from
acquisition of business:
Accounts receivable 5,187 (2,199) 3,535
Net costs and estimated earnings in excess of billings and
billings in excess of costs and estimated earnings on
uncompleted contracts (6,590) 4,910 1,254
Prepaid expenses and other assets (3,490) (1,153) (579)
Accounts payable and accrued liabilities 1,386 (9,614) (3,666)
-------- -------- --------
Net cash provided by (used in) operating activities (678) 1,997 8,661
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acquired 199 528 (4,784)
Purchases of equipment (7,557) (9,640) (5,472)
Advance under secured note receivable -- (2,000) --
Other investing activities -- -- (17)
-------- -------- --------
Net cash used in investing activities (7,358) (11,112) (10,273)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 6,695 (1,708) (5,941)
Proceeds from note payable 10,000 7,000 --
Payments on notes payable (9,235) (1,677) --
Distribution of Sub S earnings -- (1,500) --
Distributions to dissenting shareholder (360) (360) --
Exercise of stock options -- 123 --
Proceeds from initial public offering of stock -- -- 24,864
Payment for surrender of shareholder rights -- -- (6,300)
Dividends paid -- -- (3,622)
-------- -------- --------
Net cash provided by financing activities 7,100 1,878 9,001
Net decrease in cash and cash equivalents for Allen Tank for the
12-week period ended March 31, 1998 -- (120) --
Net change in cash and cash equivalents (936) (7,357) 7,389
Cash and cash equivalents at beginning of year 1,125 8,482 1,093
-------- -------- --------
Cash and cash equivalents at end of year $ 189 $ 1,125 $ 8,482
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ -- $ 2,898 $ 2,918
======== ======== ========
Interest $ 1,766 $ 878 $ 1,006
======== ======== ========
See accompanying notes.
F-5
30
UNIFAB International Inc.
Notes to Consolidated Financial Statements
March 31, 2000
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
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, and 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 in 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, 2000, it was anticipated that substantially all contracts in progress, and
receivables associated therewith, would be completed and collected within a
12-month period.
ORGANIZATION AND INITIAL PUBLIC OFFERING
UNIFAB International, Inc. was formed on July 16, 1997 to serve as the
parent corporation of Universal Fabricators Incorporated, 51% of the outstanding
common stock of which was owned by Universal Partners, Inc. (Universal Partners)
and 49% of which was owned by McDermott Incorporated (McDermott). On September
24, 1997, immediately prior to the completion of an initial public offering of
3,237,250 shares of the Company's $.01 par value common stock (the Offering),
Universal Partners and McDermott exchanged their respective shares of common
stock of Universal Fabricators Incorporated for shares of the Company's common
stock. The shareholders of Universal Partners received 1,785,000 shares of
common stock of the Company and McDermott received 1,715,000 shares of common
stock of International in this share exchange. All share-related amounts have
been adjusted to reflect the effect of this exchange. In the Offering, 1,522,250
shares were sold by the Company and the balance of the shares were sold by
McDermott.
Also on September 24, 1997, Universal Fabricators Incorporated paid
$6,300,000 to McDermott for the surrender of certain contractual rights,
including the cancellation of an option held by McDermott which allowed it to
acquire the other 51% of outstanding common stock of Universal Fabricators
Incorporated.
F-6
31
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The 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.
REVENUE AND COST RECOGNITION
Revenue from fixed-price and modified fixed-price contracts are recognized
on the percentage-of-completion method, measured by the ratio which labor or
labor and subcontract costs or total contract costs incurred to date bear to
total estimated labor, total estimated labor and subcontract costs or total
estimated contract costs. In the case of long-term contracts extending over one
or more fiscal years, revisions of the cost and profit estimated during the
course of the work are reflected in the accounting period in which the facts
that require revision become known. At the time a loss on a contract becomes
known, the entire amount of the ultimate loss is accrued. Variations from
estimated contract performance could result in a material adjustment to
operating results for any fiscal year. Contract bonus payments under fixed price
contracts are included in revenue when their realization is reasonably assured.
Revenue from time and material contracts and cost-plus-fee contracts are
recognized on the basis of costs incurred during the period plus mark up or fees
earned.
