United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended September 30, 2004
[ ] 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.
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(Exact name of registrant as specified in its charter)
Louisiana 72-1382998
-------------------------------- -----------------------
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
5007 Port Road
New Iberia, LA 70560
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(337) 367-8291
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities and Exchange Act of 1934)
Yes [ ] No [X]
Common Stock, $0.01 Par Value--8,997,899 shares outstanding as of January
24, 2005.
UNIFAB INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- September 30, 2004 and
December 31, 2003.................................................. 1
Condensed Consolidated Statements of Operations -- Three Months Ended
September 30, 2004 and 2003; Nine months ended September 30, 2004
and 2003........................................................... 2
Condensed Consolidated Statements of Cash Flows -- Nine months ended
September 30, 2004 and 2003........................................ 3
Notes to Condensed Consolidated Financial Statements................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 15
Item 3. Quantitative and Qualitative Disclosure of Market Risk............. 22
Item 4. Controls and Procedures............................................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 24
Item 5. Other Information.................................................. 24
Item 6. Exhibits and Reports on Form 8-K................................... 24
Signatures....................................................................... 25
UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30 DECEMBER 31
2004 2003
------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Assets
Current assets:
Cash and cash equivalents $ 122 $ 10
Accounts receivable, net 3,747 11,411
Costs and estimated earnings in excess of billings on uncompleted contracts 299 1,287
Income tax receivable 49 147
Prepaid expenses and other assets 243 1,441
Assets of discontinued operations 5,386 -
-------- --------
Total current assets 9,846 14,296
Property, plant and equipment, net 16,181 25,223
Other assets 1,500 700
-------- --------
Total assets $ 27,527 $ 40,219
======== ========
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable $ 1,990 $ 4,782
Billings in excess of costs and estimated earnings on uncompleted contracts 964 875
Accrued liabilities 2,167 2,454
Contract loss reserves 8 697
Notes payable to Midland 2,600 5,900
Current maturities of long-term debt 7,964 929
Liabilities of discontinued operations 228 -
-------- --------
Total current liabilities 15,921 15,637
Long-term debt, less current maturities - 7,902
Secured, subordinated notes payable 6,848 6,848
Secured, subordinated, convertible debenture, net of unamortized discount of $1,896 and
$2,931, respectively 6,057 7,721
-------- --------
Total liabilities 28,826 38,108
Commitments and contingencies (Note 8)
Shareholders' equity (deficit):
Preferred stock, no par value, 5,000 shares authorized, no shares outstanding - -
Common stock, $0.01 par value, 150,000,000 shares authorized, 8,997,899 and 8,201,899
shares outstanding, respectively 90 82
Additional paid-in capital 64,864 62,076
Accumulated deficit (66,253) (60,047)
-------- --------
Total shareholders' equity (deficit) (1,299) 2,111
-------- --------
Total liabilities and shareholders' equity (deficit) $ 27,527 $ 40,219
======== ========
See accompanying notes.
1
UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------------- ------------------------------
2004 2003 2004 2003
------- -------- -------- --------
(In thousands except per share data)
Revenue.............................................. $ 7,744 $ 10,312 $ 23,094 $ 27,321
Cost of revenue...................................... 8,080 11,356 23,152 27,801
------- -------- -------- --------
Gross loss........................................... (336) (1,044) (58) (480)
Selling, general and administrative
expense............................................ 458 587 1,828 2,000
------- -------- -------- --------
Loss from operations................................. (794) (1,631) (1,886) (2,480)
Other income (expense):
Interest expense................................... (1,216) (489) (2,293) (1,454)
Interest income.................................... 890 4 898 9
------- -------- -------- --------
Loss from continuing operations before income taxes.. (1,120) (2,116) (3,281) (3,925)
Income tax benefit................................... 2,212 - 2,212 -
------- -------- -------- --------
Income (loss) from continuing operations............. 1,092 (2,116) (1,069) (3,925)
Discontinued operations
Loss from operation of discontinued process systems
segment............................................ (149) (458) (1,527) (1,255)
Loss from operation of discontinued drilling rig
fabrication segment................................ (221) (1,068) (3,610) (1,083)
Income tax benefit................................... - - - -
------- -------- -------- --------
Loss on discontinued operations...................... (370) (1,526) (5,137) (2,338)
------- -------- -------- --------
Net income (loss).................................... $ 722 $ (3,642) $ (6,206) $ (6,263)
======= ======== ======== =========
Basic and diluted income (loss) per share from
continuing operations.............................. $ 0.13 $ (0.26) $ (0.13) $ (0.48)
======= ======== ======== ========
Basic and diluted loss per share from discontinued
operations......................................... $ (0.04) $ (0.18) $ (0.63) $ (0.28)
======= ======== ======== ========
Basic and diluted income (loss) per share............ $ 0.09 $ (0.44) $ (0.76) $ (0.76)
======= ======== ======== ========
Basic and diluted weighted average shares
outstanding........................................ 8,235 8,193 8,219 8,193
======= ======== ======== ========
(a) All earnings (loss) per share amounts and weighted average number of
shares outstanding have been restated to give effect to a one-for-ten
reverse stock split effected on August 3, 2003
See accompanying notes.
2
UNIFAB INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
--------- ---------
2004 2003
--------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,206) $ (6,263)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 1,082 888
Amortization of discount on secured, subordinated convertible debenture
392 391
Write off of unamortized discount on debentures converted 643 -
Provision for doubtful accounts 60 -
Loss from discontinued operations 5,137 1,926
Changes in operating assets and liabilities, net of discontinued operations:
Accounts receivable 2,334 (1,091)
Net costs and estimated earnings in excess of billings and billings in excess of costs and
estimated earnings on uncompleted contracts (802) 1,515
Prepaid expenses and other assets 3,965 (2,513)
Reduction in valuation allowance related to income tax carryback refund received
(2,212) -
-------- --------
Accounts payable and accrued liabilities (234) 437
-------- --------
Net cash provided by (used in) operating activities 4,159 (4,710)
Investing activities:
Purchases of equipment (31) (202)
Proceeds from sale of equipment - -
Collections on notes receivable 54 54
-------- --------
Net cash provided by (used in) investing activities 23 (148)
-------- --------
Financing activities:
Proceeds from notes payable to Midland 12,100 -
Payments of notes payable to Midland (15,400) -
Net change in other borrowings (867) 5,004
Proceeds from exercise of options 97 -
-------- --------
Net cash provided by (used in) financing activities (4,070) 5,004
-------- --------
Net change in cash and cash equivalents 112 146
Cash and cash equivalents at beginning of period 10 80
-------- --------
Cash and cash equivalents at end of period $ 122 $ 226
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes (refunded), net $ (2,418) $ (200)
======== ========
Interest paid, net of capitalized interest $ 855 $ 765
======== ========
Interest received $ 898 $ -
======== ========
Non cash activities:
Midland conversion of debenture into shares of common stock (Note 2)
3
See accompanying notes.
UNIFAB INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2004
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
UNIFAB International, Inc. (the Company) fabricates and assembles jackets,
decks, topside facilities, quarters buildings, drilling rigs and equipment for
installation and use offshore in the production, processing and storage of oil
and gas. Through a wholly-owned subsidiary, Allen Process Systems, LLC, the
Company designs and manufactures specialized process systems such as oil and gas
separation systems, gas dehydration and treatment systems, 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, rents compressors. The
Company's main fabrication facilities are located at the Port of Iberia in New
Iberia, Louisiana. Through a wholly-owned subsidiary, Rig Port Services, LLC,
the Company has provided repair, refurbishment and conversion services for oil
and gas drilling rigs at its deep-water facility in Lake Charles, Louisiana. As
more fully described below, during the quarter ended September 30, 2004, the
Company has entered into a plan to dispose of assets and facilities related to
its process systems design and manufacture and its drilling rig fabrication
segments. As a result of entering into these plans, the operations of the
process systems and rig fabrication segments have been accounted for as
discontinued operations.
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
September 30, 2004, it was anticipated that substantially all contracts in
progress, and receivables associated therewith, would be completed and collected
within a 12-month period.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included. Operating
results for the three- and nine-month periods ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004.
These financial statements should be read in conjunction with the
financial statements and footnotes thereto for the year ended December 31, 2003
included in the Company's Annual Report on Form 10-K.
Certain amounts previously reported have been reclassified to conform to
the presentation at September 30, 2004.
