Gulf Island Fabrication

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April 15, 2008

GULF ISLANDFABRICATION INC.

GIFI/NASDAQ

Continuing Coverage: Gulf Island

Well Positioned to Dive Deeply

Investment Rating: Market PerformPRICE: $ 35.48 S&P 500: 1,364.71 DJIA: 12,619.27 RUSSELL 2000: 713.39

Gulf Marine acquisition makes Gulf Island highly competitive indeepwater construction.

Weakened U.S. dollar strengthens presence in international markets.

Gulf Island Resources LLC improves retention of skilled employees.

Superior management brings in 10.78% ROA and 14.56% ROIC in2007.

Our 12-month target price is $37.19.

Valuation 2007 A 2008 E 2009 E

EPS $ 2.18 $ 2.56 $ 2.79

P/E 16.3x 13.9x 12.7x

CFPS $ 3.48 $ 3.61 $ 3.99

P/CFPS 10.2x 9.8x 8.9x

Market Capitalization Stock Data

Equity Market Cap (MM): $ 504.38 52-Week Range: $39.37 - $24.88

Enterprise Value (MM): $ 479.74 12-Month Stock Performance: 18.73%

Shares Outstanding (MM): 14.22 Dividend Yield: 1.13%

Estimated Float (MM): 10.88 Book Value Per Share: $ 10.88

6-Mo. Avg. Daily Volume: 149 Beta: 1.10

Company Quick View:Location: Houma, Louisiana

Industry: Oil and Gas Services

Description: Gulf Island Fabrication Inc. is a global leader in the fabrication of oil and

gas drilling and production platforms.

Key Products & Services: Gulf Island provides a range of services including the

fabrication of offshore and inshore platforms, living quarters, electrical buildings, process vessels, skids, and small modules.

Company Web site: www.gulfisland.com

Analysts: Investment Research Manager:Kevin Crook Nathan HeltonAshley SmithBeth Thurnher

Johan Yokay

Wall Street's Farm Tea

The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's

A.B. Freeman School of Business. The reports are not investment advice and you should not and may not rely

on them in making any investment decision. You should consult an investment professional and/or conduct your

own primary research regarding any potential investment.

B

U R K E N R O A D

R E P O R T S

http://www.gulfisland.com/




Gulf Island Fabrication Inc. (GIFI) BURKENROAD REPORTS (www.burkenroad.org) April 15, 2008

2

STOCK PRICEPERFORMANCE

Figure 1:5-year Stock Price

Performance

INVESTMENTSUMMARY

We give Gulf Island Fabrication (GIFI) a Market Perform rating andexpect the stock to increase 15.7% over the next year to reach our targetprice of $37.19. To arrive at our 12-month target price we used a weightedaverage of the following valuation methods: DCF, relative P/E, relativeEV/EBIDTA, and PEG. In addition we considered general economicfactors, industry specific drivers of growth and risk, weather forecasts, andinterviews with management regarding strategies and goals. After averagegrowth rates in the mid-teens for three straight years, 2006 was the firstyear to see growth slow in the industry by falling to 4%. This slower

growth rate is expected to continue through 2011.

Ben Graham

Analysis

Benjamin Graham, one of the first modern security analysts and valueinvestors, was the main influence of Warren Buffet, and the books Grahamauthored decades ago are still considered the authority on the subject of value investing. He developed a series of hurdles he used to analyze stocksand judge whether they were undervalued. The Benjamin Graham analysiswas one of many tools we used to analyze GIFI.

Although we know that most companies do not meet all eight hurdles of the analysis, we base our Ben Graham analysis off of how many hurdlesthe Company does in fact meet. The first five hurdles analyze whether ornot a company is undervalued. GIFI is not undervalued because it does notmeet four out the first five criteria. The last three hurdles determinewhether or not the company is consistent. According to the Ben Grahamanalysis, GIFI is not a quality growth stock because it does not meet two of the last three criteria. We did not, however, base our rating of GIFI on thisanalysis, rather it was one tool we used (See Table 9 at the end of thisreport for the complete analysis).




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PREVIOUSBURKENROADRATINGS AND

PRICES

Table 1: Historical Ratings & Prices

Date Rating Price

04/13/07 Market Outperform $43.14

04/10/06 Market Perform $23.6303/15/05 Market Perform $23.70



02/15/02 Buy $12.50

INVESTMENTTHESIS

Experts continue to expect growth at a slower rate than historically in theoil and gas industry, especially in the deepwater sector. Gulf IslandFabrication’s (GIFI) acquisition of Gulf Marine Fabricators in 2006 gave itthe necessary capabilities in the deepwater market to stay competitive. The

weak U.S. dollar also improves the competitive landscape for GIFI bymaking it appealing to international customers. GIFI also continues toadvance its capabilities in retaining a strong workforce in the dwindlingconstruction labor market. The continued success of this acquisitiondepends on GIFI’s management team and on further movement intodeepwater projects.

Gulf Marine

acquisition makes

Gulf Island highly

competitive in

deepwater construction.

GIFI’s acquisition of Gulf Marine in 2006 will allow GIFI to remaincompetitive as growth in the industry as a whole begins to slow. Itsdeepwater play positioned it well to take advantage of the expectedincreased long-term spending overseas on drilling with an emphasis on

deepwater drilling. Experts expect this overseas growth to come from themajor oil companies and state owned oil companies as they search forcheaper drilling.

Weakened U.S.

Dollar strengthens

presence in

international

markets.

As a U.S. based company, GIFI should be able to submit more competitivebids compared to its foreign competitors as a result of the continuingdecline in the value of the dollar. Experts expect overseas spending ondrilling to increase and become a main driver of growth in the industry.Increased overseas spending combined with a lower dollar value providesGIFI with opportunity.

Gulf Island Resources L.L.C.

improves retention

of skilled

employees.

GIFI’s productivity is dependent on the number of skilled workers it hasavailable. The demand for these workers is extremely high in the oil andgas services industry while supply is extremely limited. To avoid facing afuture labor shortage, GIFI formed a limited liability company in May2007 called Gulf Island Resources, LLC to hire and retain labor in order toreduce its need for contract labor when demand is high. Schedulingrequirements for GIFI’s projects are established relatively far in advance;therefore, the ability to have workers readily available at all times iscrucial.




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Superior

management

brings in 10.79%

ROA and 14.56%

ROIC in 2007.

GIFI’s management has played a large role in its success. Its ability toforesee the importance of deepwater drilling with the 2006 acquisition andto maintain profitability under tough circumstance in late 2005 withhurricanes Katrina and Rita are testaments to that. Additionally the firm’s

ROA of 10.79% and ROIC of 14.56%, both of which have increased in2005, 2006, and 2007, are indicative of management’s ability to utilize itscapital.

VALUATION We calculated Gulf Island Fabrication’s 12-month target price at $37.19 using four models: discounted cash flows, relative PE multiple, relativeEV/EBITDA multiple, and the PEG method.

Discounted Cash

Flow Method

We estimated GIFI’s future free cash flows and discounted them back tothe present value using CAPM as the discount rate as GIFI has no debt.We calculated the 12-month target price to be $38.04.

We weighted the discounted cash flow method 50% because we believe itis the most accurate method to value GIFI.

The Relative

Multiple Method:

PE

We used the relative P/E method to calculate a 12-month target price of $32.83. We multiplied the forecasted 12-month GIFI EPS by the averagePE of GIFI’s peers. We calculated this as $2.56 x 12.82.

We weighted this method 25% because it provides a useful comparison tothe market’s perception of GIFI’s peer group. Based on the P/E ratio GIFIis undervalued compared to its peers. However, we only moderately

weighted this method because of GIFI’s lack of a well defined peer group.

The Relative

Multiple Method:

EV/EBITDA

We used the relative EV/EBITDA method to calculate a 12-month targetprice of $43.07.

We weighted this method slightly less than the relative P/E method because of GIFI’s lack of direct competitors with similar size marketcap’s. We weighted this method 20%.

PEG We calculated the 12-month target price at $26.87 using the PEG method.We multiplied the estimated 12-month EPS by the five-year growth rate.

We gave this method little weight because we do not believe it is a goodway to value GIFI. We weighted this method 5%.

