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April 15, 2008

GULF ISLAND FABRICATION INC.


GIFI/NASDAQ Continuing Coverage: Gulf Island Well Positioned to Dive Deeply
Investment Rating: Market Perform
PRICE: $ 35.48 S&P 500: 1,364.71 DJIA: 12,619.27 RUSSELL 2000: 713.39

Wall Street's Farm Team

Gulf Marine acquisition makes Gulf Island highly competitive in deepwater 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 in 2007. Our 12-month target price is $37.19.
Valuation EPS P/E CFPS P/CFPS 2007 A $ 2.18 16.3x $ 3.48 10.2x 2008 E $ 2.56 13.9x $ 3.61 9.8x 2009 E $ 2.79 12.7x $ 3.99 8.9x
$39.37 - $24.88 18.73% 1.13% $ 10.88 1.10

Market Capitalization
Equity Market Cap (MM): Enterprise Value (MM): Shares Outstanding (MM): Estimated Float (MM): 6-Mo. Avg. Daily Volume:

Stock Data
$ 504.38 52-Week Range: 14.22 Dividend Yield: 10.88 Book Value Per Share: 149 Beta: $ 479.74 12-Month Stock Performance:

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: Kevin Crook Nathan Helton Ashley Smith Beth Thurnher

Investment Research Manager: Johan Yokay

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.

BURKENROAD REPORTS

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

STOCK PRICE PERFORMANCE Figure 1: 5-year Stock Price Performance

INVESTMENT SUMMARY

We give Gulf Island Fabrication (GIFI) a Market Perform rating and expect the stock to increase 15.7% over the next year to reach our target price of $37.19. To arrive at our 12-month target price we used a weighted average of the following valuation methods: DCF, relative P/E, relative EV/EBIDTA, and PEG. In addition we considered general economic factors, industry specific drivers of growth and risk, weather forecasts, and interviews with management regarding strategies and goals. After average growth rates in the mid-teens for three straight years, 2006 was the first year to see growth slow in the industry by falling to 4%. This slower growth rate is expected to continue through 2011.

Ben Graham Benjamin Graham, one of the first modern security analysts and value Analysis investors, was the main influence of Warren Buffet, and the books Graham authored decades ago are still considered the authority on the subject of value investing. He developed a series of hurdles he used to analyze stocks and judge whether they were undervalued. The Benjamin Graham analysis was 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 hurdles the Company does in fact meet. The first five hurdles analyze whether or not a company is undervalued. GIFI is not undervalued because it does not meet four out the first five criteria. The last three hurdles determine whether or not the company is consistent. According to the Ben Graham analysis, 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 this analysis, rather it was one tool we used (See Table 9 at the end of this report for the complete analysis).

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

PREVIOUS BURKENROAD RATINGS AND PRICES

Table 1: Historical Ratings & Prices


Date 04/13/07 04/10/06 03/15/05 03/26/04 11/22/02 02/15/02 Rating Market Outperform Market Perform Market Perform Market Outperform Market Outperform Buy Price $43.14 $23.63 $23.70 $19.03 $16.09 $12.50

INVESTMENT THESIS

Experts continue to expect growth at a slower rate than historically in the oil and gas industry, especially in the deepwater sector. Gulf Island Fabrications (GIFI) acquisition of Gulf Marine Fabricators in 2006 gave it the necessary capabilities in the deepwater market to stay competitive. The weak U.S. dollar also improves the competitive landscape for GIFI by making it appealing to international customers. GIFI also continues to advance its capabilities in retaining a strong workforce in the dwindling construction labor market. The continued success of this acquisition depends on GIFIs management team and on further movement into deepwater projects. GIFIs acquisition of Gulf Marine in 2006 will allow GIFI to remain competitive as growth in the industry as a whole begins to slow. Its deepwater play positioned it well to take advantage of the expected increased long-term spending overseas on drilling with an emphasis on deepwater drilling. Experts expect this overseas growth to come from the major oil companies and state owned oil companies as they search for cheaper drilling. As a U.S. based company, GIFI should be able to submit more competitive bids compared to its foreign competitors as a result of the continuing decline in the value of the dollar. Experts expect overseas spending on drilling to increase and become a main driver of growth in the industry. Increased overseas spending combined with a lower dollar value provides GIFI with opportunity. GIFIs productivity is dependent on the number of skilled workers it has available. The demand for these workers is extremely high in the oil and gas services industry while supply is extremely limited. To avoid facing a future labor shortage, GIFI formed a limited liability company in May 2007 called Gulf Island Resources, LLC to hire and retain labor in order to reduce its need for contract labor when demand is high. Scheduling requirements for GIFIs projects are established relatively far in advance; therefore, the ability to have workers readily available at all times is crucial.
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Gulf Marine acquisition makes Gulf Island highly competitive in deepwater construction. Weakened U.S. Dollar strengthens presence in international markets. Gulf Island Resources L.L.C. improves retention of skilled employees.

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Superior management brings in 10.79% ROA and 14.56% ROIC in 2007.