Contract costs include direct labor, material, subcontract costs and
allocated indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
The Company's customers are principally major and large independent oil and
gas companies. The Company's management believes that the portfolio of
receivables is diversified and that such diversification minimizes any potential
credit risk. Receivables are generally not collateralized. Credit losses have
been within management's estimates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
principally by the straight-line method over the estimated lives of the assets,
which range from 19 to 31 years for building and bulkhead and 3 to 12 years for
yard and other equipment, for financial statement purposes and by accelerated
methods for income tax purposes.
Amortization of leasehold improvements is provided using the straight-line
method over the estimated useful lives of the assets or over the terms of the
lease, whichever is shorter.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
F-7
32
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill acquired is amortized on a straight-line basis over 15-30 years for
financial statement purposes and over 15 years for income tax purposes.
Accumulated amortization at March 31, 2000 and 1999 was $1,475,000 and $571,000,
respectively. The recoverability of goodwill acquired is assessed periodically
and takes into account whether the goodwill should be completely or partially
written off or the amortization period accelerated. In evaluating the value and
future benefits of goodwill, the recoverability from operating income is
measured. Under this approach, the carrying value of goodwill would be reduced
if it is probable that management's best estimate of future operating income
before amortization will be less than the carrying amount of goodwill over the
remaining amortization period. The Company assesses long-lived assets for
impairment in accordance with Financial Accounting Standards Board (FASB)
Statement No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS 121). Under those rules, goodwill
associated with assets acquired in a purchase business combination is included
in impairment evaluations when events or circumstances exist that indicate the
carrying amounts of those assets may not be recoverable.
INTEREST CAPITALIZATION
Interest costs for the construction of certain long-lived assets are
capitalized and amortized over the related assets' estimated useful lives.
During the years ended March 31, 2000 and l999, interest costs of $390,000 and
$373,000, respectively, were capitalized. No interest costs were capitalized
during the year ended March 31, l998.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments at March 31,
2000, primarily notes payable, closely approximates fair value.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of the
grant. The Company accounts for the stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognized no compensation expense for the stock option grants.
LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets
to be held and used in accordance with Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121). SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the fair
value of the long-lived asset. Loss on long-lived assets to be disposed of is
determined in a similar way, except that the fair values are reduced for the
cost of disposal.
F-8
33
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Financial
Accounting Standards Board Statement No. 128, Earnings Per Share. Statement No.
128 replaced APB Opinion No. 15 for the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share.
Supplemental net income and earnings per share are presented in the
statements of operations to reflect the pro forma effect of the application of
federal and state income taxes on the earnings of Allen Tank, Inc. as if it had
always been a C Corporation. Prior to the merger with the Company, Allen Tank,
Inc. had operated as an S Corporation. Allen Tank, Inc. elected to terminate its
S Corporation status on the date of the transaction and as a result became
subject to corporate level income taxation.
2. WORKING CAPITAL DEFICIT
At March 31, 2000, the Company has a working capital deficit of $3,789,000.
This deficit was caused by the reclassification of $22,349,000 outstanding under
the Company's Secured Senior Credit facility, as more fully described in Note 7.
The Company expects to enter into an amendment to the Secured Senior Credit
Facility by August 31, 2000, which would result in Company being in compliance
with the credit facility. In the event such an amendment does not occur, which
management believes is unlikely, the Company expects adequate operating cash
flows or believes it has the ability to access other capital. Accordingly,
management does not believe this working capital deficit will affect the normal
operations of the Company during fiscal year 2001.
3. MERGERS AND ACQUISITIONS
Effective January 1, 1998, the Company acquired the assets and business of
Professional Industrial Maintenance, LLC ("PIM") for $6.0 million ($4.8 million
in cash and $500,000 in shares of the Company's common stock at closing (26,405
shares) and $337,500 per year for two years payable in shares of the Company's
common stock). The Company issued 43,273 and 47,298 shares of common stock in
February 1999 and 2000, respectively, in conjunction with these two payments. In
addition, $1.0 million was payable contingent upon certain conditions being met
which, subsequently were not met and the time period has expired. As a result,
this contingent amount was not paid. The Company acquired assets with a fair
value of $4.5 million and assumed liabilities of $5.5 million. The transaction
was accounted for as a purchase and the excess cost over estimated fair value of
the net assets acquired is being amortized over 17 years on a straight-line
basis. The operating results of PIM are included in the consolidated statement
of operations from the effective date of the acquisition.