Table 2: Valuation Methods & Target Stock PriceValuation Method Price Weight DCF $38.04 50%

Relative P/E $32.83 25%

Relative EV/EBIDTA $43.07 20%

PEG $26.87 5%

12 Month Target Price $37.19 100%




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INDUSTRYANALYSIS

Gulf Island Fabrication (GIFI/NASDAQ) operates in the offshoreplatform fabrication industry. The industry is highly competitive and isinfluenced by events outside the control of the industry. Projects are

awarded on a competitive bid basis, and bids are given one to three monthsbefore the start of a project. The amount of fabricated structure provided toany customer depends on the size of a customer’s capital expenditurebudget devoted to platform construction plans and the ability to meet thecustomer’s delivery schedule. GIFI also sometimes works as asubcontractor for its competitors.

Risk of entry by

competitors

Barriers to entry by competitors are low because of high capital intensityrequirements. Some offshore platforms can cost upwards of $1billion. Inaddition, the materials, facilities, labor, and technology are difficult andcostly to acquire. After an acquisition, the ability to resell plant, property,and equipment (PP&E) in a failed venture is not easy, and there are largelosses that discourage the entry of competitors.

Rivalry among

incumbent firms

Rivalry among incumbent firms is high. The industry is fragmented andthree companies make up 12%, 11%, and 6% of the market. The remainingmarket is divided among many smaller players. According to Porters’ FiveForces, fragmented industries produce more rivalry. Second, the high costand uniqueness of PP&E and low PP&E resale value can make it difficultfor a firm to exit the industry. Finally, with slower growth predicted in theindustry through 2011, firms will have to compete with each other formarket share in order to grow.

Bargaining power of suppliers

The bargaining power of suppliers in the oilfield service industry is high.This includes manual labor. Skilled piping and steel worker demandcontinues to increase significantly, and workers are easily able to negotiatehigher wages. In GIFI's 2006 annual report, employee loss is attributed tohigher wages offered by other firms. Workers can easily leave to find otheremployment.

Bargaining power

of buyers

The bargaining power of buyers is moderately high. Each year GIFI relieson relatively few customers for a significant portion of its revenue. In2006, 42% of GIFI’s revenue came from one buyer. In 2005 and 2004 over 40% of GIFI’s revenue came from only three buyers. However, it does not

rely on the same customers from year to year. GIFI’s significant pool of customers prevents the buyers from having strong bargaining power. AtDecember 31, 2007, 75% of their backlog was attributable to 17 projectsinvolving 12 customers. Low switching costs and the credible threat of vertical integration give large buyers such as ExxonMobil, and Chevronadditional power.




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Threat of

substitutes

The threat of substitutes is low. There is no other industry able to supply aproduct that can take the place of the offshore drilling and productionplatforms produced by GIFI.

COMPANYDESCRIPTION

Gulf Island Fabrication Inc. (GIFI/NASDAQ) is a worldwide leader inthe fabrication of drilling and production platforms, hull and deck sectionsof floating platforms, and other specialized structures used in thedevelopment and production of offshore oil and gas reserves. Through itsfour subsidiaries, Gulf Island provides a full range of fabrication,construction, and maintenance services to its clients. Figure 2 shows theHouma Navigation Canal, where GIFI’s four integrated Louisianafabrication yards are located.

Figure 2: Gulf Island Fabrication- Navigation Canal

Source: www.gulfisland.com (January 29, 2008)

Strategy While contracts in the oil and gas industry are typically won based on priceand delivery schedule, GIFI gains a profitable competitive advantage bystrategically delivering technically capable personnel and facility space,efficiency, equipment, reputation, and safety records that new entrants andcompetitors in the industry cannot offer. These secondary considerationsmake GIFI an attractive client when multiple fabrication companies arebidding for the same job.

Products Gulf Island Fabrication is a fabricator of offshore drilling and productionplatforms, and other specialized structures used in the development of andproduction of offshore oil and gas reserves. It operates in the oil and gasdrilling and exploration industry. Its products consist of construction of offshore drilling and production platforms, construction of jackets andfloating platforms, piles, wellhead protectors, sub-sea templates,compressors, and utility modules. Its services consist of structural steelfabrication, blasting and coating, testing, outside services, inspection fieldoffices, loadout capabilities and shipping facilities.








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Past Mergers and

Acquisitions

GIFI has had three major acquisitions. In January 1997, GIFI acquiredDolphin Services Inc., providing interconnect piping services and offshoremaintenance and staffing services for platforms. Following the acquisition,GIFI went public in April of the same year. In 1998, GIFI acquired all

outstanding shares of Southport Inc., and its subsidiary SouthportInternational Inc. to provide living quarters for offshore oil platforms.Finally, in 2006 GIFI acquired Technip’s Gulf Marine Fabricators. Amajor limitation to GIFI before the Gulf Marine acquisition was itsinability to move barges carrying deepwater structures through the HoumaNavigational Canal. Gulf Marine’s Texas location’s provided GIFI accessto the Gulf of Mexico that it did not have before. This acquisitionincreased its labor pool and gave GIFI the largest fabrication capacity onthe Gulf Coast.

Competitors The two main domestic competitors of Gulf Island are Kiewit Offshore

and J. Ray McDermott. Kiewit’s nearby facility in Ingleside, Texas allowsit to compete with GIFI because of its ability to both construct andtransport large structures to deepwater.

Latest

Developments

The major change in the industry is the current shift from shallow-waterprojects to deepwater projects. Recently, GIFI has made a number of largeexpenditures including the acquisition of Gulf Marine Fabricators, thehiring of new employees, and the purchase of three new Demag model2800 crawler cranes for approximately $12.8 million to facilitate GIFI’smove to deeper water. Now, with unobstructed access to the Gulf of Mexico, GIFI is poised to handle contracts requiring either shallow or deepwater structures.

GIFI’s backlog is based on management’s estimated labor hours onoutstanding projects; at the end of 2007, the man-hour backlog wasestimated at 4 million hours.

PEERANALYSIS

We chose four companies we felt were comparable to Gulf IslandFabrications (GIFI) based on their similar business drivers includingrevenues, cost drivers, and geographic presence. We also took intoconsideration each company’s presence in deepwater fabrications.

Table 3: Key Statistics of GIFI’s Peers Company Ticker

MktCap.*

P/E P/BVEV/

EBITDAD/E ROE

Gulf IslandFabrication

GIFI 457 14.74 2.00 7.13 0.00 11.97%

Cal DiveInternational

DVR 1,275 9.68 2.17 7.23 .64 34.71

McDermottInternational Inc.

MDR 12,695 21.14 10.9 14.39 0.01 68.11

Global Industries GLBL 1,830 11.69 2.16 6.33 0.46 20.26%

Kiewit Offshore Private Company

Source: www.smartmoney.com 15 April, 2008

*Market Cap in millions of dollars

http://www.smartmoney.com/







8

Cal Dive

International

(DVR/NYSE)

Cal Dive International is a marine contractor, headquartered in Houston,Texas, providing manned diving, derrick, pipelay, and pipe burial servicesto the offshore oil and natural gas industry. Previously a wholly ownedsubsidiary of Helix Energy Solutions, its recent IPO in 2006 allowed it to

quickly become one of the newest and largest providers of deep-water andshallow-water services. Its fleet currently consists of 34 vessels, including24 surface and saturation diving support vessels as well as 10 constructionbarges. It mainly provides services in the Gulf of Mexico’s outer continental shelf; however, it is continuing to branch out into the MiddleEast, Southeast Asia, and Trinidad. Cal Dive is particularly known for itssuccessful acquisitions, especially in the Gulf of Mexico. In 2005 it added13 vessels, including acquiring the diving and shallow water pipelay assetsof Acergy that operate in the waters off the Gulf of Mexico and Trinidad.

Global

Industries Ltd.(GLBL/NASDAQ)

Global Industries Ltd. provides a range of construction and support

services to the offshore oil and gas industry. The company isheadquartered in Carlyss, Louisiana and primarily operates in the UnitedStates, Gulf of Mexico, Latin America, West Africa, the Middle East, andAsian Pacific regions. The company can provide services to customersoperating in shallow waters and at depths of up to 10,000 feet. It offersservices such as pipeline construction, platform installation and removal,subsea construction, project management, and diving services. Thecompany's business consists of two principal activities: OffshoreConstruction Services (which includes pipeline construction and platforminstallation and removal services) and Diving Services (which includesdiving and marine support services). Currently, it is attempting to expand

its deepwater capabilities by improving its competitive bidding strategyand by increasing its ownership of deepwater production fields throughacquisitions.

McDermott

International, Inc.