4
2. CURRENT MATTERS
GOING PRIVATE TRANSACTION
On October 6, 2004, the Company announced that Midland Fabricators and
Process Systems, LLC, the owner of 90.1% of the outstanding common shares of the
Company, intends to take the Company private pursuant to the Louisiana short
form merger law. Since the statute permits the holder of 90% interest in a
Louisiana corporation to use this type of merger to cash out other shareholders,
the transaction requires no action on the part of the Company's board of
directors or shareholders. Midland will pay $0.20 per share to all other
shareholders of the Company. As part of the merger transaction, shareholders who
are not willing to accept the merger price will have the right to exercise their
dissenter's rights under Louisiana law. On September 30, 2004, Midland converted
$2.7 million of its convertible debenture into 771,000 shares of the Company's
common stock at a conversion price of $3.50 per share, which resulted in Midland
increasing its ownership to 90.1% of the outstanding common stock of the
Company. This conversion resulted in additional interest expense of $643,000
during the quarter related to the write off of the unamortized discount on the
debentures that were converted.
OPERATING LOSSES AND DISCONTINUED OPERATIONS
Prior to and since the initiation of the Midland Recapitalization and
Investment Transaction in April 2002, described more fully below, the Company
has been incurring losses from operations. In response to this situation, the
Company has eliminated noncore businesses and excess facilities, reduced
overhead and restructured its management team and operations in an effort to
return to profitability. In the three- and nine-month periods ended September
30, 2004, the Company incurred a net loss from continuing operations before
income taxes of $1.1 million and $3.3 million, respectively. Management has
initiated a plan to sell the rig fabrication facility and the process systems
fabrication facility. Losses from operations of the discontinued process systems
segment were $149,000 and $1.5 million, respectively, for the same periods.
Losses from operation of the discontinued rig fabrication segment were $221,000
and $3.6 million, respectively for the same periods. The nine-month period ended
September 30, 2004 includes a charge of $260,000 related to goodwill associated
with the Company's Compression Engineering business unit, which is included in
the process systems segment, and which was recorded in the quarter ended March
31, 2004. During the first quarter of 2004 and as part of the Company's ongoing
evaluation and reorganization of operations, the Company decided to suspend
engineering and maintenance operations related to compressors, including
compressors being rented from the Company. Included in the net loss from
continuing operations before income taxes for the three- and nine-month periods
ended September 30, 2004 are selling, general and administrative expenses of
$458,000 and $1.8 million, respectively, and interest expense of $1.2 million
and $2.3 million, respectively. Current pricing for the Company's services and
the level of utilization of the Company's main fabrication facilities have not
resulted in operating profits sufficient to cover these costs.
Operations at the Company's fabrication facility in Lake Charles,
Louisiana throughout the first three quarters of 2004 related to one significant
project at the facility, which was completed in April 2004. In the three-month
period ended September 30, 2004, this facility produced an operating loss of
$220,000. During the nine-month period ended September 30, 2004, the facility
produced revenue of $3.8 million and an operating loss of $303,000. Upon
completion of the project referred to above, there was no backlog for the
facility, and as a result management decided to temporarily idle this facility.
The Company had received an offer to acquire the facility for $2.5 million in
cash and notes. Based on the current state of the drilling rig market, the low
business level related to projects that could be placed at the facility, and the
offer received to acquire the facility, the Company reduced the carrying value
of the facility to $2.5 million and recorded an impairment loss on these assets
of $3.3 million in the second quarter of 2004. During the September 2004
quarter, these negotiations ceased and the Company engaged a real estate broker
and placed the facility for sale by closed bid auction held on November 18,
2004. The Company is currently negotiating the final documents to sell the
facility, which will allow the recovery of the recorded value of the facility.
The Company recovered an income tax carryback refund of $2.2 million plus
interest of $890,000 during the September quarter upon completion of an IRS
review. This refund was not previously anticipated fully, pending the completion
of this IRS review. The funds were used to pay down amounts owed to Midland. The
refund resulted in the Company recognizing income tax benefit of $2.2 million.
Previously, the Company had recorded a valuation reserve against all tax net
operating losses
5
available for carryback refund treatment.
FINANCIAL RELIANCE ON MIDLAND
The Company renewed the Credit Agreement in November 2003, with Midland's
continuing guarantee, and extended the maturity to January 31, 2005. As a
result, the amounts outstanding under the Credit Agreement were classified as
noncurrent in the December 31, 2003 balance sheet and are classified as current
in the September 30, 2004 balance sheet. Under an informal arrangement with the
Company, Midland has agreed from time to time to provide financial support and
funding for working capital or other needs at Midland's discretion. During the
nine months ended September 30, 2004, Midland advanced $12.1 million to the
Company for working capital, of which $2.6 million remains unpaid at September
30, 2004 and is classified as a current liability. At December 31, 2003, Midland
was owed $5.9 million related to advances under this informal arrangement, which
was classified as a current liability. As a result of classifying the amounts
outstanding related to the Credit Agreement and the informal arrangement with
Midland, the Company has working capital deficits of $6.1 million at September
30, 2004 and $1.3 million at December 31, 2003. The liquidity afforded by these
advances from Midland was necessary for the Company to meet its obligations and
fund operations. At December 31, 2002, Midland provided a standby letter of
credit to a customer in support of a contract, which was completed during the
March 2004 quarter. The letter of credit expired in March 2004. Since that time,
the Company has been awarded contracts totaling $13.1 million, which have
required a financial guarantee or letter of credit from Midland. Management
believes that additional funds available from Midland under the informal
arrangement described above are necessary to fund its working capital needs and
planned capital expenditures for the next 12 months and that guarantees from
Midland are necessary to win contract awards. However, the Company has no
control over whether Midland will provide additional funding or financial
guarantees in the future and does not know whether such additional funding or
financial guarantees will be available from Midland as the Company requires
them. If Midland does not provide such additional funding or financial
guarantees to the Company when needed in the future, the Company will not be
able to satisfy its working capital requirements and meet its obligations,
including obligations under the Credit Agreement, in the ordinary course of
business, or could be unable to qualify for contract awards. The Company
requires the continued support from Midland until such time as it has sustained
profitable operations and its financial condition is stable and no longer
requires this support.
If the Company is unsuccessful in its efforts to return to profitability
or obtain necessary capital from Midland as needed, it will not be able to meet
its obligations in the ordinary course of business and remain a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
3. MIDLAND RECAPITALIZATION AND INVESTMENT TRANSACTION
In April 2002, the Company entered into an agreement with Midland
Fabricators and Process Systems, LLC ("Midland") as a result of which, among
other things, Midland acquired the rights of the Company's lenders under the
Company's Senior Secured Credit Agreement. On August 13, 2002, pursuant to the
agreement with Midland, Midland exchanged $24.1 million outstanding under the
Company's Senior Secured Credit Agreement and $5.6 million in acquired claims of
unsecured creditors for 738 shares of preferred stock, a secured subordinated
convertible debenture in the amount of $10.7 million and two secured
subordinated notes which total in the aggregate $6.8 million. The debenture is
convertible into the Company's common stock at a price of $3.50 per share on a
post reverse split basis. Midland's 738 shares of preferred stock converted
automatically into a total of 7,380,000 shares of the Company's common stock on
August 1, 2003, the date the shareholders authorized additional shares of common
stock. The Company also recorded additional paid in capital on the transaction
of $3.7 million resulting from the discount recorded on the secured subordinated
convertible debenture, and capital contributions of $680,000 resulting from
forgiveness by Midland of penalties accrued under the Senior Secured Credit
Agreement and $914,000 resulting from partial forgiveness of the unsecured
creditor claims acquired by Midland. Further, $675,000 of the amount the Company
owed Midland under the Company's Senior Secured Credit Agreement was cancelled
in exchange for the assignment to Midland of certain accounts.
6
4. CONTRACTS IN PROGRESS
Information pertaining to contracts in progress at September 30, 2004 and
December 31, 2003 consisted of the following:
SEPTEMBER 30, DECEMBER 31,
2004 2003
----------------------------
(In thousands)
Costs incurred on uncompleted contracts $ 19,027 $ 48,876
Estimated loss (146) (2,866)
-------- --------
18,881 46,010
Less billings to date (19,546) (45,598)
-------- --------
$ (665) $ 412
======== ========
Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 299 $ 1,287
Billings in excess of costs and estimated earnings on
uncompleted contracts (964) (875)
-------- --------
$ (665) $ 412
======== ========
Accounts receivable includes unbilled receivables and retainages,
respectively, of $10,000 and $11,000 at September 30, 2004, and of $138,000 and
$10,000 at December 31, 2003.