GIFIs management has played a large role in its success. Its ability to foresee the importance of deepwater drilling with the 2006 acquisition and to maintain profitability under tough circumstance in late 2005 with hurricanes Katrina and Rita are testaments to that. Additionally the firms ROA of 10.79% and ROIC of 14.56%, both of which have increased in 2005, 2006, and 2007, are indicative of managements ability to utilize its capital. We calculated Gulf Island Fabrications 12-month target price at $37.19 using four models: discounted cash flows, relative PE multiple, relative EV/EBITDA multiple, and the PEG method.

VALUATION

Discounted Cash We estimated GIFIs future free cash flows and discounted them back to Flow Method the 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 it is the most accurate method to value GIFI. The Relative We used the relative P/E method to calculate a 12-month target price of Multiple Method: $32.83. We multiplied the forecasted 12-month GIFI EPS by the average PE PE of GIFIs peers. We calculated this as $2.56 x 12.82. We weighted this method 25% because it provides a useful comparison to the markets perception of GIFIs peer group. Based on the P/E ratio GIFI is undervalued compared to its peers. However, we only moderately weighted this method because of GIFIs lack of a well defined peer group. The Relative We used the relative EV/EBITDA method to calculate a 12-month target Multiple Method: price of $43.07. EV/EBITDA We weighted this method slightly less than the relative P/E method because of GIFIs lack of direct competitors with similar size market caps. 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 good way to value GIFI. We weighted this method 5%. Table 2: Valuation Methods & Target Stock Price
Valuation Method DCF Relative P/E Relative EV/EBIDTA PEG 12 Month Target Price 4 Price $38.04 $32.83 $43.07 $26.87 $37.19 Weight 50% 25% 20% 5% 100%

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

INDUSTRY ANALYSIS

Gulf Island Fabrication (GIFI/NASDAQ) operates in the offshore platform fabrication industry. The industry is highly competitive and is influenced by events outside the control of the industry. Projects are awarded on a competitive bid basis, and bids are given one to three months before the start of a project. The amount of fabricated structure provided to any customer depends on the size of a customers capital expenditure budget devoted to platform construction plans and the ability to meet the customers delivery schedule. GIFI also sometimes works as a subcontractor for its competitors.

Risk of entry by Barriers to entry by competitors are low because of high capital intensity competitors requirements. Some offshore platforms can cost upwards of $1billion. In addition, the materials, facilities, labor, and technology are difficult and costly 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 large losses that discourage the entry of competitors. Rivalry among Rivalry among incumbent firms is high. The industry is fragmented and incumbent firms three companies make up 12%, 11%, and 6% of the market. The remaining market is divided among many smaller players. According to Porters Five Forces, fragmented industries produce more rivalry. Second, the high cost and uniqueness of PP&E and low PP&E resale value can make it difficult for a firm to exit the industry. Finally, with slower growth predicted in the industry through 2011, firms will have to compete with each other for market share in order to grow. Bargaining power The bargaining power of suppliers in the oilfield service industry is high. of suppliers This includes manual labor. Skilled piping and steel worker demand continues to increase significantly, and workers are easily able to negotiate higher wages. In GIFI's 2006 annual report, employee loss is attributed to higher wages offered by other firms. Workers can easily leave to find other employment. Bargaining power The bargaining power of buyers is moderately high. Each year GIFI relies of buyers on relatively few customers for a significant portion of its revenue. In 2006, 42% of GIFIs revenue came from one buyer. In 2005 and 2004 over 40% of GIFIs revenue came from only three buyers. However, it does not rely on the same customers from year to year. GIFIs significant pool of customers prevents the buyers from having strong bargaining power. At December 31, 2007, 75% of their backlog was attributable to 17 projects involving 12 customers. Low switching costs and the credible threat of vertical integration give large buyers such as ExxonMobil, and Chevron additional power.

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Threat of The threat of substitutes is low. There is no other industry able to supply a substitutes product that can take the place of the offshore drilling and production platforms produced by GIFI.