(MDR/NYSE)

J. Ray McDermott is a subsidiary of the engineering and constructiongroup McDermott International Inc. and is a leading global marinesolutions company providing services in every major offshore oil and gasprovince. It is involved in projects that include services such as the design,fabrication, transportation and installation of offshore platforms, and theinstallation of offshore pipelines. Its main office is located in Houston,Texas and the company has regional offices in New Orleans, Louisiana,Dubai, United Arab Emirates, and Jakarta, Indonesia. The engineeringbranch of the company has recently increased its focus on deepwaterconstruction with its compliant tower and SPAR production platform — both of which enabled it to provide its customers with economicaldevelopment tools in depths greater than 1,500 feet. Mentor Subsea wasestablished in 1987 to provide professional engineering design, projectmanagement, and offshore support services and has expanded itsdeepwater capabilities to depths between 3,000 and 6,500 feet. FloaTEC,LLC is a 50:50 joint venture company created by J. Ray McDermott andKeppel FELS to deliver deepwater floating production systems.

http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=ffffhhrrrcffjhjrsh&ticker=ACY

http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=ffffhhrrrcffjhjrsh&ticker=ACY




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Kiewit Offshore

Services, Ltd.

Kiewit Corporation is a wholly owned subsidiary of Peter Kiewit Sons’,Inc., an employee-owned company; the stock is not available for purchaseby the general public and is not traded on any stock exchange. The Kiewitsubsidiary has established itself within the offshore fabrication market. Its

deepwater projects include the fabrication of oil and gas topsides, massivedeepwater floating structures, and large structural steel components. Inaddition to its deepwater projects, it builds small platforms, modules,suction piles, and tendons.

MANAGEMENTPERFORMANCEANDBACKGROUND

A major factor in Gulf Island Fabrication’s (GIFI’s) ability to stay afloat inthe volatile offshore energy industry is the Company’s core management.They understand the cyclical nature of the industry and are able to producequality products in a timely manner. The two cofounders of the Companynot only have extensive experience within the industry but still reside onthe board and make an integral part of the Company’s decisions. In 1997,shareholders implemented a Long-Term incentive Plan. The plan allowedthe grant of options to purchase an aggregate of 1,000,000 shares (splitadjusted) of Gulf Island’s common stock to particular officers andemployees. These officers and employees are chosen by the board of directors; more specifically called the “Compensation Committee.” Theoptions have a ten year term and are issued with an exercise price not lessthan the fair market value.

In 2002 GIFI adopted the 2002 Long-Term Incentive Plan, which added anadditional 500,000 shares the Compensation Committee could grant asawards. These options have a ten year term and are issued with an exercise

price not less than the fair market value. As of December 31, 2007 therewere still approximately 205,000 shares remaining between the 1997 planand the 2002 plan.

ROIC is an important measurement of how effective management is atemploying capital in its operations by showing the return on the capitalinvested. The more effective management is at identifying areas within acompany’s operations that can produce high returns, the higher the ROIC.Table 4 shows that GIFI’s management has been able to effectively use itscapital and has had one of the higher ROIC ratios in the industry the pastthree years.

Table 4: Return on Invested Capital:

Company 2004 2005 2006

Gulf Island Fabrication 9% 10% 12%

Global Industries 6% 6% 24%

Technip 1% 3% 6%

McDermott Int. 4% 165% 115%




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Kerry J. Chauvin Chairman, President, and CEO (60)Before starting at GIFI, Kerry Chauvin held the position of president atDelta Fabrication where he served in this role from 1979 to 1984. Mr.Chauvin held this title until Delta Fabrication’s assets were acquired by

Alden J. Laborde and Huey J. Wilson when they founded GIFI. Mr.Chauvin has served as GIFI’s president since its inception in 1985. Mr.Chauvin also served as the Company’s chief operating officer fromJanuary 1989 through January 1990 when he was appointed chief executive officer. He has served as chairman of the board of directors sinceApril 2001. Mr. Chauvin has an MBA and B.S. in mechanical engineeringfrom Louisiana State University.

Kirk J. Meche EVP Operations (45)In February 2001, Kirk Meche was promoted to EVP of operations at GIFIwhile simultaneously being promoted to the positions of president and

CEO of GIFI’s subsidiary Gulf Island L.L.C., which he held until January2006. In February 2006, he became the president and CEO of Gulf MarineFabricators until October 2006. He continues to hold the position of EVPof operations. Mr. Meche has a B.S. in engineering design from LouisianaState University.

Robin A. Seibert VP Finance, CFO, and Treasurer (51) Robin Seibert served as Gulf Island Fabrication’s controller fromDecember 1997 until October 2007. During his course as GIFI’s controllerhe also added the title of chief accounting officer in December 2000 and heserved as the corporate secretary from August 2002 until October 2007.Mr. Seibert currently holds the position of VP Finance, CFO, and treasurerfor the Company. Mr. Seibert is a CPA and received a B.S. in accountingfrom Nicholls State University.

Murphy A. Bourke EVP Marketing (63) Murphy Bourke started at GIFI when the Company began operations in1985 as vice president marketing, a position he held until December 1999.In January 2000 he was promoted to executive vice president, marketingwhich is the position he currently holds. Mr. Bourke received a B.A. inmarketing from Southeast Louisiana University.

Alden J. “Doc”

Laborde

Co-Founder and Member of the Board of Directors (92)

Alden Laborde has served as chairman of the board of the Company since1986 and has been a director since he co-founded Gulf Island Fabricationwith Huey J. Wilson in 1985. Mr. Laborde began in the offshore oil andgas industry with his creation of an offshore mobile drilling company,ODECO Inc. in 1953. He served as the chairman of the board and the CEOfrom 1953 through 1977. In 1954, Mr. Laborde founded his secondcompany Tidewater Inc., which was a supplier of offshore marinetransportation and other services and later became the world’s largestoffshore vessel operator. He served as a director of Tidewater from 1978 to




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1986 and as a director emeritus from 1986 to 1993. After co-foundingGIFI Mr. Laborde was elected into Fortune Magazine’s National BusinessHall of Fame. He graduated from the United States Naval Academy with adegree in engineering.

SHAREHOLDERANALYSIS

The percentage of shares owned by insiders of Gulf Island Fabrications ispresently at 17.92%. The top eight insiders holding shares are eitherofficers of GIFI or directors on the Company’s board, except for TechnipUSA Holdings. Technip became a top inside investor after GIFI’sacquisition of Technip’s subsidiary Gulf Island Marine in 2006. Currentlythere are 136 institutional investors holding shares in Gulf IslandFabrications. These institutional investors make up 73.9% of GIFI’sshares, which is an increase from the 68% of shares owned last year.

Table 5 and Table 6 depict the top eight inside investors of GIFI and thetop five institutional investors respectively.

Table 5: Shares Held by InsidersHolder Name Held % Outstanding

Alden J. Laborde 1,074,000 7.6

Technip USA Holdings 789,067 5.56

Kerry J. Chauvin 124,158 .87

Murphy A. Bourke 27,420 .19

John P. Laborde 21,349 .15

Kirk J. Meche 13,052 .09

Robin A. Seibert 5,986 .042

Gregory J. Cotter 5,000 .035Source: YAHOO Finance

Table 6: Shares Held by InstitutionsInstitutional Holders Held % Out

St. Denis J. Villere & Company 1,831,878 12.92

Barclays Global Investors UK Holdings 799,096 5.64

Thompson, Siegel, & Walmsley 671,299 4.73

Denver Investment Advisors 568,695 4.01

Friess Associates Inc. 501,800 3.54

Source: YAHOO Finance

INVESTMENTRISK ANALYSIS

For Gulf Island Fabrication’s (GIFI) risk analysis, we evaluatedoperational risks, financial risks, and industry regulation.

Operational Risks SeasonalitySeasonality is a risk for GIFI because volatile weather conditions canhinder, if not completely stop, operations. The location of GIFI makes theCompany susceptible to poor weather conditions; for example, hurricanesKatrina and Rita shut down GIFI’s operations for three weeks. Variation in




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daylight hours is another factor of seasonality that affects GIFI. During thewinter months, when weather conditions are not ideal for outdoorconstruction activities, the number of direct labor hours worked declines.Customers are aware of these problems, and they tend to arrange for theirprojects to be completed during the summer.