On July 24, 1998, the Company acquired all of the outstanding common stock
of Allen Tank, Inc. (Allen Tank) for 819,000 shares of UNIFAB International,
Inc. common stock plus $1.2 million in cash and notes paid to a dissenting
shareholder. The business combination was accounted for as pooling of interests,
and, accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of Allen Tank. Operating results of the separate companies and the combined
amounts presented in the consolidated financial statements are summarized below:
YEAR
ENDED
MARCH 31,
1998
----------
Revenues:
UNIFAB $ 68,564
Allen Tank 40,606
----------
Combined $ 109,170
==========
Net Income:
UNIFAB $ 5,379
Allen Tank 1,841
----------
Combined $ 7,220
==========
F-9
34
3. MERGERS AND ACQUISITIONS (CONTINUED)
UNIFAB's fiscal year end is March 31. Prior to the combination, Allen Tank
reported operations based on a 52-week fiscal reporting period. In applying
pooling-of-interests accounting, the March 31, 1998 UNIFAB statement of income
was combined with the Allen Tank statement of income for the 52-week period
ended December 27, 1997. Revenue and net income for the period from Allen Tank's
fiscal period end to December 31 are not material. Retained earnings of the
combined entities were adjusted by approximately $1,027,000 as of the beginning
of UNIFAB's fiscal 1999 year to include the unaudited net earnings of Allen
Tank, including adjustments to conform accounting policies to those of UNIFAB,
for the period December 28, 1997 to March 21, 1998. During this period, Allen
Tank's revenue was $8,987,000.
Merger expenses of approximately $303,000 include legal, investment banking
and accounting and are classified as "other expense" in the March 31, 1999
consolidated statement of operations.
Prior to the acquisition, Allen Tank was taxed as an S Corporation. Upon the
acquisition, S Corporation status was terminated and the corporation was subject
to federal and state income taxes. In conjunction with the termination of S
Corporation status, Allen Tank distributed $1.5 million to its shareholders in
the form of notes. This distribution, which was consistent with prior
distributions to the Allen Tank shareholders, represented the tax liability of
those shareholders for S Corporation earnings through the date of the
acquisition and termination of S Corporation status. The remaining undistributed
earnings at the date of acquisition were accounted for as additional capital at
the beginning of fiscal year March 31, 1998.
On July 24, 1998, the Company completed its acquisition of Latoka
Engineering, Ltd. ("LATOKA"). The purchase price was approximately $997,000,
paid through the issuance of 79,000 shares of the Company's common stock. The
Company acquired assets with a fair value of $4.0 million and assumed
liabilities of $7.0 million. The transaction was accounted for as a purchase and
the excess cost over estimated fair value of the net assets acquired is being
amortized over 15 years on a straight-line basis. Operating results of LATOKA
are included in the consolidated statement of operations from the acquisition
date.
On April 29, 1999, the Company completed its acquisition of Oil Barges, Inc.
("OBI") and substantially all the assets of Southern Rentals, LLC, an affiliate
of OBI. The purchase price was approximately $6.1 million paid through the
issuance of approximately 700,000 shares of UNIFAB International, Inc. common
stock plus approximately $400,000 of acquisition expenses. The Company acquired
assets with a fair value of $8.6 million and assumed liabilities of $8.1
million. The transaction was accounted for as a purchase and the excess cost
over estimated fair value of the net assets acquired is being amortized over 30
years on a straight line basis.
On June 24, 1999, the Company completed its acquisition of Compression
Engineering Services, Inc. ("CESI"). The purchase price was approximately
$489,000 paid through the issuance of 60,000 shares of UNIFAB International,
Inc. common stock. The Company acquired assets with a fair value of $226,000 and
assumed liabilities of $60,000. The transaction was accounted for as a purchase,
and the excess cost over estimated fair value of the net assets acquired is
being amortized over 20 years on a straight line basis. CESI operates as a
division of Allen Process Systems, a wholly-owned subsidiary of UNIFAB
International, Inc.
