Gulf Island Fabrication, Inc. (GIFI)

GIFI 
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Gulf Island Fabrication Inc. (GIFI)

Q3 2009 Earnings Call

October 23, 2009; 10:00 am ET

Executives

Kerry Chauvin - Chairman & Chief Executive Officer

Kirk Meche - President & Chief Operating Officer

Robin Seibert - Chief Financial Officer

Analysts

Jim Rollyson - Raymond James

Joe Gibney - Capital One Southcoast

Brian Uhlmer - Pritchard Capital

Joe Agular - Johnson Rice

Katherine Schmitt - Cape Courier

Presentation

Operator

Good morning and welcome ladies and gentlemen, to the Gulf Island Fabrication Inc. 2009 third quarter release conference call. All participants will be in a listen-only mode for the duration of the presentation.

At this time, I would like to turn the conference over to Ms. Deborah Knoblock for opening remarks and introductions. Deborah, please go ahead

Deborah Knoblock

I would like to welcome everyone to Gulf Island Fabrication’s 2009 third quarter teleconference. Please keep in mind that any statements made in this teleconference that are not statements of historical fact, are considered forward-looking statements. These statements are subject to factors that could cause actual results to differ materially from the results predicted in the forward-looking statements.

These factors include the timing and extent of changes in the prices of crude oil and natural gas, the timing of new projects and the company’s ability to obtain them, and other details that are described under cautionary statements concerning forward-looking information and elsewhere in the company’s 10-K filed March 6, 2009.

The 10-K was included as part of the company’s 2008 Annual Report filed with the Securities and Exchange Commission earlier this year. The company assumes no obligation to update these forward-looking statements. Today we have Mr. Kerry Chauvin, Chairman and CEO; Mr. Kirk Meche, President and COO; and Mr. Robin Seibert, our CFO. Robin.

Robin Seibert

Thank you, Deborah. I would like to review Gulf Island’s press release issued for the third quarter of 2009. The press release consists of two pages; page one is text and page two is an income statement. I would like to review page two, which is the income statement, first.

The following are the results of operations for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Revenue was $76.6 million compared to $92.7 million. The cost of revenue was $65.4 million compared to $86.3 million. Gross margin was $11.2 million or 14.6% of revenue, compared to $6.3 million or 9.6% of revenue.

As mentioned in prior quarters, certain projects include costs for additional improvements to our infrastructure that are necessary to fabricate or complete a project. Since additions or improvements provide future benefits to us, the cost to build these projects is capitalized. Thus costs removed from project costs is subsequently capitalized, directly increases the estimated profits on the project. Related capitalized costs net of depreciation on those contracts was $605,000 in the quarter ended September 30, 2009. There were no amounts included in project revenue that were capitalized in the quarter ended September 30, 2008.

General and administrative expenses were $2.1 million or 2.7% of revenue, compared to $2.1 million or 2.2% of revenue. Operating income was $9.2 million, compared to $4.2 million. We had net interest income of $58,000, compared to net interest income of $24,000. Other income was a gain of $2,000, compared to a loss of $42,000 when comparing 2009 to 2008. Activity for both periods were related to the sales of miscellaneous equipment.

Income before taxes was $9.2 million, compared to $4.2 million. Income tax expense was $3.2 million, compared to $1.4 million. The income tax rates were 35.1%, compared to 32.8%. The change in tax rates were related to limitations on certain federal manufacturing tax credits, and an increase in the state tax apportionment, caused by a greater portion of our revenue being related to tow-boat fabrication. We currently expect our tax rates to be 35.5% to 36% for the remainder of the year.

Net income was $6.0 million compared to $2.8 million. Basic earnings per share were $0.41 compared to $0.20. Diluted earnings per share were $0.41 compared to $0.20. Weighted average shares and adjusted weighted average shares outstanding were 14.3 million shares for both periods. Depreciation expense was $4.7 million compared to $4.6 million. We declared and paid cash dividends of $0.01 per share for the quarter ended September 30, 2009, compared to $0.10 for the quarter ended September 30, 2008.

The following are the results of operations for the nine months ending September 30, 2009 compared to September 30, 2008. Revenue was $240.8 million compared to $334.3 million. The cost of revenue was $209.4 million compared to $284.7 million. Gross margin was $31.3 million or 13% of revenue, compared to $49.6 million or 14.8% of revenue.

Capitalized cost net of depreciation included in project revenue was $1.9 million, compared to $5.3 million. General and administrative expenses were $6.2 million or 2.6% of revenue, compared to $7.3 million or 2.2% of revenue. Operating income was $25.1 million compared to $42.2 million. We had net interest expense of $43,000 compared to net interest income of $156,000.

Other income and expense were a gain of $4,000 compared to a loss of $97,000 respectively. Results for both those periods were again, for the sale of miscellaneous equipment. Income before tax was $25.1 million, compared to $42.3 million. Income tax expense was $8.9 million compared to $14.1 million. Income tax rates were 35.5% compared to 33.4%. Net income was $16.2 million compared to $28.1 million. Basic earnings per share were $1.12 compared to $1.97.

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