Revenue, gross profit, net income, and the number of direct labor hoursworked are all affected by the changing seasons. Table 7 shows thepercentages of revenue, gross profits and net income, and the number of direct labor hours per quarter for the last three fiscal years.

Table 7: Effects of Seasonality2007 2006 2005

1stQtr

2ndQtr

3rdQtr

4thQtr

1stQtr

2ndQtr

3rdQtr

4thQtr

1stQtr

2ndQtr

3rdQtr

4thQtr

Revenue* 23 29 26 21 18 29 29 24 29 29 20 22

Gross

Profit* 15 25 31 29 10 27 44 18 27 35 19 18

Net Income* 14 25 32 28 9 27 47 17 27 35 17 21

Direct LaborHours**

878 901 887 916 686 888 913 828 566 641 535 515

*in percentages; **in thousands

Source: Gulf Island Fabrication Annual Report

Cyclical Nature of IndustryGIFI’s business is dependent on the level of activity by the oil and gascompanies located in the Gulf of Mexico and along the Gulf Coast.Fluctuations in oil and gas prices make the level of drilling activity by theoil and gas companies extremely volatile. Customers will determine their

drilling expenditures based on the price of oil. Customers’ expenditures arecritical to the operations of GIFI, and the level of capital expenditures isinfluenced by a number of factors. Some of these factors include the oiland gas prices and perceptions of future prices; the costs associated withexploring for, producing, and delivering oil and gas; the ability of companies to generate capital; and the discovery rate of new oil and gas.

LaborIn order to expand operations, GIFI is dependent on its ability to increaseits labor force. It is necessary in this industry to attract and retain a skilledwork force in order to be productive and profitable, but it is difficult

because of the high demand of skilled workers and the limited supplyduring periods of high activity. If competitors significantly raise the wagesof their employees, it could cause a reduction in the number of GIFI’sskilled workers or force GIFI to raise the wages of its employees as well.In either situation, profits expected from work in progress could bereduced or eliminated, and if wage increases cannot be passed on to itscustomers, GIFI’s production capacity could be reduced and growthpotential impaired. To maintain its workforce, GIFI offers incentiveprograms, and it expanded its training facility to better train employees onproductivity and safety.




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LiabilityGIFI is under “strict liability” in regards to damages to natural resourceand threats to health and safety, meaning it is responsible for anyenvironmental damages without regard to negligence or fault. It is liable

for personal injury claims and property damages that result from exposureto hazardous substances. The liability includes any acts caused by othersand acts that complied with laws at the time GIFI performed them.

The Jones Act, the Death on the High Seas Act, and general maritime lawcover employees who take part in activities conducted on offshoreplatforms and on the spud barges owned by GIFI. These acts place nolimitations on GIFI’s liability in regards to its damages or injuries. Otherliability risks include collisions with other vessels, sinking, fires, and othercasualties that can result in personal injury, death, property damage,pollution, and loss of business.

GIFI has insurance to protect against property damage caused by fire,flood, explosion, and other events that could result in damage to theirfacilities. It is also insured for workers’ compensation liability except for losses in excess of $300,000, and it maintains a builder’s risk policy forconstruction projects and general liability insurance.

Capital NeedsGIFI funds its business activities through funds generated from itsoperations. They also have a revolving line of credit with a commercialbank for $50 million that is backed by a mortgage on its real estate,equipment, and fixtures.

The board of directors approved a capital budget of $42.1 million for 2008including equipment purchases, expansions, and improvements. Cashgenerated by operating activities and funds available under the bank creditfacility should be enough to fund the capital expenditures and workingcapital needs.

Financial Risks GIFI has some financial risks. GIFI has relatively low current and quick liquidity ratios in comparison to its competitors; however it continues tomaintain a low leverage ratio. GIFI also continues to hold a strong creditline with its lenders. Its ability to pay back debt quickly allows GIFI to

remain unaffected by changes in interest rates.

Liquidity and LeverageAs illustrated in Table 8, Gulf Island has the lowest liquidity ratio of all itscompetitors, indicating that GIFI’s stock price is more likely to move withrelatively light volumes of trading in comparison to its competitors. Itsdebt/equity ratio continues to be 0.00 despite having $11 million in debt asof September 30, 2007 because the $11 million was repaid in full onOctober 25, 2007.




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Table 8: Liquidity Ratios

Source: www.smartmoney.com

CompanyLiquidity

RatioCurrent

RatioQuickRatio

Debt/ Equity Ratio

Gulf Island (GIFI) 1,122 1.82 1.74 0.00

McDermottInternational (MDR) 42,253 0.95 0.92 0.01

Global Industries Ltd.(GLBL)

11,867 4.59 4.59 0.48

Cal Dive International(DVR)

3,015 2.12 2.12 0.49

Exchange RatesGIFI’s attempts to expand further into international markets resulted in anincrease in revenue attributed to foreign projects. The percent of revenuefrom these projects increased to 24% in 2007 from 7% in 2006. Revenueattributed to these projects had been as high as 30% in 2005. The large

emphasis on domestic projects may have an unfavorable effect on GIFI inthe future because of the weak position of the dollar in comparison to othercurrencies.

Industry

Regulation

The oil and gas industry is mainly regulated by the Bureau of MineralsManagement Service of the United States Department of the Interior(MMS). The MMS requires offshore platforms to meet strictspecifications, and if companies do not comply with these specificationsnoncompliance could result in civil and criminal penalties. GIFI believesits operations are in compliance with all regulations set by MMS inaddition to all environmental and public safety guidelines determined by

the government and a set of standards set by the American PetroleumInstitute, the American Society of Mechanical Engineers, and theAmerican Welding Society.

FINANCIALPERFORMANCEANDPROJECTIONS

We made the following assumptions to reach our 12-month target price of $37.19.

Macroeconomic

Outlook

Experts say utilization of oil and gas related liquid fuels are predicted to

decline this year by approximately 85,000 barrels per day; which can beattributed to the economic downturn and high petroleum prices. Just a yearago, it was impossible to exceed $100 a barrel mark; however prices above$100/barrel have surprisingly become the norm. Regardless, tight supplyconditions will continue to drive production companies to invest inexpanding their operations, especially in their deepwater capabilities.Therefore we predict that we will continue to see higher demand for semi-submersible drilling rigs.








15

Relevant

Commodity Prices

The consolidation of the domestic steel industry along with the increaseddemand for steel from China has negatively influenced the supply of theraw materials needed to produce steel. With excessive demand and limitedsupply expected in the future, steel will be much harder to acquire. This, in

addition to the current weak U.S. dollar, has allowed steel mills in theUnited States to increase their prices, thereby, affecting the price GIFIcharges its customers. The extra costs being passed on to GIFI’scustomers, could diminish the number of new projects it will be offered.

Operating

Activities

We ran two regression models for GIFI’s operating activities. First,historical revenues were regressed against average plant property andequipment (PPE), seasonal weather disruptions, oil prices, and efficiencyof direct labor hours. For the second, we regressed the cost of revenue perdirect labor hour against a quarterly dummy variable and deepwaterdummy variable that began in 2006 with the acquisition of Gulf Marine

Fabricators. Selling, general, and administrative expenses (SGA) havehistorically floated around 2.1% of revenues, and so we used this percentto forecast future SGA.

Because of the capital intensiveness of fabrication, PPE is GIFI’s mainrevenue driver. As PPE increases, so too does GIFI’s production capacity.In the case of the PPE acquired from Gulf Marine, production capacity wasgreatly increased because of the deepwater nature of the equipmentacquired.

Weather plays a major role in the fabrication industry because bothfabrication and the end product are almost always exposed to outdoor

conditions. Although many fabricators have covered fabrication areas thatprotect from rain, there is little a company can do about tropical stormsand hurricanes, storms that frequent the Gulf of Mexico. Short daylighthours in the winter also mitigate labor hours. Although we included avariable for seasonality, we assumed that GIFI will not run into anydevastating events in the near future.

The weakening of the U. S. dollar has made GIFI’s products cheaper tointernational customers. Sales of fabricated structure for delivery outsideof the United States accounted for 24% ($113.3 million) of revenues foryear-end 2007. With world monetary policies remaining tight in

comparison to the U.S. Federal Reserve’s recent rate cuts, we expect manyforeign currencies to strengthen themselves against the dollar in the nearfuture. This should shift GIFI’s deliveries more towards internationalmarkets.