COMPANY DESCRIPTION

Gulf Island Fabrication Inc. (GIFI/NASDAQ) is a worldwide leader in the fabrication of drilling and production platforms, hull and deck sections of floating platforms, and other specialized structures used in the development and production of offshore oil and gas reserves. Through its four subsidiaries, Gulf Island provides a full range of fabrication, construction, and maintenance services to its clients. Figure 2 shows the Houma Navigation Canal, where GIFIs four integrated Louisiana fabrication 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 price and delivery schedule, GIFI gains a profitable competitive advantage by strategically delivering technically capable personnel and facility space, efficiency, equipment, reputation, and safety records that new entrants and competitors in the industry cannot offer. These secondary considerations make GIFI an attractive client when multiple fabrication companies are bidding for the same job. Products Gulf Island Fabrication is a fabricator of offshore drilling and production platforms, and other specialized structures used in the development of and production of offshore oil and gas reserves. It operates in the oil and gas drilling and exploration industry. Its products consist of construction of offshore drilling and production platforms, construction of jackets and floating platforms, piles, wellhead protectors, sub-sea templates, compressors, and utility modules. Its services consist of structural steel fabrication, blasting and coating, testing, outside services, inspection field offices, loadout capabilities and shipping facilities.
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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Past Mergers and GIFI has had three major acquisitions. In January 1997, GIFI acquired Acquisitions Dolphin Services Inc., providing interconnect piping services and offshore maintenance 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 Southport International Inc. to provide living quarters for offshore oil platforms. Finally, in 2006 GIFI acquired Technips Gulf Marine Fabricators. A major limitation to GIFI before the Gulf Marine acquisition was its inability to move barges carrying deepwater structures through the Houma Navigational Canal. Gulf Marines Texas locations provided GIFI access to the Gulf of Mexico that it did not have before. This acquisition increased its labor pool and gave GIFI the largest fabrication capacity on the Gulf Coast. Competitors The two main domestic competitors of Gulf Island are Kiewit Offshore and J. Ray McDermott. Kiewits nearby facility in Ingleside, Texas allows it to compete with GIFI because of its ability to both construct and transport large structures to deepwater. Latest The major change in the industry is the current shift from shallow-water Developments projects to deepwater projects. Recently, GIFI has made a number of large expenditures including the acquisition of Gulf Marine Fabricators, the hiring of new employees, and the purchase of three new Demag model 2800 crawler cranes for approximately $12.8 million to facilitate GIFIs move to deeper water. Now, with unobstructed access to the Gulf of Mexico, GIFI is poised to handle contracts requiring either shallow or deep water structures. GIFIs backlog is based on managements estimated labor hours on outstanding projects; at the end of 2007, the man-hour backlog was estimated at 4 million hours. PEER ANALYSIS We chose four companies we felt were comparable to Gulf Island Fabrications (GIFI) based on their similar business drivers including revenues, cost drivers, and geographic presence. We also took into consideration each companys presence in deepwater fabrications. Table 3: Key Statistics of GIFIs Peers
Company Gulf Island Fabrication Cal Dive International McDermott International Inc. Global Industries Kiewit Offshore Ticker GIFI DVR MDR GLBL Mkt Cap.* 457 1,275 12,695 1,830 P/E 14.74 9.68 21.14 11.69 P/BV 2.00 2.17 10.9 2.16 EV/ EBITDA 7.13 7.23 14.39 6.33 D/E 0.00 .64 0.01 0.46 ROE 11.97% 34.71 68.11 20.26%

Private Company

Source: www.smartmoney.com 15 April, 2008 *Market Cap in millions of dollars

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Cal Dive Cal Dive International is a marine contractor, headquartered in Houston, International Texas, providing manned diving, derrick, pipelay, and pipe burial services (DVR/NYSE) to the offshore oil and natural gas industry. Previously a wholly owned subsidiary of Helix Energy Solutions, its recent IPO in 2006 allowed it to quickly become one of the newest and largest providers of deep-water and shallow-water services. Its fleet currently consists of 34 vessels, including 24 surface and saturation diving support vessels as well as 10 construction barges. It mainly provides services in the Gulf of Mexicos outer continental shelf; however, it is continuing to branch out into the Middle East, Southeast Asia, and Trinidad. Cal Dive is particularly known for its successful acquisitions, especially in the Gulf of Mexico. In 2005 it added 13 vessels, including acquiring the diving and shallow water pipelay assets of Acergy that operate in the waters off the Gulf of Mexico and Trinidad. Global Global Industries Ltd. provides a range of construction and support Industries Ltd. services to the offshore oil and gas industry. The company is (GLBL/NASDAQ) headquartered in Carlyss, Louisiana and primarily operates in the United States, Gulf of Mexico, Latin America, West Africa, the Middle East, and Asian Pacific regions. The company can provide services to customers operating in shallow waters and at depths of up to 10,000 feet. It offers services such as pipeline construction, platform installation and removal, subsea construction, project management, and diving services. The company's business consists of two principal activities: Offshore Construction Services (which includes pipeline construction and platform installation and removal services) and Diving Services (which includes diving and marine support services). Currently, it is attempting to expand its deepwater capabilities by improving its competitive bidding strategy and by increasing its ownership of deepwater production fields through acquisitions. McDermott J. Ray McDermott is a subsidiary of the engineering and construction International, Inc. group McDermott International Inc. and is a leading global marine (MDR/NYSE) solutions company providing services in every major offshore oil and gas province. It is involved in projects that include services such as the design, fabrication, transportation and installation of offshore platforms, and the installation 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 engineering branch of the company has recently increased its focus on deepwater construction with its compliant tower and SPAR production platform both of which enabled it to provide its customers with economical development tools in depths greater than 1,500 feet. Mentor Subsea was established in 1987 to provide professional engineering design, project management, and offshore support services and has expanded its deepwater capabilities to depths between 3,000 and 6,500 feet. FloaTEC, LLC is a 50:50 joint venture company created by J. Ray McDermott and Keppel FELS to deliver deepwater floating production systems.
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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Kiewit Offshore Kiewit Corporation is a wholly owned subsidiary of Peter Kiewit Sons, Services, Ltd. Inc., an employee-owned company; the stock is not available for purchase by the general public and is not traded on any stock exchange. The Kiewit subsidiary has established itself within the offshore fabrication market. Its deepwater projects include the fabrication of oil and gas topsides, massive deepwater floating structures, and large structural steel components. In addition to its deepwater projects, it builds small platforms, modules, suction piles, and tendons. MANAGEMENT PERFORMANCE AND BACKGROUND A major factor in Gulf Island Fabrications (GIFIs) ability to stay afloat in the volatile offshore energy industry is the Companys core management. They understand the cyclical nature of the industry and are able to produce quality products in a timely manner. The two cofounders of the Company not only have extensive experience within the industry but still reside on the board and make an integral part of the Companys decisions. In 1997, shareholders implemented a Long-Term incentive Plan. The plan allowed the grant of options to purchase an aggregate of 1,000,000 shares (split adjusted) of Gulf Islands common stock to particular officers and employees. These officers and employees are chosen by the board of directors; more specifically called the Compensation Committee. The options have a ten year term and are issued with an exercise price not less than the fair market value. In 2002 GIFI adopted the 2002 Long-Term Incentive Plan, which added an additional 500,000 shares the Compensation Committee could grant as awards. 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 there were still approximately 205,000 shares remaining between the 1997 plan and the 2002 plan. ROIC is an important measurement of how effective management is at employing capital in its operations by showing the return on the capital invested. The more effective management is at identifying areas within a companys operations that can produce high returns, the higher the ROIC. Table 4 shows that GIFIs management has been able to effectively use its capital and has had one of the higher ROIC ratios in the industry the past three years. Table 4: Return on Invested Capital:
Company Gulf Island Fabrication Global Industries Technip McDermott Int. 2004 9% 6% 1% 4% 2005 10% 6% 3% 165% 2006 12% 24% 6% 115%