The operating results of OBI and CESI are included in the consolidated
statement of operations from the effective date of the acquisitions,
respectively. The pro forma unaudited revenue and net income for the year ended
March 31, 1999, assuming the acquisitions of OBI and CESI had been consummated
April 1, 1998, are $129,114,000 and $6,034,000, respectively. Pro forma basic
and diluted earnings per share are $0.90. The operating results of the OBI and
CESI acquisitions would not have materially affected the Company's consolidated
revenue, net loss, or net loss per share for fiscal 2000.
F-10
35
4. CONTRACTS IN PROGRESS
Information pertaining to contracts in progress at March 31 follows:
2000 1999
-------- --------
(In Thousands)
Costs incurred on uncompleted contracts $ 37,640 $ 13,789
Estimated earnings 8,992 3,125
-------- --------
46,632 16,914
Less billings to date (42,715) (17,379)
-------- --------
$ 3,917 $ (465)
======== ========
Included in the accompanying balance sheets under
the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 6,353 $ 4,388
Billings in excess of costs and estimated earnings
on uncompleted contracts (2,436) (4,853)
-------- --------
$ 3,917 $ (465)
======== ========
Accounts receivable includes retainages and unbilled receivables,
respectively, of $13,000 and $1,261,000 at March 31, 2000 and $123,000 and
$629,000 at March 31, 1999.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31, 2000
and 1999:
2000 1999
-------- --------
(In Thousands)
Land $ 2,557 $ 2,557
Building and bulkhead, including leasehold
improvements 14,673 8,292
Yard equipment 23,191 19,186
Vehicles and other equipment 2,224 2,596
-------- --------
42,645 32,631
Less accumulated depreciation 10,937 9,372
-------- --------
$ 31,708 $ 23,259
======== ========
F-11
36
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The Company leases land, upon which portions of its facilities in New Iberia
are located, under noncancelable operating leases. The leases expire in fiscal
year 2006 and have two 10-year renewal options. The Company also leases its
facility in Lake Charles under a noncancelable operating lease. The lease
expires in fiscal year 2005 and has two five-year renewal options. Future
minimum payments under these leases are as follows (in thousands):
2001 $ 921
2002 870
2003 835
2004 654
2005 574
2006 and after 734
--------
$ 4,588
========
Rent expense during the years ended March 31, 2000, 1999 and 1998 was
$1,724,000, $2,395,000 and $2,298,000, respectively, which includes rent on
cancelable equipment leases.
6. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of March 31 were as
follows:
2000 1999
-------- --------
(In Thousands)
Deferred tax liabilities:
Excess book value over tax basis of property, plant
and equipment $ 3,151 $ 2,286
Excess book value over tax basis of drilling
equipment acquired in the acquisition of OBI 344 --
Long-term construction contracts 90 258
Goodwill 60 --
-------- --------
Total deferred tax liabilities 3,645 2,544
Deferred tax assets:
Reserves not currently deductible 163 46
Operating loss carryforward 258 --
-------- --------
Total deferred tax assets 421 46
Valuation allowance for deferred tax assets (258) --
-------- --------
Deferred tax assets 163 46
-------- --------
Net deferred tax liabilities $ 3,482 $ 2,498
======== ========
A valuation allowance has been recognized to offset the deferred tax asset
related to the operating loss carryforwards of the Company's foreign subsidiary,
Allen Process Systems, Ltd.