Investing and

Financing

Activities

A capital budget of $20.9 million for 2008 was approved by the Board of Directors. This budget includes the purchase of equipment and additionalyard and facility expansion or improvements, with $5 million specificallyfor the purchase and installation of equipment for a panel line system. Thissystem will allow GIFI to expand into additional marine construction areas




16

such as towboats, barges, and mid-body sections for offshore supplyvessels. Management believes that during the next 12 months GIFI will notneed to seek any additional financing because the cash generated by theiroperating activities and the funds available under the bank credit facilitywill be enough to fund these capital expenditures.

SITE VISIT On February 29, 2008, our team visited Gulf Island Fabrication Inc. inHouma, Louisiana. Upon arrival we were promptly met by the CEO, KerryChauvin and the CFO, Robin Seibert.

We then proceeded to the company boardroom where a presentation wasgiven on the Company’s background, the fabrication industry, and a brief financial overview. An in-depth analysis of how its acquisition of Gulf Marine Fabricators in 2006 has changed the Company’s capabilities in thedeepwater sector was also presented. Following the presentation, we weregiven the opportunity to ask any questions we had.

Following the Q&A, Mr. Chauvin gave us a tour of the facilities. Althoughthe yard was rather quiet because of GIFI’s lunch break we were still ableto get a feel for the large scale of GIFI’s projects and the generaloperations of the Company. By looking at the size of the HoumaNavigation Canal we were also able to get a better understanding of whyGIFI acquired Gulf Marine Fabricators. The canal is too shallow andnarrow to produce the large-scale deepwater products that are in demandtoday.

Mr. Chauvin and Mr. Seibert were confident about the future of Gulf Island and were optimistic about the future of deepwater production

services.

SOURCES OFINFORMATION

To construct our report on Gulf Island Fabrication Inc., our team useddiverse sources to gather information on both GIFI and the oil and gasindustry in which it operates. Meeting in person with Gulf Island’s CEOKerry Chauvin and its CFO Robin A. Seibert afforded our group access toa personal feel of corporate culture and day-to-day operations.

Two of our group members are also enrolled in Professor JosephLeBlanc’s Energy Fundamentals and Trading class. The curriculum of thecourse covers the fundamentals of the oil and gas industry and goes into

detail about the products and services of the industry. Enrollment in thisclass provides full access to Reuter terminals, which allow our group toretrieve accurate historical prices of crude oil and steel index prices.

The majority of our research came from GIFI’s published quarterly andannual reports, which we retrieved from the SEC via EDGAR, and alsofrom the Company’s “Investor Relations” section on its Web site. Moregeneral information (stock price, company description, managementpositions) were found via Google Finance, Hoovers, Bloomberg, InvestextPlus, and ValueLine.




17

BEN GRAHAMANALYSIS

Earnings per share (ttm) 2.18$ Price: $35.48Earnings to Price Yield 6.16%

10 Year Treasury (2X) 7.60%

P/E Ratio as of 12/31/03 12.2

P/E Ratio as of 12/31/04 21.3

P/E Ratio as of 12/31/05 22.6

P/E Ratio as of 12/31/06 23.8

P/E Ratio as of 12/31/07 14.5

Current P/E Ratio 16.2

Dividends per share (ttm) 0.40$ Price: 35.48$

Dividend Yield 1.12%

1/2 Yield on 10 Year Treasury 1.90%

Stock Price 35.48$

Book Value per share as of 12/31/07 16.10$

150% of book Value per share as of 12/31/07 24.16$

Interest-bearing debt as of 12/31/07 -$

Book value as of 12/31/07 228,913$

Current assets as of 12/31/07 135,747$

Current liabilities as of 12/31/07 78,363$

Current ratio as of 12/31/07 1.7

EPS for year ended 12/31/07 2.18$





EPS for year ended 12/31/07 2.18$ 42%



EPS for year ended 12/31/04 0.99$ -26%

Stock price data as of April 15, 2008

YES

Hurdle # 8: Stability in Growth of Earnings

NO

Hurdle # 5: Total Debt less than Book Value

YES

Hurdle # 6: Current Ratio of Two or More

NO

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years

NO

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury

NO

Hurdle # 4: A Stock Price less than 1.5 BV

NO

GULF ISLAND FABRICATION, INC. (GIFI)

Table 9Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury

NO

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs




18

GULF ISLAND FABRICATION, INC. (GIFI)Annual and Quarterly Income StatementsIn thousands

For the period ended 2005 A 2006 A 2007 A 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2008 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2009 E

Revenue 188,545$ 312,181$ 472,739$ 125,826$ 128,130$ 128,769$ 131,243$ 513,967$ 135,556$ 138,217$ 139,232$ 142,101$ 555,106$

Cost o f r evenue 164,548 273,768 415,901 110,698 112,725 113,287 115,463 452,172 119,258 121,599 122,492 125,016 488,365

Gross profit 23,997 38,413 56,838 15,128 15,405 15,482 15,779 61,795 16,298 16,618 16,740 17,085 66,741

General and administrative expenses 5,681 9,137 10,359 2,642 2,691 2,704 2,756 10,793 2,847 2,903 2,924 2,984 11,657

Operating income 18,316 29,276 46,479 12,486 12,714 12,778 13,023 51,002 13,451 13,715 13,816 14,101 55,084

Other expense (income):

Interest expense 55 473 50 15 15 15 15 60 15 15 15 15 60 Interest income (1,395) (359) (434) (537) (679) (632) (299) (2,147) (453) (968) (824) (833) (3,078)

Other--net 460 (1,261) 10

Total other expense (income) (880) (1,147) (374) (522) (664) (617) (284) (2,087) (438) (953) (809) (818) (3,018)

Income before income taxes 19,196 30,423 46,853 13,008 13,379 13,395 13,307 53,088 13,889 14,668 14,626 14,919 58,102

Income taxes 6,209 9,098 15,686 4,032 4,147 4,152 4,125 16,457 4,306 4,547 4,534 4,625 18,012

Net income 12,987$ 21,325$ 31,167$ 8,975$ 9,231$ 9,242$ 9,182$ 36,631$ 9,583$ 10,121$ 10,092$ 10,294$ 40,091$

Earnings per share:

Basic earnings per share 1.06$ 1.54$ 2.20$ 0.63$ 0.65$ 0.65$ 0.64$ 2.57$ 0.67$ 0.71$ 0.70$ 0.72$ 2.79$

Diluted earnings per share 1.05$ 1.53$ 2.18$ 0.63$ 0.64$ 0.64$ 0.64$ 2.56$ 0.67$ 0.71$ 0.70$ 0.72$ 2.79$

Weighted average shares of common shares:

Basic 12,242 13,812 14,161 14,226 14,248 14,270 14,292 14,259 14,314 14,336 14,358 14,380 14,347

Diluted 12,377 13,934 14,270 14,301 14,317 14,332 14,347 14,310 14,349 14,351 14,374 14,397 14,362

SELECTED COMMON SIZE AMOUNTS

Cost of revenue 87.27% 87.70% 87.98% 87.98% 87.98% 87.98% 87.98% 87.98% 87.98% 87.98% 87.98% 87.98% 87.98%

Gross profit 12.73% 12.30% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02%

General and administrative expenses 3.01% 2.93% 2.19% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10% 2.10%

Operating income 9.71% 9.38% 9.83% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92%

Total other expense (income) -0.47% -0.37% -0.08% -0.41% -0.52% -0.48% -0.22% -0.41% -0.32% -0.69% -0.58% -0.58% -0.54%

Income before income taxes 10.18% 9.75% 9.91% 10.34% 10.44% 10.40% 10.14% 10.33% 10.25% 10.61% 10.50% 10.50% 10.47%

Net income 6.89% 6.83% 6.59% 7.13% 7.20% 7.18% 7.00% 7.13% 7.07% 7.32% 7.25% 7.24% 7.22%

YEAR-TO-YEAR CHANGES

Revenue 8.4% 65.6% 51.4% 15.0% -6.9% 3.1% 30.1% 8.7% 7.7% 7.9% 8.1% 8.3% 8.0%

Cost of revenue 8.8% 66.4% 51.9% 9.8% -8.7% 6.0% 36.3% 8.7% 7.7% 7.9% 8.1% 8.3% 8.0%

Gross profit 5.8% 60.1% 48.0% 77.8% 8.9% -14.0% -2.5% 8.7% 7.7% 7.9% 8.1% 8.3% 8.0%

General and administrative expenses 17.9% 60.8% 13.4% 14.5% -4.2% -2.4% 11.5% 4.2% 7.7% 7.9% 8.1% 8.3% 8.0%