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Kerry J. Chauvin Chairman, President, and CEO (60) Before starting at GIFI, Kerry Chauvin held the position of president at Delta Fabrication where he served in this role from 1979 to 1984. Mr. Chauvin held this title until Delta Fabrications assets were acquired by Alden J. Laborde and Huey J. Wilson when they founded GIFI. Mr. Chauvin has served as GIFIs president since its inception in 1985. Mr. Chauvin also served as the Companys chief operating officer from January 1989 through January 1990 when he was appointed chief executive officer. He has served as chairman of the board of directors since April 2001. Mr. Chauvin has an MBA and B.S. in mechanical engineering from Louisiana State University. Kirk J. Meche EVP Operations (45) In February 2001, Kirk Meche was promoted to EVP of operations at GIFI while simultaneously being promoted to the positions of president and CEO of GIFIs subsidiary Gulf Island L.L.C., which he held until January 2006. In February 2006, he became the president and CEO of Gulf Marine Fabricators until October 2006. He continues to hold the position of EVP of operations. Mr. Meche has a B.S. in engineering design from Louisiana State University. Robin A. Seibert VP Finance, CFO, and Treasurer (51) Robin Seibert served as Gulf Island Fabrications controller from December 1997 until October 2007. During his course as GIFIs controller he also added the title of chief accounting officer in December 2000 and he served as the corporate secretary from August 2002 until October 2007. Mr. Seibert currently holds the position of VP Finance, CFO, and treasurer for the Company. Mr. Seibert is a CPA and received a B.S. in accounting from Nicholls State University. Murphy A. Bourke EVP Marketing (63) Murphy Bourke started at GIFI when the Company began operations in 1985 as vice president marketing, a position he held until December 1999. In January 2000 he was promoted to executive vice president, marketing which is the position he currently holds. Mr. Bourke received a B.A. in marketing from Southeast Louisiana University. Alden J. Doc Co-Founder and Member of the Board of Directors (92) Laborde Alden Laborde has served as chairman of the board of the Company since 1986 and has been a director since he co-founded Gulf Island Fabrication with Huey J. Wilson in 1985. Mr. Laborde began in the offshore oil and gas industry with his creation of an offshore mobile drilling company, ODECO Inc. in 1953. He served as the chairman of the board and the CEO from 1953 through 1977. In 1954, Mr. Laborde founded his second company Tidewater Inc., which was a supplier of offshore marine transportation and other services and later became the worlds largest offshore vessel operator. He served as a director of Tidewater from 1978 to
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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

1986 and as a director emeritus from 1986 to 1993. After co-founding GIFI Mr. Laborde was elected into Fortune Magazines National Business Hall of Fame. He graduated from the United States Naval Academy with a degree in engineering. SHAREHOLDER ANALYSIS The percentage of shares owned by insiders of Gulf Island Fabrications is presently at 17.92%. The top eight insiders holding shares are either officers of GIFI or directors on the Companys board, except for Technip USA Holdings. Technip became a top inside investor after GIFIs acquisition of Technips subsidiary Gulf Island Marine in 2006. Currently there are 136 institutional investors holding shares in Gulf Island Fabrications. These institutional investors make up 73.9% of GIFIs shares, 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 the top five institutional investors respectively. Table 5: Shares Held by Insiders
Holder Name Alden J. Laborde Technip USA Holdings Kerry J. Chauvin Murphy A. Bourke John P. Laborde Kirk J. Meche Robin A. Seibert Gregory J. Cotter
Source: YAHOO Finance