The Company had contract loss reserves of $8,000 at September 30, 2004 and
$697,000 at December 31, 2003. At September 30, 2004, this reserve relates to
one platform fabrication contract that is substantially complete. The reserve
for this contract at December 31, 2003 was $9,000. Substantially all of the
contract reserves recorded at December 31, 2003 were realized in the nine-month
period ended September 30, 2004.
5. CREDIT FACILITY
On November 18, 2002, the Company entered into a Commercial Business Loan
Agreement with Whitney National Bank (the "Credit Agreement"), which provides
for up to $8.0 million in borrowings for working capital purposes, including up
to $2.0 million in letters of credit under a revolving credit facility. The
Credit Agreement is guaranteed by Nassau Holding Company (an affiliate of
Midland), the subsidiaries of Unifab, and the principle members of Midland, and
is secured by the assets of Universal Fabricators, LLC and Allen Process
Systems, LLC, both wholly-owned subsidiaries of the Company. At September 30,
2004, the Company had $7.9 million in borrowings and letters of credit totaling
$3,000 outstanding under the Credit Agreement. Borrowings under the Credit
Agreement bear interest at Libor plus 1.75% or the Prime rate (3.420% at
September 30, 2004), at the Company's discretion. The Credit Agreement matures
January 31, 2005. The Company expects to renew its Credit Agreement under the
same general terms and with the continuing guarantee of Nassau Holding Company.
6. INCOME TAXES
The Company provides for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. As of September 30, 2004, the Company recorded deferred tax
assets of $21.2 million, including $20.7 million related to net operating loss
carryforwards which, if not used, expire in years 2020 through 2024. The ability
of the Company to utilize net operating loss carryforwards is limited on an
annual basis because the Midland transaction resulted in a change in control
under the current tax regulations. The Company has recorded a valuation
allowance of $18.4 million to offset the deferred tax asset related to the net
operating loss carryforward and other deferred tax assets that exceed deferred
tax liabilities because the Company believes that it is more likely than not
that these deferred tax assets will not be utilized.
7
7. SHAREHOLDERS' EQUITY (DEFICIT)
EARNINGS (LOSS) PER SHARE
In April 2002, the Company entered into an agreement with Midland
Fabricators and Process Systems, LLC ("Midland") as a result of which, among
other things, Midland acquired the rights of the Company's lenders under the
Company's Senior Secured Credit Agreement. On August 13, 2002, pursuant to the
agreement with Midland, Midland exchanged $24.1 million outstanding under the
Company's Senior Secured Credit Agreement and $5.6 million in acquired claims of
unsecured creditors for 738 shares of our preferred stock, a secured
subordinated convertible debenture in the amount of $10.7 million and two
secured subordinated notes which total in the aggregate $6.8 million. The
debenture is convertible into the Company's common stock at a price of $3.50 per
share on a post reverse split basis. Midland's 738 shares of preferred stock
converted automatically into a total of 73,800,000 shares of the Company's
common stock on August 1, 2003, the date the shareholders authorized additional
shares of common stock. The Company also recorded additional paid in capital on
the transaction of $3.7 million resulting from the discount recorded on the
secured subordinated convertible debenture, and capital contributions of
$680,000 resulting from forgiveness by Midland of penalties accrued under the
Senior Secured Credit Agreement and $914,000 resulting from partial forgiveness
of the unsecured creditor claims acquired by Midland. Further, $675,000 of the
amount the Company owed Midland under the Company's Senior Secured Credit
Agreement was cancelled in exchange for the assignment to Midland of certain
accounts.
On August 1, 2003, the Company's shareholders approved a one-for-ten
reverse stock split of the outstanding shares of the Company's common stock, to
be effective immediately after the conversion of Midland's Series A preferred
shares. Accordingly, on August 1, 2003, each share of series A preferred stock
was converted into 100,000 shares of Unifab common stock and the one-for-ten
reverse stock split was effected resulting in Midland holding a total of
7,380,000 common shares after the reverse stock split.
The denominator in the table below includes the common shares related to
these Series A Preferred Shares as if they had been converted into shares of
common stock on August 13, 2002, the date of the Midland Investment and
Recapitalization Transaction. All prior periods weighted average share and
option amounts have been restated for the effect of the reverse stock split.
Midland's $10,652,000 convertible debenture is convertible into Unifab common
stock at a conversion price of $3.50 per share on a post reverse split basis,
for a total of 3,043,400 shares of common stock. On September 30, 2004, Midland
converted $2,698,500 of the convertible debenture into 771,000 shares of Unifab
common stock. Since the conversion price is "out-of-the-money," the remaining
shares are anti-dilutive and are not included in the computation of diluted
earnings per share during periods when the Company incurs a loss.
8
The following table sets forth the computation of basic and diluted
earnings (loss) per share giving retroactive effect to the assumed conversion of
Midland's 738 shares as of August 13, 2002 and giving effect to the one-for-ten
reverse stock split:
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------- -------------------------------
2004 2003 2004 2003
---------- ------------- ----------- -------------
(In thousands, except per share data)
Numerator:
Net income (loss) $ 722 $ (3,642) $ (6,206) $ (6,263)
Denominator:
Weighted average shares of
common stock outstanding 8,235 8,193 8,219 813
Effect of issuance of convertible
preferred stock on weighted
average shares of common stock - - - 7,380
--------------------------------------------------------------------
Denominator for basic and diluted
earnings per share - weighted
average shares 8,235 8,193 8,219 8,193
====================================================================
Basic and diluted income (loss) per
share $ 0.09 $ (0.44) $ (0.76) $ (0.76)
====================================================================
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 anti-dilutive and, therefore, not
included in the computation of diluted earnings per share. During the nine month
period ended September 30, 2004, 50,000 options and 6,000 warrants outstanding
were anti-dilutive due to the net loss incurred by the Company. During the three
month period ended September 30, 2004, these securities were anti-dilutive
because the exercise prices of the securities exceeded the price per share of
the common stock. During the period ended September 30, 2003, 133,500 options
and 6,000 warrants outstanding were anti-dilutive due to the net loss incurred
by the Company.
STOCK BASED COMPENSATION
The Company uses the intrinsic value method of accounting for
employee-based compensation prescribed by Accounting Principles Board ("APB")
Opinion No. 25 and, accordingly, follows the disclosure-only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages the use of fair value based
method of accounting for compensation expense associated with stock option and
similar plans. However, SFAS No. 123 permits the continued use of the intrinsic
value based method prescribed by Opinion No. 25 but requires additional
disclosures, including pro forma calculations of net earnings and earnings per
share as if the fair value method of accounting prescribed by SFAS No. 123 had
been applied.
9
Had compensation cost for the Company's stock plans been determined based
on the fair value at the grant dates consistent with the method of SFAS No. 123,
the Company's net income and net income per share amounts would have
approximated the following pro forma amounts (in thousands, except per share
data):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss), as reported $ 722 $ (3,642) $ (6,206) $ (6,263)
Add: Total stock-based employee
compensation expense included in
reported net loss, net of related tax
effects - - - -
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects - (4) - (18)
----------------------------------------------------
Pro forma net income (loss) $ 722 $ (3,646) $ (6,206) $ (6,281)
====================================================
Income (loss) per share
Basic and diluted, as reported $ 0.09 $ (0.44) $ (0.76) $ (0.76)
====================================================
Basic and diluted, pro forma $ 0.09 $ (0.45) $ (0.76) $ (0.77)
====================================================
Weighted average fair value of grants $ - $ - $ - $ 0.16
====================================================
Black-Scholes option pricing model assumptions:
NINE MONTHS ENDED SEPTEMBER 30,
2004 2003
-------------------------------
Risk-free interest rate N/A 1.82%
Volatility factor of the expected market
price of UNIFAB stock N/A 1.072
Weighted average expected life of the
option N/A 2 years
Expected dividend yield - -
There were no option grants in the three-month periods ended September 30, 2004
and 2003.
8. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
In addition to the matter described below, 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. While the outcome of these legal proceedings
and claims cannot be predicted with certainty, management believes that the
outcome of such proceedings is not likely to have a material adverse effect on
the Company's consolidated financial statements.