F-12
37
6. INCOME TAXES (CONTINUED)
The income tax provision (benefit) is comprised of the following:
2000 1999 1998
-------- -------- --------
(In Thousands)
Current $ (2,562) $ 696 $ 3,261
Deferred 1,877 1,043 (365)
Cumulative deferred provision due to
change in tax status of Allen Tank -- 525 --
-------- -------- --------
$ (685) $ 2,264 $ 2,896
======== ======== ========
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is:
2000 1999 1998
-------- -------- --------
(In Thousands)
Tax at federal statutory rates $ (937) $ 2,926 $ 3,440
Non deductible losses from foreign subsidiary 258 -- --
Allen Tank income prior to change in tax status,
not subject to tax -- (1,450) (626)
Provision for cumulative deferred income taxes
due to change in tax status of Allen Tank -- 525 --
Other, primarily state income taxes (6) 263 82
-------- -------- --------
$ (685) $ 2,264 $ 2,896
======== ======== ========
7. CREDIT ARRANGEMENT
On November 30, l999, the Company entered into a Secured Senior Credit
Facility Agreement (the "Agreement") with a syndicated group of financial
institutions (the "Bank Group") for $40 million in total credit facilities (the
"Secured Senior Credit Facility"). Under the terms of the facility, the Company
can borrow up to $30.0 million for general corporate purposes under a revolving
credit facility. Up to $17.5 million is available under the revolving facility
for standby letters of credit. Additionally, the Secured Senior Credit Facility
provides for a $10.0 million term loan with monthly principal payments of
$167,000, plus interest, beginning December 1999. Borrowings under the Secured
Senior Credit Facility bear interest at the prime lending rate established by
the banks or LIBOR, at the Company's option, plus a variable interest margin
determined based on the ratio of the total funded indebtedness to EBITDA, as
defined in the Agreement. At March 31, 2000, the applicable borrowing rates,
including the margin, were 10.25% and 9.13%, respectively. The fee for issued
letters of credit is 2% per annum on the principal amount of letters of credit
issued for performance or payment, or 3% per annum on the principal amount if
the letter of credit is a financial letter of credit. The unused commitment fee
is 1/2 of 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
revolving portion of the Secured Senior Credit Facility matures November 2002
and the term portion matures November 2004.
F-13
38
7. CREDIT ARRANGEMENT (CONTINUED)
At March 31, 2000, the Company was not in compliance with certain financial
covenants in the Secured Senior Credit Facility. The Company exceeded the
maximum Funded Indebtedness to EBITDA ratio covenant and did not meet the
minimum fixed charge coverage ratio covenant, as defined in the Agreement. At
the request of the Company, the Bank Group has executed a waiver for these
financial covenants for the period ended March 31, 2000. Under the terms of the
waiver, all new advances as well as all existing advances currently bearing
interest at LIBOR plus the applicable margin shall bear interest at the prime
lending rate plus margin (12.3% at June 1, 2000). In addition, certain financial
reporting requirements required quarterly under the Secured Senior Credit
Facility will be reported monthly. As a result of this noncompliance and
anticipated noncompliance during fiscal year 2001, $22,349,000 outstanding under
the Secured Senior Credit Facility has been classified current and included in
Notes Payable in the March 31, 2000 balance sheet. The Company expects to
execute an amendment to the Secured Senior Credit Facility prior to August 31,
2000, which will establish a borrowing base agreeable to the Bank Group and the
Company, and which will establish financial covenants which are consistent with
the Company's current financial condition and anticipated outlook. The Company
expects that execution of this amendment will allow the amounts outstanding
under the Secured Senior Credit Facility to be classified as noncurrent.
At March 31, 2000, the Company had $15.0 million in borrowings and $4.1
million in letters of credit outstanding under the revolving credit facility and
$9.3 million outstanding under the term loan.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
2000 1999 1998
---------- ---------- ----------
Numerator for basic and diluted earnings (loss)
per share $ (2,071) $ 6,343 $ 7,220
========== ========== ==========
Denominator:
Denominator for basic earnings (loss) per
share - weighted average shares 6,723 5,972 5,192
Effect of dilutive employee stock options -- -- 21
---------- ---------- ----------
Denominator for diluted earnings (loss) per
share - adjusted weighted average shares 6,723 5,972 5,213
========== ========== ==========
Basic earnings (loss) per share $ (0.31) $ 1.06 $ 1.39
========== ========== ==========
Diluted earnings (loss) per share $ (0.31) $ 1.06 $ 1.38
========== ========== ==========
Options with an exercise price greater than the average market price of the
Company's common stock for the year and options outstanding during years where
the Company incurs a net loss are antidilutive and, therefore, not included in
the computation of diluted earnings per share. During 2000, 412,000 options
outstanding were antidilutive due to the net loss incurred by the Company.