Held 1,074,000 789,067 124,158 27,420 21,349 13,052 5,986 5,000

% Outstanding 7.6 5.56 .87 .19 .15 .09 .042 .035

Table 6: Shares Held by Institutions


Institutional Holders St. Denis J. Villere & Company Barclays Global Investors UK Holdings Thompson, Siegel, & Walmsley Denver Investment Advisors Friess Associates Inc.
Source: YAHOO Finance

Held 1,831,878 799,096 671,299 568,695 501,800

% Out 12.92 5.64 4.73 4.01 3.54

INVESTMENT RISK ANALYSIS

For Gulf Island Fabrications (GIFI) risk analysis, we evaluated operational risks, financial risks, and industry regulation.

Operational Risks Seasonality Seasonality is a risk for GIFI because volatile weather conditions can hinder, if not completely stop, operations. The location of GIFI makes the Company susceptible to poor weather conditions; for example, hurricanes Katrina and Rita shut down GIFIs operations for three weeks. Variation in
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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

daylight hours is another factor of seasonality that affects GIFI. During the winter months, when weather conditions are not ideal for outdoor construction activities, the number of direct labor hours worked declines. Customers are aware of these problems, and they tend to arrange for their projects to be completed during the summer. Revenue, gross profit, net income, and the number of direct labor hours worked are all affected by the changing seasons. Table 7 shows the percentages 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 Seasonality
2007 1st Qtr Revenue* Gross Profit* Net Income* Direct Labor Hours** 23 15 14 878 2nd Qtr 29 25 25 901 3rd Qtr 26 31 32 887 4th Qtr 21 29 28 916 1st Qtr 18 10 9 686 2006 2nd Qtr 29 27 27 888 3rd Qtr 29 44 47 913 4th Qtr 24 18 17 828 1st Qtr 29 27 27 566 2005 2nd Qtr 29 35 35 641 3rd Qtr 20 19 17 535 4th Qtr 22 18 21 515

*in percentages; **in thousands Source: Gulf Island Fabrication Annual Report

Cyclical Nature of Industry GIFIs business is dependent on the level of activity by the oil and gas companies located in the Gulf of Mexico and along the Gulf Coast. Fluctuations in oil and gas prices make the level of drilling activity by the oil and gas companies extremely volatile. Customers will determine their drilling expenditures based on the price of oil. Customers expenditures are critical to the operations of GIFI, and the level of capital expenditures is influenced by a number of factors. Some of these factors include the oil and gas prices and perceptions of future prices; the costs associated with exploring for, producing, and delivering oil and gas; the ability of companies to generate capital; and the discovery rate of new oil and gas. Labor In order to expand operations, GIFI is dependent on its ability to increase its labor force. It is necessary in this industry to attract and retain a skilled work force in order to be productive and profitable, but it is difficult because of the high demand of skilled workers and the limited supply during periods of high activity. If competitors significantly raise the wages of their employees, it could cause a reduction in the number of GIFIs skilled workers or force GIFI to raise the wages of its employees as well. In either situation, profits expected from work in progress could be reduced or eliminated, and if wage increases cannot be passed on to its customers, GIFIs production capacity could be reduced and growth potential impaired. To maintain its workforce, GIFI offers incentive programs, and it expanded its training facility to better train employees on productivity and safety.
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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Liability GIFI is under strict liability in regards to damages to natural resource and threats to health and safety, meaning it is responsible for any environmental damages without regard to negligence or fault. It is liable for personal injury claims and property damages that result from exposure to hazardous substances. The liability includes any acts caused by others and acts that complied with laws at the time GIFI performed them. The Jones Act, the Death on the High Seas Act, and general maritime law cover employees who take part in activities conducted on offshore platforms and on the spud barges owned by GIFI. These acts place no limitations on GIFIs liability in regards to its damages or injuries. Other liability risks include collisions with other vessels, sinking, fires, and other casualties 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 their facilities. It is also insured for workers compensation liability except for losses in excess of $300,000, and it maintains a builders risk policy for construction projects and general liability insurance. Capital Needs GIFI funds its business activities through funds generated from its operations. They also have a revolving line of credit with a commercial bank 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 2008 including equipment purchases, expansions, and improvements. Cash generated by operating activities and funds available under the bank credit facility should be enough to fund the capital expenditures and working capital 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 to maintain a low leverage ratio. GIFI also continues to hold a strong credit line with its lenders. Its ability to pay back debt quickly allows GIFI to remain unaffected by changes in interest rates. Liquidity and Leverage As illustrated in Table 8, Gulf Island has the lowest liquidity ratio of all its competitors, indicating that GIFIs stock price is more likely to move with relatively light volumes of trading in comparison to its competitors. Its debt/equity ratio continues to be 0.00 despite having $11 million in debt as of September 30, 2007 because the $11 million was repaid in full on October 25, 2007.
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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Table 8: Liquidity Ratios