In a lawsuit filed against the Company in the 14th Judicial Court in the
Parish of Calcasieu, State of Louisiana, Professional Industrial Maintenance,
L.L.C., Don E. Spano and Kimberly Spano alleged multiple claims for breach of
contract, breach of specific performance, a request for injunction, request for
damages, and a request for treble damages and attorney fees for violations of
the Louisiana Unfair Trade Practices Act. Mr. Spano was the managing member of
Professional Industrial Maintenance, LLC, the company whose assets we acquired
in January 1998. The Company filed a counterclaim for recovery of certain
amounts paid on behalf of Professional Industrial Maintenance, LLC and Mr. Spano
as a result of the transaction. In January 2004, the parties agreed to settle
the disputes subject of the lawsuit with full and
10
final releases for all claims in exchange for a cash payment to the plaintiffs
in the amount of $300,000 and, accordingly, the Company recorded the related
liability at December 31, 2003. However, as of the filing of this report, the
details of the settlement agreement and release have not been finalized, and the
Company has not yet made the cash payment.
LETTERS OF CREDIT
In the normal course of its business activities, the Company is required
to provide letters of credit to secure performance. At September 30, 2004,
letters of credit totaling $3,000 were outstanding under the Credit Agreement.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with one of its former officers.
This agreement terminates on August 18, 2006. The minimum annual compensation
commitment by the Company under this agreement is $60,000.
LEASES
The Company leases land, upon which portions of its structural fabrication
and process equipment fabrication facilities in New Iberia are located, under
noncancelable operating leases. The leases expire in 2013 for the structural
fabrication facility with one 10-year renewal option, and in 2006 for the
process equipment facilities with one 10-year renewal option. The Company also
leases its facility in Lake Charles under a noncancelable operating lease. The
lease expires in 2005 and has two five-year renewal options. At September 30,
2004, the Company had approximately $9.5 million in aggregate lease commitments
under operating leases, of which $0.7 million is payable during the next twelve
months.
9. RELATED PARTY TRANSACTIONS
Under an informal arrangement with the Company, Midland has agreed to
provide financial support and funding for working capital or other needs at
Midland's discretion, from time to time. During the nine month period ended
September 30, 2004, Midland advanced amounts to the Company for working capital,
which were repaid and readvanced from time to time as needed. At September 30,
2004, $2,600,000 was outstanding and owed to Midland. The liquidity afforded by
these advances from Midland was necessary for the Company to meet its
obligations and fund operations. However, the Company has no control over
whether Midland will provide additional funding in the future and does not know
whether such additional funding will be available from Midland as the Company
requires it. If Midland does not make available such additional funding to the
Company when needed in the future, the Company would not be able to meet its
obligations, including obligations under the Credit Agreement, in the ordinary
course of business. The Company requires the continued support from Midland
until such time as it has sustained profitable operations and its financial
condition is stable and no longer requires this support.
The Company provides health care benefits to its employees under a plan
that covers the employees of companies owned by Nassau Holding Company, an
affiliate of Midland ("Nassau"), including the employees of Nassau. In the
nine-month periods ended September 30, 2004 and 2003, the Company incurred costs
of approximately $1,477,000 and $1,319,000, respectively, for coverage under
this plan.
Midland provides accounting information system and reporting services to
the Company, including maintaining computer hardware and software to process
financial information and produce management reports, processing data associated
with those reports, assisting in report design and preparation, processing
operating and payroll checks, consulting assistance with the design and
implementation of financial reporting systems, and other related services.
Included in general and administrative expenses for the three- and nine-month
periods ended September 30, 2004 and 2003 are $45,000 and $135,000,
respectively, related to these services. At September 30, 2004, all amounts
relative to these services had been paid.
11
In the three-month period ended September 30, 2004, the Company had no
contracts with any affiliates of Midland and had no uncollected receivables
related to prior contract activity with any affiliates of Midland. In the
nine-month period ended September 30, 2003, the Company executed several
contracts with Ridgelake Energy, Inc. to fabricate a platform and design and
manufacture process equipment. The total value of these contracts was $6.9
million. In the three- and nine-month periods ended September 30, 2003, $1.7
million and $6.9 million, respectively, in revenue, and $278,000 and $920,000,
respectively, in gross profit was recognized related to these contracts. At
September 30, 2003, the Company had $579,000 receivable from Ridgelake Energy,
Inc. related to these contracts. Ridgelake Energy, Inc. is owned and controlled
by Mr. William A. Hines, Chairman of our Board of Directors, and his family.
10. INDUSTRY SEGMENT INFORMATION
Effective January 1, 2003, as a result of the Midland Recapitalization and
Investment transaction, management has evaluated the changed organizational and
reporting structure and has concluded that the Company operates three reportable
segments: the platform fabrication segment, the process systems segment and the
drilling rig fabrication segment. The platform fabrication segment fabricates
and assembles platforms and platform components for installation and use
offshore in the production, processing and storage of oil and gas. The process
systems segment designs and manufactures specialized process systems and
equipment related to the development and production of oil and gas reserves. The
drilling rig fabrication segment provides fabrication services for new
construction and repair of drilling rigs. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies, except that income taxes are accounted for on a
consolidated basis and deferred tax assets are managed as corporate assets and
are not recorded in the operating segments. The Company evaluates performance
based on segment income, which is defined as revenue less cost of revenue and
selling, general and administrative expense allocated to the operating segment.
The Company does not allocate interest expense to the operating segments.
Unallocated overhead consists primarily of corporate general and administrative
costs that the Company does not allocate to the operating segments. The Company
accounts for intersegment sales at fixed labor rates and at cost for materials
and other costs. Intersegment sales are not intended to represent current market
prices for the services provided.
The following tables show information about the revenue, profit or loss,
depreciation and amortization, assets and expenditures for long-lived assets of
each of the Company's reportable segments for the three-and nine-month periods
ended September 30, 2004 and 2003. Segment assets do not include intersegment
receivable balances as the Company believes inclusion of such assets would not
be meaningful. Segment assets are determined by their location at period end.
Some assets that pertain to the segment operations are recorded on corporate
books, such as prepaid insurance. These assets have been allocated to the
segment in a manner that is consistent with the methodology used in recording
the segment's expense.
12
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-----------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------
(IN THOUSANDS)
Segment revenue:
Platform fabrication $ 7,744 $ 10,312 $ 23,095 $ 27,101
Process systems (b) 1,727 3,068 5,890 10,018
Drilling rig fabrication (b) 107 2,475 3,803 2,742
Intersegment eliminations - - - -
------- --------- ----------- ----------
$ 9,578 $ 15,855 $ 32,788 $ 39,861
======= ========= =========== ==========
Segment income (loss):
Platform fabrication $ (390) $ (1,207) $ (553) $ (820)
Process systems (b) (124) (351) (1,275) (763)
Drilling rig fabrication (a) (b) (220) (1,004) (3,522) (1,326)
------- --------- ----------- ----------
(734) (2,562) (5,350) (2,909)
Interest expense (1,216) (489) (2,293) (1,454)
Interest income 890 - 898
Unallocated corporate overhead (430) (591) (1,673) (1,900)
------- --------- ----------- ----------
Loss before income tax $(1,490) (3,642) $ (8,418) (6,263)
======= ========= =========== ==========
(a) Included in the Drilling rig fabrication segment loss for the nine month
period ended September 30, 2004 is an impairment loss of $3.3 million on
the Lake Charles facility
(b) The Company has initiated a plan to sell the facilities related to the
process systems segment and the drilling rig fabrication segment and
discontinue these segments
Total assets of the Company by segment are as follows as of September 30, 2004
and December 31, 2003:
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------------------------------
(IN THOUSANDS)
Segment assets at end of period:
Platform fabrication $ 20,227 $ 22,500
Process systems 3,978 6,827
Drilling rig fabrication 2,702 9,746
--------- ---------
26,907 39,073
Corporate 620 1,146
--------- ---------
$ 27,527 $ 40,219
========= =========
11. COMPREHENSIVE INCOME
The following is a summary of the Company's comprehensive income (loss)
for the three- and nine- month periods ended September 30, 2004 and 2003.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------
(IN THOUSANDS)
Net income (loss) $ 722 $ (3,642) $ (6,206) $ (6,263)
Currency translation adjustment - (5) - 36
----- --------- ---------- -----------
$ 722 $ (3,647) $ (6,206) $ (6,227)
===== ========= ========== ===========
12. DISCONTINUED OPERATIONS
During the September 2004 quarter, the Company initiated a plan to sell
the fabrication facilities related to the process systems segment and rig
fabrication segment and discontinue operations in those segments.