During 1999 there were 395,000 antidilutive options outstanding with a range of
exercise prices from $7.50 to $18.00.
9. DIVIDENDS
Under the provisions of a shareholders' agreement, unless otherwise approved
by the board of directors, Universal Fabricators Incorporated distributed 90% of
its net income for the prior fiscal year. The shareholders' agreement was
terminated upon completion of the Offering.
F-14
39
10. RELATED PARTY TRANSACTIONS
In September 1997, the Company acquired approximately 18 acres of land and
an administrative office building formerly leased by the Company from McDermott
for $700,000 and paid $6,300,000 to McDermott for the surrender of certain
contractual rights, including the cancellation of an option held by McDermott
that allowed McDermott to acquire the other 51% of outstanding common stock of
Universal Fabricators Incorporated. The Company also acquired 10 acres of land
adjacent to its facilities from Universal Partners for $100,500.
11. LONG-TERM INCENTIVE PLAN
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided under FASB
Statement No. 123, Accounting for Stock-Based Compensation, ("Statement No.
123") requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, no compensation expense is
recognized because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant.
In July 1997, the Company adopted and its shareholder approved the Long-Term
Incentive Plan (the "1997 Plan") to provide long-term incentives to its key
employees, including officers and directors who are employees of the Company
(the "Eligible Employees"). Under the 1997 Plan, which is administered by the
Compensation Committee of the Board of Directors, the Company may grant
incentive stock options, nonqualified stock options, restricted stock, other
stock-based awards or any combination thereof (the "Incentives") to Eligible
Employees. The Compensation Committee will determine who will receive Incentives
and will establish the exercise price of any stock options granted under the
Incentive Plan, provided that the exercise price may not be less than the fair
market value of the Common Stock on the date of grant. A maximum total of
460,000 shares of Common Stock are available for issuance under the 1997 Plan.
All of the options granted under the 1997 Plan have a 10-year term and vest
over a 2-year period. The optionee will not realize any income for federal
income tax purposes, nor will the Company be entitled to any deduction, upon the
grant of a nonqualified stock option. Upon exercise, the optionee will realize
ordinary income measured by the difference between the aggregate fair market
value of the shares of Common Stock on the exercise date and the aggregate
exercise price, and the Company will be entitled to a deduction in the same
amount.
Pro forma information regarding net income and earnings per share is
required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of the
grant using the Black-Scholes option pricing model with the following weighted
average :
2000 1999 1998
--------------- -------------- -------
Risk-free interest rate 5.67% to 6.23% 4.69% to 5.13% 5.75%
Volatility factor of the expected market price
of UNIFAB stock .722 to .754 .797 .737
Weighted average expected life of the option 2 years 2 years 2 years
Expected dividend yield Zero Zero Zero
The Black-Scholes valuation model was developed for use in estimating the
fair value of trade options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimated, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-15
40
11. LONG-TERM INCENTIVE PLAN (CONTINUED)
Since the options vest over a two-year period, the pro forma disclosures are
not indicative of future amounts until Statement 123 is applied to all
outstanding nonvested options. The Company's pro forma information for the years
ended March 31, 2000, 1999 and 1998 is as follows (in thousands, except per
share data):
2000 1999 1998
---------- ---------- ----------
Net income (loss):
As reported $ (2,071) $ 6,343 $ 7,220
Pro forma including the effect of options $ (2,407) $ 5,921 $ 6,827
Basic earnings (loss) per share:
As reported $ (0.31) $ 1.06 $ 1.39
Pro forma including the effect of options $ (0.36) $ .99 $ 1.31
Diluted earnings (loss) per share:
As reported $ (0.31) $ 1.06 $ 1.38
Pro forma including the effect of options $ (0.36) $ .99 $ 1.31
A summary of the Company's stock options activity and the related
information for the years ended March 31, 2000, 1999 and 1998 is as follows (in
thousands, except per share data):
2000 1999 1998
---------------------- ---------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- -------- -------- --------
Outstanding - beginning of year 395 $ 10.21 134 $ 18.00 -- $ --
Granted 20 7.18 296 7.54 134 18.00
Exercised -- -- (7) 18.00 -- --
Expired -- -- -- -- -- --
Forfeited (3) 7.50 (28) 17.25 -- --
-------- -------- -------- -------- -------- --------
Options outstanding at end of year 412 $ 10.08 395 $ 10.21 134 $ 18.00
======== ======== ======== ======== ======== ========
Options exercisable at end of year 306 $ 10.99 165 $ 11.79 46 $ 18.00
======== ======== ======== ======== ======== ========
Weighted average fair value of options
granted during year $ 3.12 $ 3.42 $ 7.77
======== ======== ========
Exercise prices for options outstanding as of March 31, 2000 ranged from
$5.65 to $18.00. The weighted average remaining contractual life of those
options is 8.5 years.