Company Gulf Island (GIFI) McDermott International (MDR) Global Industries Ltd. (GLBL) Cal Dive International (DVR) Liquidity Ratio 1,122 42,253 11,867 3,015 Current Ratio 1.82 0.95 4.59 2.12 Quick Ratio 1.74 0.92 4.59 2.12 Debt/ Equity Ratio 0.00 0.01 0.48 0.49

Source: www.smartmoney.com

Exchange Rates GIFIs attempts to expand further into international markets resulted in an increase in revenue attributed to foreign projects. The percent of revenue from these projects increased to 24% in 2007 from 7% in 2006. Revenue attributed to these projects had been as high as 30% in 2005. The large emphasis on domestic projects may have an unfavorable effect on GIFI in the future because of the weak position of the dollar in comparison to other currencies. Industry The oil and gas industry is mainly regulated by the Bureau of Minerals Regulation Management Service of the United States Department of the Interior (MMS). The MMS requires offshore platforms to meet strict specifications, and if companies do not comply with these specifications noncompliance could result in civil and criminal penalties. GIFI believes its operations are in compliance with all regulations set by MMS in addition to all environmental and public safety guidelines determined by the government and a set of standards set by the American Petroleum Institute, the American Society of Mechanical Engineers, and the American Welding Society. We made the following assumptions to reach our 12-month target price of FINANCIAL PERFORMANCE $37.19. AND PROJECTIONS Macroeconomic Experts say utilization of oil and gas related liquid fuels are predicted to Outlook decline this year by approximately 85,000 barrels per day; which can be attributed to the economic downturn and high petroleum prices. Just a year ago, it was impossible to exceed $100 a barrel mark; however prices above $100/barrel have surprisingly become the norm. Regardless, tight supply conditions will continue to drive production companies to invest in expanding their operations, especially in their deepwater capabilities. Therefore we predict that we will continue to see higher demand for semisubmersible drilling rigs.

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Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

Relevant The consolidation of the domestic steel industry along with the increased Commodity Prices demand for steel from China has negatively influenced the supply of the raw materials needed to produce steel. With excessive demand and limited supply 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 the United States to increase their prices, thereby, affecting the price GIFI charges its customers. The extra costs being passed on to GIFIs customers, could diminish the number of new projects it will be offered. Operating We ran two regression models for GIFIs operating activities. First, Activities historical revenues were regressed against average plant property and equipment (PPE), seasonal weather disruptions, oil prices, and efficiency of direct labor hours. For the second, we regressed the cost of revenue per direct labor hour against a quarterly dummy variable and deepwater dummy variable that began in 2006 with the acquisition of Gulf Marine Fabricators. Selling, general, and administrative expenses (SGA) have historically floated around 2.1% of revenues, and so we used this percent to forecast future SGA. Because of the capital intensiveness of fabrication, PPE is GIFIs main revenue driver. As PPE increases, so too does GIFIs production capacity. In the case of the PPE acquired from Gulf Marine, production capacity was greatly increased because of the deepwater nature of the equipment acquired. Weather plays a major role in the fabrication industry because both fabrication and the end product are almost always exposed to outdoor conditions. Although many fabricators have covered fabrication areas that protect from rain, there is little a company can do about tropical storms and hurricanes, storms that frequent the Gulf of Mexico. Short daylight hours in the winter also mitigate labor hours. Although we included a variable for seasonality, we assumed that GIFI will not run into any devastating events in the near future. The weakening of the U. S. dollar has made GIFIs products cheaper to international customers. Sales of fabricated structure for delivery outside of the United States accounted for 24% ($113.3 million) of revenues for year-end 2007. With world monetary policies remaining tight in comparison to the U.S. Federal Reserves recent rate cuts, we expect many foreign currencies to strengthen themselves against the dollar in the near future. This should shift GIFIs deliveries more towards international markets. Investing and A capital budget of $20.9 million for 2008 was approved by the Board of Financing Directors. This budget includes the purchase of equipment and additional Activities yard and facility expansion or improvements, with $5 million specifically for the purchase and installation of equipment for a panel line system. This system will allow GIFI to expand into additional marine construction areas
15