13
Revenues and loss from discontinued operations were:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-----------------------------------------------
2004 2003 2004 2003
-----------------------------------------------
(IN THOUSANDS)
Revenue from process systems segment $ 1,727 $ 3,068 $ 5,890 $ 10,018
Revenue from drilling rig fabrication segment 107 2,475 3,803 2,742
Loss from process systems segment $ (124) $ (351) $ (1,275) $ (763)
Loss from drilling rig fabrication segment (220) (1,004) (3,522) (1,326)
Assets and liabilities from discontinued operations were:
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------------------------
(IN THOUSANDS)
Process systems segment assets (a) $ 2,695 $ 4,486
Drilling rig fabrication segment assets (b) 2,691 9,488
Process systems segment liabilities $ 218 $ 630
Drilling rig fabrication segment liabilities 11 1,609
(a) Assets from discontinued operations exclude process systems segment assets
related to rental compressor operations of $1,271,000 and $2,193,000 at
September 30, 2004 and December 31, 2003, respectively. The Company
continues to rent these compressors.
(b) The Company recognized an impairment charge of $3,307,000 on drilling rig
fabrication segment assets in the three-month period ended June 30, 2004.
Significant components of assets of discontinued operations at September 30,
2004 were as follows:
PROCESS SYSTEMS DRILLING RIG
ASSETS FABRICATION ASSETS
-----------------------------------
(IN THOUSANDS)
Accounts receivable $ 647 $ 189
Costs and earnings in excess of billings 801 -
Property, plant and equipment 1,075 2,500
Other assets 172 2
------ ------
Total assets $2,695 $2,691
====== ======
13. SHUT DOWN OF ALLEN PROCESS SYSTEMS LIMITED
On June 12, 2003, at a meeting of the creditors of Allen Process Systems
Limited, Mr. Tony Freeman of Tony Freeman & Company, New Maxdov House,
Manchester, England was appointed as Liquidator of Allen Process Systems Limited
("APS Limited"), located in London, England, for the purposes of ceasing and
voluntarily winding up operations of that company. The Company, as the sole
shareholder of APS Limited, ratified Mr. Freeman's appointment. APS Limited was
acquired by the Company in June 1998 and has provided engineering and project
management services for process systems mainly to Europe and the Middle East.
Allen Process Systems, LLC, a wholly owned subsidiary of the Company has
provided these services since that time. The Company does not expect that
ceasing and winding up operations of APS Limited will have a material impact on
the consolidated financial statements of the Company.
14. NEW ACCOUNTING PRONOUNCEMENTS
14
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 requires that companies that control another entity through interests
other than voting interests should consolidate the controlled entity. FIN 46
applies to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. In December 2003 the FASB issued modifications to FIN 46 ("FIN 46R")
resulting in multiple effective dates based on the nature as well as the
creation date of a variable interest entity. The adoption of FIN 46 did not have
a material impact on the Company's consolidated financial position or results of
operations because the Company does not believe that the Company has interests
that would be considered variable interest entities under FIN 46.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
SUMMARY
During the three- and nine- month periods ended September 30, 2004:
- On October 6, 2004, the Company announced that Midland Fabricators
and Process Systems, LLC, the owner of 90.1% of the outstanding
common shares of the Company, intends to take the Company private
pursuant to the Louisiana short form merger law. Since the statute
permits the holder of 90% interest in a Louisiana corporation to use
this type of merger to cash out other shareholders, the transaction
requires no action on the part of the Company's board of directors
or shareholders. Midland will pay $0.20 per share to all other
shareholders of the Company. As part of the merger transaction,
shareholders who are not willing to accept the merger price will
have the right to exercise their dissenter's rights under Louisiana
law.
- The Company has been awarded new work, which has required financial
guarantees from Midland, including letters of credit provided by
Midland. The Company currently has bids for new work outstanding
that has required guarantees from Midland, including letters of
credit to be provided by Midland. These guarantees are necessary for
the Company to be successful in qualifying for and being awarded new
work. The Company has no control over whether Midland will continue
to provide these guarantees in the future, as the Company requires
them. If Midland does not provide such guarantees in the future, the
Company may be unable to qualify for or be successful in winning new
work.
- Since the Midland Transaction, Midland has provided financial,
operational, and management support to the Company. During the
nine-month period ended September 30, 2004, the Company funded
operations and capital expenditures through advances from Midland.
At September 30, 2004, the Company had $2.6 million in advances from
Midland and $7.9 million outstanding under its line of credit, which
is guaranteed by Midland. The liquidity afforded by these advances
from Midland was necessary for the Company to meet its obligations
and fund operations. However, the Company has no control over
whether Midland will provide additional funding in the future and
does not know whether such additional funding will be available from
Midland as the Company requires it. If Midland does not provide such
additional funding in the future as the Company requires it, the
Company will be unable to meet its obligations, including
obligations under its line of credit, in the ordinary course of
business.
- Revenue for the three-month period ended September 30, 2004
decreased from the same period last year by 25% to $7.7 million. In
the nine-month period ended September 30, 2004, revenue
15
decreased 16% to $23.1 million. The platform fabrication segment and
the process systems segment decreased relative to the same period
last year, which was offset in part by an increase in revenue in the
drilling rig fabrication segment. During the quarter ended September
30, 2004, the Company entered into a plan to dispose of the assets
and facilities related to its process systems design and manufacture
and drilling rig fabrication operations. As a result of entering
into these plans, the operations of the process systems segment and
the drilling rig fabrication segment have been accounted for as
discontinued operations.
- Cost of sales for the three- and nine-month periods ended September
30, 2004 decreased compared to the same periods last year. Cost of
sales exceeded revenue in the three- and nine- month periods ended
September 30, 2004.
- Selling, general and administrative expenses were reduced by
approximately 22% in the three-month period ended September 30,
2004, compared to the same period in 2003, and by approximately 7%
in the nine-month period ended September 30, 2004, compared to the
same period last year. This was achieved mainly by reducing
administrative personnel and other administrative costs over the
respective periods.
- The Company received a carryback refund of income taxes in the
amount of $2.2 million in the September 2004 quarter plus interest
of $890,000.
- The Company recorded an impairment charge of $3.3 million in the
June 2004 quarter related to the facility in Lake Charles,
Louisiana, which is idle at this time. The charge increased the
drilling rig fabrication segment operating loss and reduced the
recorded value of the facility to $2.5 million.
- The Company recorded a charge of $260,000 related to goodwill
associated with the Company's Compression Engineering business unit
during the first quarter of 2004, which increased the process
systems segment operating loss. As part of the Company's ongoing
evaluation and reorganization of operations, the Company suspended
engineering and maintenance operations related to compressors,
including compressors rented from the Company.
- On August 1, 2003, the shareholders of the Company approved the
increase in the number of shares of authorized common stock to
150,000,000 shares. This increase allowed Midland to convert the 738
shares of preferred stock issued in relation to the Midland
Investment and Recapitalization transaction into 73,800,000 shares
of common stock. The shareholders also approved a one-for-ten
reverse stock split, which was effected on August 3, 2003. After
giving effect to the one-for-ten reverse stock split, the number of
shares of common stock held by Midland was 7,380,000. All earnings
(loss) per share amounts and weighted average number of shares
outstanding have been restated to give effect to the one-for-ten
reverse stock split effected on August 3, 2003.
- On September 30, 2004, Midland converted $2.7 million of its
convertible debenture into 771,000 shares of the Company's common
stock at a conversion price of $3.50 per share, which resulted in
Midland increasing its ownership to 90.1% of the outstanding common
stock of the Company. This conversion resulted in additional
interest expense of $643,000 during the quarter related to the write
off of the unamortized discount on the debentures that were
converted.
MIDLAND SUPPORT
Since the Midland Transaction, Midland has provided financial, operational
and management support to the Company. Nassau Holding Company (an affiliate of
Midland) has guaranteed the Company's Senior Secured Credit Agreement with
Whitney National Bank. Under an informal arrangement with the Company, Midland
has agreed to provide financial support and funding for working capital or other
needs at
16
Midland's discretion, from time to time. During the nine months ended September
30, 2004, Midland advanced $12.1 million to the Company for working capital, of
which $2.6 million remains unpaid at September 30, 2004. From time to time as
needed, Midland provides financial guarantees, including letters of credit, in
support of contract awards to the Company. Midland provides accounting
information system and reporting services to the Company, including maintaining
computer hardware and software to process financial information and produce
management reports, processing data associated with those reports, assisting in
report design and preparation, processing operating and payroll checks,
consulting assistance with the design and implementation of financial reporting
systems, and other related services. Included in general and administrative
expenses for the three- and nine- month periods ended September 30, 2004 and
2003 are $45,000 and $135,000, respectively, related to these services. This
support was necessary to stabilize the financial position and operations of the
Company. The Company will require the continued support from Midland, or another
source of working capital until such time as it has sustained profitable
operations and its financial condition is stable and no longer requires this
support.