12. EMPLOYEE BENEFIT PLAN
The Company sponsors incentive savings plans covering substantially all of
the employees of the Company and its subsidiaries which allow participants to
make contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code. Under these plans, employees with one year of service
with the Company are eligible to participate.
The Company contributes an amount equal to 50% of employee contributions up
to 3% of their base compensation. Matching contributions made by the Company
were approximately $311,000, $331,000 and $278,000 in fiscal years 2000, 1999
and 1998, respectively.
F-16
41
13. MAJOR CUSTOMERS
The Company is not dependent on any one customer, and the contract revenue
earned from each customer varies from year to year based on the contracts
awarded. Contract revenue earned comprising 10% or more of the Company's total
contract revenue earned for fiscal years ended March 31, 2000, 1999 and 1998 is
summarized as follows (in thousands):
2000 1999 1998
-------- -------- --------
Customer A $ -- $ -- $ 13,725
Customer B 8,425 -- --
Customer C -- 10,574 19,515
Customer D 10,440 10,491 --
14. INTERNATIONAL SALES
The Company fabricates structures and equipment for use worldwide by U.S.
customers operating abroad and by foreign customers. During the fiscal years
ended March 31, 2000, 1999 and 1998, 62%, 51% and 40%, respectively, of the
Company's revenue was derived from projects fabricated for installation in
international areas, with the remainder designed for installation in the U.S.
Gulf of Mexico. The following table summarizes the Company's revenue by location
for the fiscal years ended March 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
-------- -------- --------
Location:
U.S. Gulf of Mexico $ 28,109 $ 51,172 $ 65,758
International 45,015 52,694 43,412
-------- -------- --------
Total $ 73,124 $103,866 $109,170
======== ======== ========
15. COMMITMENTS AND CONTINGENCIES
The Company is party to legal proceedings arising in the normal course of
business. It is the opinion of management that the outcome of these matters will
not have a material adverse effect on the Company's financial position or
results of operations, individually or in the aggregate.
The Company is developing a deep-water fabrication and drilling
rig-refurbishing facility on property leased from the Lake Charles Harbor and
Terminal District in Lake Charles, Louisiana. Estimated completion of the
facility is July 2000. Under the terms of the lease, the Company is committed to
fund capital expenditures totaling $8.0 million to develop the facility and
acquire equipment necessary for operations. Through March 31, 2000, the Company
has funded $7.0 million toward this development. The Company expects to fund the
remaining capital expenditures through cash from operations and additional draws
on its credit facility.
F-17
42
16. QUARTERLY OPERATING RESULTS (UNAUDITED)
A summary of quarterly results of operations for the years ended March 31,
2000 and 1999 were as follows (in thousands, except per share data):
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 2000
---------- ------------- ------------ ----------
Revenue $ 16,255 $ 21,511 $ 18,051 $ 17,307
Gross profit (loss) 2,381 2,783 1,711 (182)
Net income (loss) 115 74 (398) (1,862)
Basic earnings (loss) per share 0.02 0.01 (0.06) (0.27)
Diluted earnings (loss) per share
0.02 0.01 (0.06) (0.27)
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1999
---------- ------------- ------------ ----------
Revenue $ 31,419 $ 31,585 $ 23,474 $ 17,388
Gross profit 6,287 6,373 4,947 948
Net income (loss) 3,212 2,164 1,677 (710)
Basic earnings (loss) per share 0.54 0.36 0.28 (0.12)
Diluted earnings (loss) per share
0.54 0.36 0.28 (0.12)
F-18
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on June 26, 2000.