Operating income 2.6% 59.8% 58.8% 101.3% 12.2% -16.1% -5.1% 9.7% 7.7% 7.9% 8.1% 8.3% 8.0%

Total other expense (income) 92.6% 30.3% -67.4% 401.6% 337.1% 1302.2% 283.2% 457.9% -16.1% 43.4% 31.2% 188.6% 44.6%

Income before income taxes 4.8% 58.5% 54.0% 106.2% 16.5% -12.3% -3.5% 13.3% 6.8% 9.6% 9.2% 12.1% 9.4%

Net income 7.8% 64.2% 46.2% 103.3% 17.4% -7.9% 3.7% 17.5% 6.8% 9.6% 9.2% 12.1% 9.4%

2009 E2008 E




19

GULF ISLAND FABRICATION, INC. (GIFI)Annual and Quarterly Balance SheetsIn thousands

As of 31-Dec-05 A 31-Dec-06 A 31-Dec-07 A 31-Mar E 30-Jun E 30-Sep E 31-Dec E 31-Dec-08 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 31-Dec-09 E

Assets

Current assets:

Cash and cash equivalents 5,689$ 10,302$ 24,640$ 31,195$ 29,015$ 13,708$ 20,780$ 20,780$ 44,438$ 37,850$ 38,265$ 45,985$ 45,985$

Short-term investments 30,212

Contracts receivable, net 30,790 57,229 78,748 74,414 83,336 99,830 97,546 97,546 80,168 89,897 107,942 105,617 105,617

Contract retainage 666 1,785 430 377 384 386 394 394 407 415 418 426 426

Costs and est. earnings in excessof billings on uncompleted contracts 27,219 14,869 17,690 18,874 19,219 19,315 19,686 19,686 20,333 20,733 20,885 21,315 21,315

Prepaid expenses 2,352 2,839 2,776 2,053 2,892 1,878 2,859 2,859 2,114 2,979 1,934 2,945 2,945

Inventory 5,515 4,793 7,427 6,150 6,194 6,157 6,275 6,275 6,625 6,681 6,657 6,794 6,794

Deferred taxes 4,036 4,036 4,036 4,036 4,036 4,036 4,036 4,036 4,036 4,036 4,036

Recoverable income taxes 969 2,948Total current assets 103,412 94,765 135,747 137,100 145,077 145,310 151,577 151,577 158,122 162,590 180,137 187,118 187,118

Intangible assets 544

Property, plant and equipment, net 59,744 155,440 188,766 193,773 198,779 203,786 208,792 208,792 209,901 210,539 211,269 212,591 212,591

Other assets 650 699 700 700 700 700 700 700 700 700 700 700 700

Total assets 163,806$ 251,448$ 325,213$ 331,572$ 344,556$ 349,796$ 361,069$ 361,069$ 368,724$ 373,829$ 392,106$ 400,409$ 400,409$

Current liabilities:

Accounts payable 7,236$ 12,786$ 18,080$ 26,017$ 29,744$ 26,408$ 28,464$ 28,464$ 25,701$ 20,470$ 29,184$ 26,956$ 26,956$

Billings in excess of costs and est.earningson uncompleted contracts 4,214 19,806 44,301 40,264 41,002 41,206 41,998 41,998 43,378 44,230 44,554 45,472 45,472

Accrued employee costs 3,318 5,327 7,421 6,291 6,406 6,438 6,562 6,562 6,778 6,911 6,962 7,105 7,105

Accrued expenses 1,503 2,295 2,419 2,517 2,563 2,575 2,625 2,625 2,711 2,764 2,785 2,842 2,842

Income taxes payable 6,142 1,579 1,624 1,626 1,615 1,615 1,686 1,780 1,775 1,811 1,811

Total current liabilities 16,271 40,214 78,363 76,668 81,339 78,254 81,264 81,264 80,253 76,156 85,259 84,186 84,186

Deferred income taxes 9,270 10,478 17,937 17,937 17,937 17,937 17,937 17,937 17,937 17,937 17,937 17,937 17,937

Total liabilities 25,541 50,692 96,300 94,605 99,276 96,191 99,201 99,201 98,190 94,093 103,196 102,123 102,123

Shareholders' equity:

Common stock 5,047 9,368 9,560 9,610 9,610 9,660 9,660 9,660 9,760 9,860 9,960 10,060 10,060

Additional paid-in capital 45,161 85,365 87,853 88,304 88,808 89,261 89,765 89,765 90,167 90,571 90,974 91,378 91,378

Retained earnings 88,886 106,023 131,500 139,053 146,863 154,684 162,444 162,444 170,606 179,305 187,976 196,848 196,848

Deferred compensation - restricted stock (829)

Total shareholders' equity 138,265 200,756 228,913 236,967 245,280 253,605 261,868 261,868 270,533 279,736 288,910 298,286 298,286

Total liabilities and shareholders' equity 163,806$ 251,448$ 325,213$ 331,572$ 344,556$ 349,796$ 361,069$ 361,069$ 368,724$ 373,829$ 392,106$ 400,409$ 400,409$

SELECTED COMMON SIZE AMOUNTS (as a % of revenue)

Contracts receivable, net 16.33% 18.33% 16.66% 59.14% 65.04% 77.53% 74.33% 18.98% 59.14% 65.04% 77.53% 74.33% 19.03%

Contract retainage 0.35% 0.57% 0.09% 15.00% 15.00% 15.00% 15.00% 3.83% 15.00% 15.00% 15.00% 15.00% 3.84%

Costs and est. earnings in excessof billings on uncompleted contracts 14.44% 4.76% 3.74% 15.00% 15.00% 15.00% 15.00% 3.83% 15.00% 15.00% 15.00% 15.00% 3.84%

Prepaid expenses 1.25% 0.91% 0.59% 1.63% 2.26% 1.46% 2.18% 0.56% 1.56% 2.16% 1.39% 2.07% 0.53%

Inventory 2.93% 1.54% 1.57% 4.89% 4.83% 4.78% 4.78% 1.22% 4.89% 4.83% 4.78% 4.78% 1.22%

Property, plant and equipment, net 31.69% 49.79% 39.93% 154.00% 155.14% 158.26% 159.09% 40.62% 154.84% 152.32% 151.74% 149.61% 38.30%

Accounts payable 3.84% 4.10% 3.82% 20.68% 23.21% 20.51% 21.69% 5.54% 18.96% 14.81% 20.96% 18.97% 4.86%

Billings in excess of costs and est.earningson uncompleted contracts 2.24% 6.34% 9.37% 32.00% 32.00% 32.00% 32.00% 8.17% 32.00% 32.00% 32.00% 32.00% 8.19%

Accrued employee costs 1.76% 1.71% 1.57% 5.00% 5.00% 5.00% 5.00% 1.28% 5.00% 5.00% 5.00% 5.00% 1.28%

Accrued expenses 0.80% 0.74% 0.51% 2.00% 2.00% 2.00% 2.00% 0.51% 2.00% 2.00% 2.00% 2.00% 0.51%

SELECTED COMMON SIZE AMOUNTS (as a % of total assets)

Total current assets 63.13% 37.69% 41.74% 41.35% 42.11% 41.54% 41.98% 41.98% 42.88% 43.49% 45.94% 46.73% 46.73%

Property, plant and equipment, net 36.47% 61.82% 58.04% 58.44% 57.69% 58.26% 57.83% 57.83% 56.93% 56.32% 53.88% 53.09% 53.09%

Total current liabilities 9.93% 15.99% 24.10% 23.12% 23.61% 22.37% 22.51% 22.51% 21.77% 20.37% 21.74% 21.02% 21.02%

Deferred income taxes 5.66% 4.17% 5.52% 5.41% 5.21% 5.13% 4.97% 4.97% 4.86% 4.80% 4.57% 4.48% 4.48%

Total liabilities 15.59% 20.16% 29.61% 28.53% 28.81% 27.50% 27.47% 27.47% 26.63% 25.17% 26.32% 25.50% 25.50%

Total shareholders' equity 84.41% 79.84% 70.39% 71.47% 71.19% 72.50% 72.53% 72.53% 73.37% 74.83% 73.68% 74.50% 74.50%

2008 E 2009 E




20

GULF ISLAND FABRICATION, INC. (GIFI)Annual and Quarterly Statements of Cash Flows