IDENTIFICATION OF OPERATING SEGMENTS
Effective January 1, 2003, as a result of the Midland Recapitalization and
Investment transaction, management has evaluated the changed organizational and
reporting structure and has concluded that the Company operates three reportable
segments: the platform fabrication segment, the process systems segment and the
drilling rig fabrication segment. The platform fabrication segment fabricates
and assembles platforms and platform components for installation and use
offshore in the production, processing and storage of oil and gas. The process
systems segment designs and manufactures specialized process systems and
equipment related to the development and production of oil and gas reserves. The
drilling rig fabrication segment provides fabrication services for new
construction and repair of drilling rigs.
THE MIDLAND TRANSACTION
On August 13, 2002, the Company and Midland Fabricators and Process
Systems, LLC closed a transaction under which Midland exchanged $24.1 million
outstanding under the Company's Senior Secured Credit Agreement and $5.6 million
in claims of unsecured creditors for 738 shares of preferred stock, a secured
subordinated debenture and two secured subordinated notes in the aggregate
amount of $17.5 million. The debenture, valued at $10.7 million, is convertible
into the Company's common stock at a price of $3.50 per share on a post-reverse
split basis. Midland's preferred stock was converted into a total of 7,380,000
shares of the Company's common stock on August 1, 2003. The Company also
recorded additional capital contributions on the transaction of $3.7 million
resulting from the discount recorded on the convertible debenture, $680,000
resulting from forgiveness by Midland of penalties accrued under the Senior
Secured Credit Agreement, and $914,000 resulting from partial forgiveness of
unsecured creditor claims acquired by Midland. On November 18, 2002, the Company
entered into a Senior Secured Credit Agreement with the Whitney National Bank,
which is guaranteed by Nassau Holding Company (an affiliate of Midland), the
subsidiaries of Unifab, and the principle members of Midland, in accordance with
the terms of the Midland transaction.
RESULTS OF OPERATIONS
Revenue for the three months ended September 30, 2004 decreased 25% to
$7.7 million from $10.3 million for the three months ended September 30, 2003.
In the nine-month period ended September 30, 2004, revenue decreased 16% to
$23.1 million. Backlog was approximately $7.0 million and $7.6 million at
September 30, 2004 and December 31, 2003, respectively.
Total direct labor hours worked during the three-month period ended
September 30, 2004 at the Company's platform fabrication facility decreased 50%
from the levels experienced in the same period last year. For the nine-month
period ended September 30, 2004, manhours at the platform fabrication facility
were approximately 24% lower than for the same period last year.
Cost of revenue was $8.1 million and $23.1 million for the three- and
nine- month periods ended September 30, 2004, compared to $11.3 million and
$27.8 million for the same periods last year. Cost of revenue consists of costs
associated with the fabrication process, including direct costs (such as direct
labor
17
costs and raw materials) and indirect costs that can be specifically allocated
to projects (such as supervisory labor, utilities, welding supplies and
equipment costs).
Gross profit (loss) for the three months ended September 30, 2004 was
($336,000) compared to ($1,044,000) for the same period last year.
Selling, general and administrative expense decreased to $0.5 million in
the three months ended September 30, 2004 and $1.8 million in the nine months
ended September 30, 2004, compared to $0.6 million and $2.0 million in the same
periods in 2003, respectively. This decrease is mainly due to reduced general
and administrative expenses associated with closing underutilized facilities,
overall reductions in administrative overhead and employees and the receipt of
$150,000 related to an insurance claim.
Interest expense for the three- and nine-month periods ended September 30,
2004 was higher than the same periods in 2003 due to the higher levels of
indebtedness maintained during 2004. Amortization of the discount on the
secured, subordinated debenture is being recorded as interest expense. In each
of the three-month periods ended September 30, 2004 and 2003, the Company
recorded $130,000 of interest expense related to amortization of the discount on
the secured subordinated debenture. In each of the nine-month periods ended
September 30, 2004 and 2003, the Company recorded $390,000 interest expense
related to amortization of the discount on the secured subordinated debenture.
On September 30, 2004, Midland converted $2.7 million of its convertible
debenture into 771,000 shares of the Company's common stock at a conversion
price of $3.50 per share, which resulted in Midland increasing its ownership to
90.1% of the outstanding common stock of the Company. This conversion resulted
in additional interest expense of $643,000 during the quarter related to the
write off of the unamortized discount on the debentures that were converted.
The Company recovered an income tax carryback refund of $2.2 million plus
interest of $890,000 during the September quarter upon completion of an IRS
review. This refund was not previously anticipated fully, pending the completion
of this IRS review. The refund resulted in the Company recognizing income tax
benefit of $2.2 million. Previously, the Company had recorded a valuation
reserve against all tax net operating losses available for carryback refund
treatment. No net income tax benefit was recognized on the net loss recorded in
the three-month periods ended September 30, 2004 and 2003. In accordance with
FAS 109, the Company considered that it had a cumulative pre-tax loss for recent
years, which must be carried forward and used to offset future taxable income.
The ability of the Company to utilize net operating loss carryforwards is also
limited on an annual basis because the transaction with Midland resulted in a
change in control under tax regulations. The Company has recorded a valuation
allowance to offset the deferred tax asset related to the net operating loss
carryforward and other deferred tax assets that exceed net deferred tax
liabilities of the Company at September 30, 2004. The valuation allowance
reflects the Company's judgment that it is more likely than not that these
deferred tax assets will not be realized. Management will continue to assess the
adequacy of the valuation allowance on a quarterly basis.
Loss from operation of discontinued process systems segment was $149,000
and $1.5 million in the three- and nine- month periods ended September 30, 2004,
respectively. Loss from operation of discontinued process systems segment was
$458,000 and $1.3 million, respectively, in the same periods in 2003. In the
three-month period ended March 31, 2004 the Company recorded an impairment
charge of $260,000 related to goodwill associated with the Company's Compression
Engineering business unit. Also included in other operating expenses in the
nine-month period ended September 30, 2004 is a $389,000 loss on the disposal of
a compressor, which was previously being rented from the Company. During the
first quarter of 2004 and as part of the Company's ongoing evaluation and
reorganization of operations, the Company decided to suspend engineering and
maintenance operations related to compressors, including compressors being
rented from the Company. Operating results for these operations are included in
the process systems segment and are not significant to the historical operations
of the Company.
Loss from operation of discontinued drilling rig fabrication segment was
$221,000 and $3.6 million in the three- and nine- month periods ended September
30, 2004, respectively. Loss from operation of discontinued drilling rig segment
was $1.1 million and $1.1 million, respectively, in the same periods in 2003.
The loss recognized in the nine-month period ended September 30, 2004 includes
an impairment loss of $3.3 million on the Lake Charles facility. Operating
losses incurred at the facility, the lack of backlog for the facility and the
business outlook resulted in the Company closing the facility early in the June
2004
18
quarter. In evaluating the recoverability of its investment in the Lake Charles
facility, the Company concluded the carrying value of the facility was impaired.
The Company then estimated the fair value of the facility based on the related
discounted estimated cash flows and based on this analysis recorded an
impairment loss of $3.3 million. The impairment loss reduced the recorded net
value of the facility to its estimated fair value of $2.5 million. During the
September 2004 quarter, the Company engaged a real estate broker and has placed
the facility for sale by closed bid auction held on November 18, 2004. The
Company is currently negotiating the completion of the offer on that facility,
which does not indicate further impairment.
SEGMENT INFORMATION
The Company has identified three reportable segments as required by SFAS
No. 131. The following discusses the results of operations for each of those
reportable segments during the three- and nine-month periods ended September 30,
2004 and 2003. During the September 2004 quarter, the Company entered into a
plan to dispose of the fabrication facilities related to the process systems
segment and the drilling rig fabrication segment and discontinue operations
related to those segments.