UNIFAB International, Inc.
(Registrant)
By: /s/ Dailey J Berard
---------------------------------------
Dailey J. Berard
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND DATE TITLE
------------------ -----
/s/ Dailey J Berard June 26, 2000 Chairman of the Board, President and
- ----------------------------------------------------- Chief Executive Officer (Principal Executive
Dailey J. Berard Officer)
/s/ Peter J. Roman June 26, 2000 Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
Peter J. Roman
/s/ Charles E. Broussard June 20, 2000 Director
- -----------------------------------------------------
Charles E. Broussard
/s/ William Hines June 20, 2000 Director
- -----------------------------------------------------
William Hines
/s/ Perry Segura June 20, 2000 Director
- -----------------------------------------------------
Perry Segura
/s/ George C. Yax June 20, 2000 Director
- -----------------------------------------------------
George C. Yax
S-1
44
UNIFAB INTERNATIONAL, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Transition Agreement among the Company, McDermott,
Universal Partners, Universal Fabricators and Dailey J.
Berard. *
2.2 Form of Agreement and Plan of Share Exchange between
the Company and Universal Partners, Inc. *
2.3 Form of Share Exchange Agreement between the Company
and McDermott *
2.4 Agreement to Issue Stock in UNIFAB International, Inc.
dated as of February 5, 1998 between UNIFAB
International, Inc. and Professional Industrial
Maintenance, LLC. **
2.5 Amendment No. 1 to Agreement to Issue Stock in UNIFAB
International, Inc. dated as of March 31, 1998 among
UNIFAB International, Inc., Professional Industrial
Maintenance, LLC and Don E. Spano, Jr. **
2.6 Agreement and Plan of Merger among UNIFAB
International, Inc., ATI Acquisition, L.L.C., Allen
Tank, Inc., Vincent J. Cuevas, Walter L. Hampton,
William A. Hines, Allen C. Porter, Jr., and Joseph G.
Weisberger dated as of July 24, 1998***
2.7 Agreement and Plan of Merger among UNIFAB
International, Inc., LATUSA Acquisition, Inc., LATOKA
USA, Inc., William A. Hines, and Allen C. Porter, Jr.,
dated as of July 24, 1998***
2.8 Agreement and Plan of Reorganization among UNIFAB
International, Inc., OBI Acquisition, Inc., Oil Barges,
Inc., Southern Rentals, L.L.C., Roy J. Poche, Philip J.
Patout, Rodney J. Verret, Rodney M. Verret, Frank D.
Verret, Peggy Verret Simon, Paula Verret Berard, Cove
Equipment, Inc., and Rodney J. Verret, Trustee of the
SKW Trust, dated as of April 29, 1999, incorporated by
reference from the UNIFAB International, Inc. Current
Report on Form 8-K dated April 29, 1999
3.1 Articles of Incorporation of the Company *
3.2 By-laws of the Company *
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Company's Articles of Incorporation and By-laws
defining the rights of holders of Common Stock *
4.2 Specimen Common Stock Certificate *
10.1 Form of Indemnity Agreement by and between the Company
and each of its directors and executive officers *
10.2 Credit Agreement By and Among Unifab International,
Inc. (as Borrower), Bank One, National Association (as
Agent) and the Lenders Party Hereto dated November 30,
1999 incorporated by reference from the UNIFAB
International, Inc. Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999.
10.3 The Company's Long-Term Incentive Plan * (Function)
10.4 Form of Stock Option Agreement under the Company's
Long-Term Incentive Plan * (Function)
10.5 Form of Employment Agreement between the Company and
Dailey J. Berard *(Function)
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of LaPorte, Sehrt, Romig & Hand
27.1 Financial Data Schedule
----------
* Incorporated by reference from the Company's Registration Statement
on Form S-1 filed with the Commission of September 18, 1997, as
amended (Registration No. 333-31609)
** Incorporated by reference to the Company's Current Report on Form
8-K dated February 5, 1998, as amended.
*** Incorporated by reference from the Company's Current Report on Form
8-K dated July 24, 1998, as amended.
(Function) Management Contract or Compensatory Plan
E-1