For the period ended 2005 A 2006 A 2007 A 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2008 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2009 E

In thousands

Cash Flow From Operations:

Net income 12,987$ 21,325$ 31,167$ 8,975$ 9,231$ 9,242$ 9,182$ 36,631$ 9,583$ 10,121$ 10,092$ 10,294$ 40,091$

Adjustments:

Compensation expense - restricted stock 14 736 669 167 167 167 167 669 167 167 167 167 669

Impairment 454 314

Depreciation 6,279 11,653 13,577 3,592 3,592 3,592 3,592 14,369 3,561 3,991 4,459 4,475 16,486

Amortization 856 544

Deferred income taxes (355) 1,208 3,423

Excess tax benefit from share-based compensation plans (1,317) (755) (189) (189) (189) (189) (755) (189) (189) (189) (189) (755) Changes in operating assets and liabilities:

Contracts receivable 6,287 (20,262) (21,519) 4,334 (8,921) (16,494) 2,283 (18,798) 17,378 (9,729) (18,045) 2,325 (8,070)

Contract retainage 1,768 (1,119) 1,355 53 (7) (2) (7) 36 (13) (8) (3) (9) (33)

Costs and estimated earnings in excess ofbillings on uncompleted contracts (21,067) 12,350 (2,821) (1,184) (345) (96) (371) (1,996) (647) (399) (152) (430) (1,629)

Income taxes payable/receivable (583) (662) 9,845 (4,563) 45 2 (11) (4,527) 71 95 (5) 36 196

Prepaid expenses, Inventory and other assets (3,023) 938 (2,885) 723 (839) 1,015 (982) (83) 745 (865) 1,045 (1,011) (86)

Inventory - 1,277 (44) 37 (118) 1,152 (350) (56) 24 (137) (519)

Accounts payable 1,448 5,550 5,294 7,937 3,727 (3,336) 2,056 10,384 (2,763) (5,230) 8,713 (2,228) (1,508)

Billings in excess of costs & estimatedearnings on uncompleted contracts (2,651) 9,159 24,495 (4,037) 737 204 792 (2,303) 1,380 852 325 918 3,475

Accrued employee costs 699 1,842 2,021 (1,130) 115 32 124 (859) 216 133 51 143 543

Accrued expenses 699 792 124 98 46 13 49 206 86 53 20 57 217

Net cash provided by operating activities 2,956 43,049 64,848 16,054 7,315 (5,812) 16,567 34,124 29,226 (1,063) 6,501 14,412 49,077

Cash flows from investing activities:

Capital expenditures, net (5,677) (27,626) (46,905) (8,599) (8,599) (8,599) (8,599) (34,395) (4,670) (4,630) (5,189) (5,796) (20,285)

Proceeds on the sale of property

Short-term investments (1,873) 30,212

Purchase of subsidiaries, net of cash acquired (41,487)

Net cash used in investing activities (7,550) (38,901) (46,905) (8,599) (8,599) (8,599) (8,599) (34,395) (4,670) (4,630) (5,189) (5,796) (20,285)

Cash flows from financing activities:

Proceeds from issuance of stock 1,834 3,336 1,330 334 336 336 336 1,343 336 336 336 336 1,344

Tax benefit from exercise of stock options 425 1,317 755 189 189 189 189 755 189 189 189 189 755

Dividends (3,672) (4,188) (5,690) (1,423) (1,422) (1,422) (1,422) (5,687) (1,422) (1,422) (1,422) (1,422) (5,686)

Net cash provided by (used in) financing activities (1,413) 465 (3,605) (900) (897) (897) (897) (3,589) (897) (897) (897) (897) (3,587)

Net increase (decrease) in cash (6,007) 4,613 14,338 6,555 (2,180) (15,307) 7,072 (3,860) 23,659 (6,589) 416 7,719 25,205

Cash at beginning of year 11,696 5,689 10,302 24,640 31,195 29,015 13,708 24,640 20,780 44,438 37,850 38,265 20,780

Cash at end of year 5,689 10,302 24,640 31,195 29,015 13,708 20,780 20,780 44,438 37,850 38,265 45,985 45,985

Operating cash flow per share

excluding changes in working capital $1.57 $2.57 $3.48 $0.89 $0.91 $0.91 $0.90 $3.61 $0.93 $1.00 $1.02 $1.04 $3.99

Operating cash flow per shareincluding changes in working capital $0.24 $3.09 $4.54 $1.12 $0.51 ($0.41) $1.15 $2.38 $2.04 ($0.07) $0.45 $1.00 $3.42

2009 E2008 E




21

GULF ISLAND FABRICATION, INC. (GIFI)Ratios

2005 A 2006 A 2007 A 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2008 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2009 E

Productivity Ratios

Receivables turnover 6.12 5.45 6.00 1.64 1.62 1.41 1.33 5.27 1.53 1.63 1.41 1.33 5.26

Inventory turnover 29.84 57.12 56.00 16.31 18.26 18.35 18.58 72.06 18.49 18.28 18.37 18.59 71.88

Working capital turnover 2.16 5.72 8.24 2.14 2.06 1.97 1.91 7.31 1.83 1.68 1.54 1.44 5.39

Net fixed asset turnover 3.16 2.01 2.50 0.66 0.65 0.64 0.64 2.46 0.65 0.66 0.66 0.67 2.61

Total asset turnover 1.15 1.24 1.45 0.38 0.38 0.37 0.37 1.42 0.37 0.37 0.36 0.36 1.39

# of days Sales in A/R 60 67 61 53 59 71 68 60 53 59 71 68 67

# of days Cost of Sales in Inventory 12 6 7 5 5 5 5 5 5 5 5 5 5# of days cash-based expenses in payables 27 27 25 29 31 29 30 27 27 23 30 27 27

Liquidity measures

Current ratio 6.36 2.36 1.73 1.79 1.78 1.86 1.87 1.87 1.97 2.13 2.11 2.22 2.22

Quick ratio 4.10 1.68 1.32 1.38 1.38 1.45 1.46 1.46 1.55 1.68 1.71 1.80 1.80

Cash ratio 2.24 1.68 1.32 1.38 1.38 1.45 1.46 1.46 1.55 1.68 1.71 1.80 1.80

Cash flow from operations ratio 0.18 1.07 0.83 0.21 0.09 -0.07 0.20 0.42 0.36 -0.01 0.08 0.17 0.58

Working capital 87,141 54,551 57,384 60,431 63,738 67,056 70,313 70,313 77,869 86,434 94,877 102,932 102,932

Financial Risk (Leverage) Ratios

Total debt/equity ratio 0.18 0.25 0.42 0.40 0.40 0.38 0.38 0.38 0.36 0.34 0.36 0.34 0.34

Debt/equity ratio (excluding deferred taxes) 0.12 0.20 0.34 0.32 0.33 0.31 0.31 0.31 0.30 0.27 0.30 0.28 0.28

Total LT debt/equity ratio 0.07 0.05 0.08 0.08 0.07 0.07 0.07 0.07 0.07 0.06 0.06 0.06 0.06

LT debt/equity (excluding deferred taxes) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total debt ratio 0.16 0.20 0.30 0.29 0.29 0.27 0.27 0.27 0.27 0.25 0.26 0.26 0.26

Debt ratio (excuding deferred taxes) 0.11 0.17 0.26 0.24 0.25 0.24 0.24 0.24 0.23 0.21 0.23 0.22 0.22

Profitability/Valuation Measures

Gross profit margin 12.73% 12.30% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02% 12.02%

Operating profit margin 9.71% 9.38% 9.83% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92% 9.92%

Return on assets 7.93% 8.48% 9.58% 2.73% 2.73% 2.66% 2.58% 10.15% 2.63% 2.73% 2.64% 2.60% 10.01%Return on equity 9.39% 10.62% 13.62% 3.85% 3.83% 3.71% 3.56% 13.99% 3.60% 3.68% 3.55% 3.51% 13.44%

Earnings before interest and taxes margin 6.89% 6.83% 6.59% 7.13% 7.20% 7.18% 7.00% 7.13% 7.07% 7.32% 7.25% 7.24% 7.22%

EBITDA margin 13.54% 13.90% 12.91% 13.20% 13.26% 13.20% 12.89% 13.14% 12.88% 13.51% 13.72% 13.66% 13.45%

EBITDA/Assets 15.59% 17.26% 18.76% 5.06% 5.02% 4.90% 4.76% 18.70% 4.79% 5.03% 4.99% 4.90% 18.64%

2009 E2008 E



BURKENROAD REPORTS RATING SYSTEMMarket Outperform: This rating indicates that we believe forces are in place that would enable this

company's stock to produce returns in excess of the stock market averages over the next 12 months.