PLATFORM FABRICATION SEGMENT
Revenue for the platform fabrication segment decreased 25%, or $2.6
million, to $7.7 million in the quarter ended September 30, 2004 from $10.3
million in the same quarter of 2003. Direct manhours in the September 2004
quarter decreased 50% from the September 2003 quarter. In the nine-month period
ended September 30, 2004, revenue decreased 15% from the same period last year
to $23.1 million. Segment loss decreased to $390,000 in the September 30, 2004
quarter from $1.2 million in the September 30, 2003 quarter, and to $553,000 in
the nine-month period ended September 30, 2004 from $820,000 in the same period
last year. Fabrication activity has decreased from last year, and bidding for
projects in this segment has remained competitive, causing lower profit margins.
In the nine months ended September 30, 2003, segment income was reduced by
$292,000 related to the repair of the roof on the Company's main fabrication
building. Savings from the reduction of administrative staff and the shifting of
general and administrative functions to corporate reduced segment loss in the
three- and nine-month periods ended September 30, 2004.
PROCESS SYSTEMS SEGMENT
Revenue for the process systems segment was $1.7 million in the
three-month period ended September 30, 2004 compared to $3.1 million in the same
quarter last year. In the quarter ended September 30, 2004, direct manhours
decreased 46% from the September 2003 quarter. During the September 2004
quarter, the Company has moved all operations related to this segment to its
main fabrication yard in New Iberia. As a result of this relocation, the segment
loss for the three-month period ended September 30, 2004 was reduced to $124,000
from $351,000 in the same period last year. Savings from the reduction of
administrative staff and the shifting of general and administrative functions to
corporate decreased the segment loss in the September 30, 2004 quarter. Revenue
for the nine-month period ended September 30, 2004 was $5.9 million compared to
$10.0 million in the same period last year. Over this period, direct manhours at
the facility decreased 39% from the same period last year. Due to this low level
of activity and the increase in cost per manhour that resulted from it, segment
loss increased in the nine-month period ended September 30, 2004 to $1.3 million
from $763,000 in the same period in 2003. Included in segment loss in the
nine-month period ended September 30, 2004 was a charge of $260,000 related to
goodwill associated with the Company's Compression Engineering business unit.
Included in segment loss for the nine-month period ended September 30, 2003 were
contract loss reserves of $220,000, including $117,000 recorded because of
delays encountered on contracts to provide process equipment that was being
manufactured overseas.
DRILLING RIG FABRICATION SEGMENT
The drilling rig fabrication segment, revenue was $107,000 in the
September 2004 quarter and $2.5 million in the same quarter last year. In the
nine-month period ended September 30, 2004, revenue was $3.8 million compared to
$2.7 million in the same period last year. Nearly all of the operating results
in this segment relate to one significant project performed at the Company's
fabrication facility in Lake Charles,
19
Louisiana. Upon the completion of this project in April 2004, management decided
to temporarily idle this facility. In evaluating the recoverability of the
investment in the Lake Charles facility, the Company concluded the carrying
value of the facility was impaired. The Company then estimated the fair value of
the facility based on the related discounted estimated cash flows and based on
this analysis recorded an impairment loss of $3.3 million during the June 2004
quarter. The impairment loss reduced the recorded net value of the facility to
its estimated fair value of $2.5 million. During the September 2004 quarter, the
Company engaged a real estate broker and placed the facility for sale by closed
bid auction held on November 18, 2004. The Company is currently negotiating the
final documents to sell the facility, which will allow the recovery of the
recorded value of the facility.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its business activities through
borrowings from time to time as needed from Midland, as more fully described
below, funds generated from operations, short - term borrowings on its revolving
credit facilities for working capital needs and individual financing
arrangements for equipment, facilities improvements, insurance premiums and
long-term needs. During the nine-month period ended September 30, 2004, the
Company's available funds, $4.2 million generated from operating activities and
$23,000 provided by investing activities together funded cash used in financing
activities of $4.1 million.
Under an informal arrangement with the Company, Midland has agreed from
time to time to provide financial support and funding for working capital or
other needs at Midland's discretion. During the nine months ended September 30,
2004, Midland advanced $12.1 million to the Company for working capital, of
which $2.6 million remains unpaid at September 30, 2004 and is classified as a
current liability. During the three month period ended September 30, 2004, the
Company recovered an income tax carryback refund of $2.2 million plus interest
of $890,000, which was used to repay amounts advanced by Midland. At December
31, 2003, Midland was owed $5.9 million related to advances under this informal
arrangement, which was classified as a current liability. As a result of
classifying the amounts outstanding related to the informal arrangement with
Midland and the Credit Agreement as current liabilities, the Company has a
working capital deficit of $6.1 million at September 30, 2004. The liquidity
afforded by the advances from Midland was necessary for the Company to meet its
obligations and fund operations throughout the nine months ended September 30,
2004. Since the Midland investment, the Company has received contracts, which
have required a financial guarantee or letter of credit from Midland. Management
believes that additional funds available from Midland under the informal
arrangement described above are necessary to fund its working capital needs and
planned capital expenditures for the next 12 months and that guarantees from
Midland are necessary to win contract awards. However, the Company has no
control over whether Midland will provide additional funding or financial
guarantees in the future and does not know whether such additional funding or
financial guarantees will be available from Midland as the Company requires
them. If Midland does not provide such additional funding or financial
guarantees when needed in the future, the Company will not be able to satisfy
its working capital requirements and meet its obligations, including obligations
under the Credit Agreement, in the ordinary course of business. The Company
requires the continued support from Midland until such time as it has sustained
profitable operations and its financial condition is stable and no longer
requires this support.
On November 18, 2002, the Company entered into a Commercial Business Loan
with Whitney National Bank (the "Credit Agreement"), guaranteed by Nassau
Holding Company, an affiliate of Midland, the subsidiaries of Unifab, and the
principal members of Midland and secured by all of the assets of the Company,
which provides for up to $8.0 million in borrowings for working capital
purposes, including up to $2.0 million in letters of credit under a revolving
credit facility. At September 30, 2004 and December 31, 2003, respectively, the
Company had $7.9 million in borrowings and letters of credit totaling $3,000
outstanding under the revolving credit facility. Borrowings under the Credit
Agreement bear interest at Libor plus 1.75% or the Prime rate (3.420% at
September 30, 2004), at the Company's discretion. The Credit Agreement matures
January 31, 2005. The Company expects to renew its Credit Agreement under the
same general terms and with the continuing guarantee of Nassau Holding Company.
The table below sets out the cash contractual obligations of the Company.
The operating leases are not recorded as liabilities on the balance sheet, but
payments are treated as an expense as incurred. Each contractual obligation
included in the table contains various terms, conditions, and covenants which,
if violated, accelerate the payment of that obligation. The operating lease
obligations primarily relate to the
20
Company's operating facilities:
Payment due by year
-----------------------------------------------------------------
Remainder Beyond
Total 2004 2005 2006 2007 2008 2008
------- --------- ------- ------- ------- ------- --------
Operating lease obligations $ 9,528 $ 167 $ 669 $ 669 $ 669 $ 669 $ 6,685
Settlement of lawsuit 300 300 - - - - -
Long-term debt 10,564 2,662 7,902 - - - -
Secured, subordinated notes
payable 6,848 - 2,139 4,709 - - -
Secured, subordinated,
convertible debenture 7,953 - - - 2,130 2,130 3,693
------- ------- ------- ------- ------- ------- --------
$35,193 $ 3,129 $10,710 $ 5,378 $ 2,799 $ 2,799 $ 10,378
======= ======= ======= ======= ======= ======= ========
Management believes that additional funds available from Midland under the
informal arrangement described above are necessary to fund its working capital
needs and planned capital expenditures for the next 12 months. However,
Management has no control over whether Midland will provide additional funding
in the future and does not know whether such additional funding will be
available from Midland as the Company requires it. If Midland does not provide
such additional funding in the future as the Company requires it, the Company
will not be able to meet its obligations, including obligations under the Credit
Agreement, in the ordinary course of business.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 requires that companies that control another entity through interests
other than voting interests should consolidate the controlled entity. FIN 46
applies to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. In December 2003 the FASB issued modifications to FIN 46 ("FIN 46R")
resulting in multiple effective dates based on the nature as well as the
creation date of a variable interest entity. The adoption of FIN 46 did not have
a material impact on the Company's consolidated financial position or results of
operations because the Company does not believe that the Company has interests
that would be considered variable interest entities under FIN 46.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to revenue recognition
and long-lived assets. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The Company believes the following critical
accounting policies affect its more significant judgments and estimates used in
the preparation of its consolidated financial statements.