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

such as towboats, barges, and mid-body sections for offshore supply vessels. Management believes that during the next 12 months GIFI will not need to seek any additional financing because the cash generated by their operating activities and the funds available under the bank credit facility will be enough to fund these capital expenditures. SITE VISIT On February 29, 2008, our team visited Gulf Island Fabrication Inc. in Houma, Louisiana. Upon arrival we were promptly met by the CEO, Kerry Chauvin and the CFO, Robin Seibert. We then proceeded to the company boardroom where a presentation was given on the Companys 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 Companys capabilities in the deepwater sector was also presented. Following the presentation, we were given the opportunity to ask any questions we had. Following the Q&A, Mr. Chauvin gave us a tour of the facilities. Although the yard was rather quiet because of GIFIs lunch break we were still able to get a feel for the large scale of GIFIs projects and the general operations of the Company. By looking at the size of the Houma Navigation Canal we were also able to get a better understanding of why GIFI acquired Gulf Marine Fabricators. The canal is too shallow and narrow to produce the large-scale deepwater products that are in demand today. Mr. Chauvin and Mr. Seibert were confident about the future of Gulf Island and were optimistic about the future of deepwater production services. SOURCES OF INFORMATION To construct our report on Gulf Island Fabrication Inc., our team used diverse sources to gather information on both GIFI and the oil and gas industry in which it operates. Meeting in person with Gulf Islands CEO Kerry Chauvin and its CFO Robin A. Seibert afforded our group access to a personal feel of corporate culture and day-to-day operations. Two of our group members are also enrolled in Professor Joseph LeBlancs Energy Fundamentals and Trading class. The curriculum of the course covers the fundamentals of the oil and gas industry and goes into detail about the products and services of the industry. Enrollment in this class provides full access to Reuter terminals, which allow our group to retrieve accurate historical prices of crude oil and steel index prices. The majority of our research came from GIFIs published quarterly and annual reports, which we retrieved from the SEC via EDGAR, and also from the Companys Investor Relations section on its Web site. More general information (stock price, company description, management positions) were found via Google Finance, Hoovers, Bloomberg, Investext Plus, and ValueLine.
16

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

BEN GRAHAM ANALYSIS

GULF ISLAND FABRICATION, INC. (GIFI) Table 9


Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury Earnings per share (ttm) $ Earnings to Price Yield 10 Year Treasury (2X) NO Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs P/E Ratio as of P/E Ratio as of P/E Ratio as of P/E Ratio as of P/E Ratio as of 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 NO Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury Dividends per share (ttm) $ Dividend Yield 1/2 Yield on 10 Year Treasury NO Hurdle # 4: A Stock Price less than 1.5 BV Stock Price Book Value per share as of 150% of book Value per share as of 12/31/07 12/31/07 NO Hurdle # 5: Total Debt less than Book Value Interest-bearing debt as of Book value as of 12/31/07 12/31/07 YES Hurdle # 6: Current Ratio of Two or More Current assets as of Current liabilities as of Current ratio as of 12/31/07 12/31/07 12/31/07 NO Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years EPS for year ended EPS for year ended EPS for year ended EPS for year ended EPS for year ended 12/31/07 12/31/06 12/31/05 12/31/04 12/31/03 YES Hurdle # 8: Stability in Growth of Earnings EPS for year ended EPS for year ended EPS for year ended EPS for year ended 12/31/07 12/31/06 12/31/05 12/31/04 NO
Stock price data as of April 15, 2008

2.18

Price:

$35.48 6.16% 7.60%

12.2 21.3 22.6 23.8 14.5 16.2

Current P/E Ratio

0.40

Price:

35.48 1.12% 1.90%

$ $ $

35.48 16.10 24.16

$ $

228,913

$ 135,747 $ 78,363 1.7

$ $ $ $ $

2.18 1.53 1.05 0.99 1.33

$ $ $ $

2.18 1.53 1.05 0.99

42% 46% 6% -26%

17

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

GULF ISLAND FABRICATION, INC. (GIFI)


Annual and Quarterly Income Statements
In thousands For the period ended Revenue Cost of revenue Gross profit General and administrative expenses Operating income Other expense (income): Interest expense Interest income Other--net Total other expense (income) Income before income taxes Income taxes Net income Earnings per share: Basic earnings per share Diluted earnings per share Weighted average shares of common shares: Basic Diluted SELECTED COMMON SIZE AMOUNTS Cost of revenue Gross profit General and administrative expenses Operating income Total other expense (income) Income before income taxes Net income YEAR-TO-YEAR CHANGES Revenue Cost of revenue Gross profit General and administrative expenses Operating income Total other expense (income) Income before income taxes Net income 55 (1,395) 460 (880) 19,196 6,209 12,987 473 (359) (1,261) (1,147) 30,423 9,098 21,325 50 (434) 10 (374) 46,853 15,686 31,167 (522) 13,008 4,032 8,975 (664) 13,379 4,147 9,231 (617) 13,395 4,152 9,242 (284) 13,307 4,125 9,182 (2,087) 53,088 16,457 36,631 (438) 13,889 4,306 9,583 (953) 14,668 4,547 10,121 (809) 14,626 4,534 10,092 (818) 14,919 4,625 10,294 (3,018) 58,102 18,012 40,091 15 (537) 15 (679) 15 (632) 15 (299) 60 (2,147) 15 (453) 15 (968) 15 (824) 15 (833) 60 (3,078) $ 2005 A 188,545 164,548 23,997 5,681 18,316 $ 2006 A 312,181 273,768 38,413 9,137 29,276 2007 A $ 472,739 415,901 56,838 10,359 46,479 $ 31-Mar E 125,826 110,698 15,128 2,642 12,486 $ 2008 E 30-Jun E 30-Sep E 128,130 112,725 15,405 2,691 12,714 $ 128,769 113,287 15,482 2,704 12,778 $ 31-Dec E 131,243 115,463 15,779 2,756 13,023 $ 2008 E 513,967 452,172 61,795 10,793 51,002 $ 31-Mar E 135,556 119,258 16,298 2,847 13,451 $ 2009 E 30-Jun E 30-Sep E 138,217 121,599 16,618 2,903 13,715 $ 139,232 122,492 16,740 2,924 13,816 $ 31-Dec E 142,101 125,016 17,085 2,984 14,101 $ 2009 E 555,106 488,365 66,741 11,657 55,084