Market Perform: This rating indicates that we believe the investment returns from this company’s

stock will be in line with those produced by the stock market averages over the next 12 months.

Market Underperform: This rating indicates that while this investment may have positive

attributes, we believe an investment in this company will produce subpar returns over the next 12

months.

BURKENROAD REPORTS RATING SYSTEM

CPFS is calculated using operating cash flows excluding working capital changes.

All amounts are as of the date of the report as reported by Bloomberg or Yahoo Finance

unless otherwise noted. Betas are collected from Bloomberg.

Enterprise value is based on the equity market cap as of the report date, adjusted for long-

term debt, cash, and short-term investments reported on the most recent quarterly report date.

12-month Stock Performance is calculated using an ending price as of the report date.

The stock performance includes the 12-month dividend yield.

2007-2008 COVERAGE UNIVERSEAFC Enterprises Inc. (AFCE) McMoRan Exploration Co. (MMR)

Amerisafe Inc. (AMSF) MidSouth Bancorp Inc. (MSL)

Callon Petroleum Company (CPE) NATCO Group Inc. (NTG)

Cal-Maine Foods Inc. (CALM) Parkway Properties Inc. (PKY)

Carbo Ceramics Inc. (CRR) PetroQuest Energy Inc. (PQ)

CLECO Corporation (CNL) Pool Corporation (POOL)

Conn’s Inc. (CONN) Powell Industries Inc. (POWL)

Craftmade International Inc. (CRFT) Rollins Incorporated (ROL)

Crown Crafts Inc. (CRWS) RPC Incorporated (RES)

EastGroup Properties Inc. (EGP) Sally Beauty Holdings (SBH)

Energy Partners Ltd. (EPL) Sanderson Farms Inc. (SAFM)

EnergySouth Inc. (ENSI) SEACOR Holdings Inc. (CKH)First M&F Corporation (FMFC) Shaw Group Inc. (SGR)

Frozen Food Express (FFEX) Stone Energy Corp. (SGY)

Gulf Island Fabrication Inc. (GIFI) Superior Energy Services Inc. (SPN)

Hibbett Sports Inc. (HIBB) Team Incorporated (TMI)

Hornbeck Offshore Services Inc. (HOS) Teche Holding Company (TSH)

IBERIABANK Corp. (IBKC) Tuesday Morning Corp. (TUES)

ION Geophysical Corp. (IO) W&T Offshore (WTI)

Marine Products Corp. (MPX) Willbros Group Inc. (WG)

Peter Ricchiuti Pamela Shaw Karla Timmons

Director of Research Senior Director of Accounting Abe TophamBURKENROAD REPORTS BURKENROAD REPORTS Associate Directors of Research

Tulane University Tulane University BURKENROAD REPORTS

New Orleans, LA 70118-5669 New Orleans, LA 70118-5669 Tulane University

(504) 862-8489

(504) 865-5430 Fax

(504) 865-5033

(504) 865-5430 Fax

New Orleans, LA 70118-5669

(504) [email protected] [email protected] (504) 865-5430 Fax

mailto:[email protected]






Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter of Tulane’s business school, and funded through contributions from his family and friends,BURKENROAD REPORTS is a nationally recognized program, publishing objective, highquality investment research reports on public companies in our region. Students at Tulane

University’s A. B. Freeman School of Business prepare these reports.

Alumni of the BURKENROAD REPORTS program are employed at a number of highly respectedfinancial institutions including: ABN AMRO Bank (Chicago), Aegis Value Fund (New York), AGEdwards & Co. (St. Louis), AIM Capital Management (Houston), Alpha Omega Capital Partners(Richmond), American General Investment Management (Houston), Banc of America Securities(Charlotte, Houston-New York-Dallas-San Francisco), Bancomer (Mexico City), BankOne Capital(Dallas, New Orleans) Barclays Capital (New York), Barings PLC (Budapest), Bear Stearns(Dallas, New York), Bearing Point (Alexandria), Bessemer Trust (New York), Blackrock FinancialManagement (New York), Boston Consulting Group (Prague) Burnham Securities (Houston),Cadaret, Grant, and Co., California Board of Regents (San Francisco), Cambridge Associates(Boston), Capital Management (New York), CBA Securities (Stamford), Cadaret, Grant & Co.(Syracuse),Central Bank of Turkey, Chaffe & Assoc. (New Orleans) CIBC/Oppenheimer (NewDelhi-New York), Citadel Investment Group (Chicago), Citibank (Jakarta-New York-Stamford),Citigroup Private Bank (New York) City National Bank (Cleveland), Cornerstone Resources(New York) Credit Suisse First Boston (Boston, Dallas, Houston, New York), Dain Rauscher Wessels (Austin, San Francisco), Deutsche Banc Alex Brown (Houston-New York), DuquesneCapital Management (New York) Entrust (New York), Financial Models Inc. (New York), FirstAlbany (Albany, Houston), Fiduciary Trust (New York), Fitch Investors Services (New York),

FleetBoston (Boston), Forex Trading (New York), Franklin Templeton (San Mateo), FulcrumGlobal Partners (New York), Gintel Asset Management (New York), Goldman Sachs (Houston,London, Memphis, New York, San Francisco), Gomez Advisors (Boston), Grosever Funds(Washington D.C.), Gruntal & Co., (New York), GunnAllen Financial (New York) H & R Block Financial (Austin), Hancock Investment Services (Baton Rouge), Hanifen Imhoff Inc. (Denver),Healthcare Markets Group (Houston), Hibernia Southcoast Capital (Houston, New Orleans),Howard Frazier Barker Elliott, Inc., (Houston) Howard Weil Labouisse Friedrichs (New Orleans),Innovus (New Orleans) Invesco (Denver), J.P. Morgan Chase Securities (Houston, New York),J. W. Genesis (Boca Raton), Jefferies & Co. (Dallas, Houston, London, New Orleans), JohnsonRice & Co. (New Orleans), KBC Financial (New York), Keystone Investments (Boston), KnightSecurities (Jersey City), Legacy Capital (New Orleans), Lehman Brothers (Chicago, Houston, New York), Liberty Mutual (Boston), McDonald Investments (Cleveland), Mercer Partners(New York), Merrill Lynch (New York), Miramar Asset Management (San Francisco), Morgan

Keegan (Memphis), Morgan Stanley (New York), Needham & Co. (New York), New York Stock Exchange (New York), Oppenheim Bank (Cologne, Germany) Pheonix Capital (San Francisco),Piper Jaffray & Co. (Minneapolis) Professional Advisory Services (Vero Beach), Quarterdeck Investment Services (Washington, D. C.), RBC Dominion Securities (Houston, Atlanta), RaymondJames (St. Petersburg, Florida), Related Companies (New York), Restoration Capital (New York)S. G. Cowen & Co. (New York-San Francisco), Salomon Smith Barney (London-New York, NewOrleans), Sanford Bernstein & Co. (New York), Second City Trading LLC (Chicago), Scudder Kemper Investments, (New York), Simmons & Co. (Houston), Smith Barney (San Francisco),SWS Securities (Dallas), Spear, Leeds & Kellogg (New York), Stewart Capital LLC (NewOrleans), Susquehanna Investment Group (Chicago), Thomas Weisel Partners (San Francisco),TD Securities (New York), Tanaka Capital Management (New York), Texas Employee RetirementSystem (Austin), The GulfStar Group (Houston), Tivoli Partners (New York), Turner InvestmentPartners (Philadelphia), UBS PaineWebber (New York), UBS Warburg (New York), Value Line

Investments (New York), Vardon Capital (New York), Vilquest, Inc. (Mandeville), WachoviaSecurities (Charlotte, Houston, New Orleans, Palm Beach, San Francisco), Wells Fargo CapitalManagement (San Francisco) Whitney National Bank (New Orleans) and William Blair & Co.(Chicago) Zephyr Management (New York).

To receive complete reports on any of the companies we follow, contact:Peter Ricchiuti, Founder & Director of Research

Tulane UniversityA.B. Freeman School of Business

BURKENROAD REPORTSPhone: (504) 862-8489Fax: (504) 865 5430

Documents

Gulf Island Fabrication