Revenue from construction contracts, which are typically of short
duration, are recognized on the percentage-of-completion method, measured by
relating actual labor hours for work performed to date to the estimated total
labor hours of the respective contract. Contract costs include all direct
material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, and repairs. Provisions for
estimated losses, if any, on uncompleted contracts are made in the period in
which such losses are determined. Significant changes in cost estimates due to
adverse market conditions or poor
21
contract performance could affect estimated gross profit, possibly resulting in
a contract loss.
The Company's customers are principally major and large independent oil
and gas companies and drilling companies. These concentrations of customers may
impact our overall exposure to credit risk, either positively or negatively, in
that our customers may be similarly affected by changes in economic or other
conditions. Reserves for uncollectible accounts receivable are evaluated
periodically against specific accounts that are known to be uncollectible.
Increases in the reserves for uncollectible accounts are charged to operating
results in the period they are identified. Receivables are generally not
collateralized. Significant adverse changes in the economic environment of the
oil and gas industry could result in materially lower collectibility of recorded
receivables and could require a charge for uncollectible accounts in the future.
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company assesses the recoverability of
long- lived assets by determining whether the carrying values can be recovered
through projected net cash flows undiscounted, based on expected operating
results over their remaining lives. If impairment is indicated, the asset is
written down to its fair market value, or if fair market value is not readily
determinable, to its estimated discounted net cash flows. Future adverse market
conditions or poor operating results could result in the inability to recover
the current carrying value of the long-lived asset, thereby possibly requiring
an impairment charge in the future.
Income taxes have been provided using the liability method. 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. The amount of future income tax assets
recognized is limited to the amount of benefit that is more likely than not to
be realized. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or the entire
deferred tax asset will not be realized. The ultimate realization of the
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversals of deferred tax liabilities, the
likelihood of future taxable income and tax planning strategies when making this
assessment. Based on this assessment, the Company records a valuation allowance
against deferred tax assets that are more likely than not unrealizable. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the future if taxable income is not available to allow for the
deduction of the deferred tax assets.
ITEM 3. 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
$25.5 million, substantially all of the Company's debt, 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 $255,000 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 subsidiary is being liquidated,
and therefore there are no operations at September 30, 2004. However, the
liquidation proceeds are held in British Pounds pending the resolution of the
liquidation and final distribution of the proceeds, if any. 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 the final amount
distributed; however, the Company does not anticipate its exposure to foreign
currency rate fluctuations to be material in 2004.
While the Company does not currently use derivative financial instruments,
it may use them in the future if deemed appropriate.
22
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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
words "expect," "believe," "anticipate," "project," "plan," "estimate,"
"predict," and similar expressions often identify forward-looking statements.
Such statements may involve risks and uncertainties and include, among other
things, information as to possible future increases in oil and gas prices and
drilling activity and the effect of current and future levels of prices and
drilling activity on demand for products and services of the Company, on the
prices the Company can obtain for its products and services and on the
profitability of the Company. 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. Those factors include, but are not limited to,
the risks, contingencies and uncertainties described immediately below:
- advances and financial guarantees from Midland have been necessary
for the Company to meet its obligations and fund operations and for
contract awards. However, the Company has no control over whether
Midland will provide additional funding or financial guarantees in
the future and does not know whether such additional funding or
financial guarantees will be available from Midland as the Company
requires them. If Midland or some other source of financial support
does not provide such additional funding or financial guarantees in
the future as the Company requires them, the Company probably will
not be able to meet its obligations, including obligations under the
Credit Agreement, in the ordinary course of business. The Company
requires the continued support from Midland or another source of
financial support until such time as it has sustained profitable
operations and its financial condition is stable and no longer
requires this support;
- general economic and business conditions and industry trends;
- the economic strength of our customers and potential customers;
- decisions about offshore developments to be made by oil and gas
companies;
- the highly competitive nature of our businesses;
- our future financial performance, including availability, terms and
deployment of capital;
- the continued availability of qualified personnel;
- changes in, or our failure or inability to comply with, government
regulations and adverse outcomes from legal and regulatory
proceedings;
- changes in existing environmental regulatory matters;
- rapid technological changes;
- realization of deferred tax assets;
- consequences of significant changes in interest rates and currency
exchange rates;
- difficulties we may encounter in obtaining regulatory or other
necessary approvals of any strategic transactions;
- social, political and economic situations in foreign countries where
we do business, including among others, countries in the Middle
East;
- effects of asserted and unasserted claims;
- our ability to obtain surety bonds and letters of credit; and
- our ability to maintain builder's risk, liability and property
insurance in amounts we consider adequate at rates that we consider
economical.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation under the supervision of and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and implementation of its
disclosure controls and procedures. Based on and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company, including its
consolidated
23
subsidiaries, required to be included in reports the Company files with or
submits to the Securities and Exchange Commission under the Securities Act of
1934.
There have been no significant changes in the Company's internal control
over financial reporting or in other factors during the first three quarters of
fiscal year 2004 that have materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS.
In addition to the matter described below, 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. While the outcome of these legal proceedings
and claims cannot be predicted with certainty, management believes that the
outcome of such proceedings is not likely to have a material adverse effect on
the Company's consolidated financial statements.
In a lawsuit filed against the Company in the 14th Judicial Court in the
Parish of Calcasieu, State of Louisiana, Professional Industrial Maintenance,
L.L.C., Don E. Spano and Kimberly Spano alleged multiple claims for breach of
contract, breach of specific performance, a request for injunction, request for
damages, and a request for treble damages and attorney fees for violations of
the Louisiana Unfair Trade Practices Act. Mr. Spano was the managing member of
Professional Industrial Maintenance, LLC, the company whose assets we acquired
in January 1998. The Company filed a counterclaim for recovery of certain
amounts paid on behalf of Professional Industrial Maintenance, LLC and Mr. Spano
as a result of the transaction. In January 2004, the parties agreed to settle
the disputes subject of the lawsuit with full and final releases for all claims
in exchange for a cash payment to the plaintiffs in the amount of $300,000 and,
accordingly, the Company recorded the related liability at December 31, 2003.
However, as of the filing of this report, the details of the settlement
agreement and release have not been finalized, and the Company has not yet made
the cash payment.
ITEM 5. OTHER INFORMATION
This report on Form 10-Q is accompanied by a statement of the Principal
Executive Officer and the Chief Financial Officer of the registrant making
certain certifications as to the contents hereof, as required by Section 906 of
the Sarbanes-Oxley Act of 2002.
The Company's common stock was delisted from the NASDAQ SmallCap Market
effective June 28, 2004, as the Company ceased to meet the NASDAQ's listing
requirements. Since that time, shares of the Company's common stock have traded,
from time to time, in the over-the-counter market and on the Pink Sheets.
On March 29, 2004, the Company's independent auditor issued its audit
report on the Company's December 31, 2003 financial statements. The audit report
included a "going concern qualification" which is an explanatory paragraph
relating to the Company's ability to continue as a going concern due to its
recurring losses from operations, negative working capital position and
difficulties in meeting its financial obligations and funding its operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
31.1 Certification pursuant to Exchange Act 13a-15 and 15d-15(e)
accompanying and furnished with this quarterly report on Form 10-Q
for the nine-month period ended September 30, 2004
24
31.2 Certification pursuant to Exchange Act 13a-15 and 15d-15(e) accompanying
and furnished with this quarterly report on Form 10-Q for the nine-month
period ended September 30, 2004
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350, as adopted) accompanying and furnished with
this quarterly report on Form 10-Q for the nine-month period ended
September 30, 2004
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350, as adopted) accompanying and furnished with
this quarterly report on Form 10-Q for the nine-month period ended
September 30, 2004
99.1 Press release issued by the Company on October 6, 2004 announcing
Midland Fabricators and Process Systems, LLC, intentions to take the
Company private.
(b) Reports on form 8-K
On October 7, 2004, the Company filed a current report on Form 8-K dated
October 6, 2004 related to the press release issued on October 6, 2004
announcing that Midland Fabricators and Process Systems, LLC, the owner of
90.1% of the outstanding shares of the Company's common stock, intends to
take the Company private pursuant to the Louisiana short form merger law.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFAB International, Inc.
Date January 24, 2005 /s/ Frank J. Cangelosi, Jr.
--------------------------
Frank J. Cangelosi, Jr.
Chief Financial Officer
(Principal Financial and Accounting
Officer)
25