$ $

1.06 1.05 12,242 12,377

$ $

1.54 1.53 13,812 13,934

$ $

2.20 2.18 14,161 14,270

$ $

0.63 0.63 14,226 14,301

$ $

0.65 0.64 14,248 14,317

$ $

0.65 0.64 14,270 14,332

$ $

0.64 0.64 14,292 14,347

$ $

2.57 2.56 14,259 14,310

$ $

0.67 0.67 14,314 14,349

$ $

0.71 0.71 14,336 14,351

$ $

0.70 0.70 14,358 14,374

$ $

0.72 0.72 14,380 14,397

$ $

2.79 2.79 14,347 14,362

87.27% 12.73% 3.01% 9.71% -0.47% 10.18% 6.89%

87.70% 12.30% 2.93% 9.38% -0.37% 9.75% 6.83%

87.98% 12.02% 2.19% 9.83% -0.08% 9.91% 6.59%

87.98% 12.02% 2.10% 9.92% -0.41% 10.34% 7.13%

87.98% 12.02% 2.10% 9.92% -0.52% 10.44% 7.20%

87.98% 12.02% 2.10% 9.92% -0.48% 10.40% 7.18%

87.98% 12.02% 2.10% 9.92% -0.22% 10.14% 7.00%

87.98% 12.02% 2.10% 9.92% -0.41% 10.33% 7.13%

87.98% 12.02% 2.10% 9.92% -0.32% 10.25% 7.07%

87.98% 12.02% 2.10% 9.92% -0.69% 10.61% 7.32%

87.98% 12.02% 2.10% 9.92% -0.58% 10.50% 7.25%

87.98% 12.02% 2.10% 9.92% -0.58% 10.50% 7.24%

87.98% 12.02% 2.10% 9.92% -0.54% 10.47% 7.22%

8.4% 8.8% 5.8% 17.9% 2.6% 92.6% 4.8% 7.8%

65.6% 66.4% 60.1% 60.8% 59.8% 30.3% 58.5% 64.2%

51.4% 51.9% 48.0% 13.4% 58.8% -67.4% 54.0% 46.2%

15.0% 9.8% 77.8% 14.5% 101.3% 401.6% 106.2% 103.3%

-6.9% -8.7% 8.9% -4.2% 12.2% 337.1% 16.5% 17.4%

3.1% 6.0% -14.0% -2.4% -16.1% 1302.2% -12.3% -7.9%

30.1% 36.3% -2.5% 11.5% -5.1% 283.2% -3.5% 3.7%

8.7% 8.7% 8.7% 4.2% 9.7% 457.9% 13.3% 17.5%

7.7% 7.7% 7.7% 7.7% 7.7% -16.1% 6.8% 6.8%

7.9% 7.9% 7.9% 7.9% 7.9% 43.4% 9.6% 9.6%

8.1% 8.1% 8.1% 8.1% 8.1% 31.2% 9.2% 9.2%

8.3% 8.3% 8.3% 8.3% 8.3% 188.6% 12.1% 12.1%

8.0% 8.0% 8.0% 8.0% 8.0% 44.6% 9.4% 9.4%

18

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

GULF ISLAND FABRICATION, INC. (GIFI)


Annual and Quarterly Balance Sheets
In thousands As of 31-Dec-05 A 31-Dec-06 A 31-Dec-07 A Assets Current assets: Cash and cash equivalents Short-term investments Contracts receivable, net Contract retainage Costs and est. earnings in excess of billings on uncompleted contracts Prepaid expenses Inventory Deferred taxes Recoverable income taxes Total current assets Intangible assets Property, plant and equipment, net Other assets Total assets Current liabilities: Accounts payable Billings in excess of costs and est.earnings on uncompleted contracts Accrued employee costs Accrued expenses Income taxes payable Total current liabilities Deferred income taxes Total liabilities Shareholders' equity: Common stock Additional paid-in capital Retained earnings Deferred compensation - restricted stock Total shareholders' equity Total liabilities and shareholders' equity 31-Mar E 2008 E 30-Jun E 30-Sep E 31-Dec E 31-Dec-08 E 31-Mar E 2009 E 30-Jun E 30-Sep E 31-Dec E 31-Dec-09 E

5,689 30,212 30,790 666 27,219 2,352 5,515 969 103,412 59,744 650 163,806 7,236 4,214 3,318 1,503 16,271 9,270 25,541

10,302 57,229 1,785 14,869 2,839 4,793 2,948 94,765 544 155,440 699 251,448 $ 12,786 19,806 5,327 2,295 40,214 10,478 50,692 9,368 85,365 106,023 200,756 251,448 $

$ 24,640 78,748 430 17,690 2,776 7,427 4,036 135,747 188,766 700 325,213 18,080 44,301 7,421 2,419 6,142 78,363 17,937 96,300 9,560 87,853 131,500 228,913 325,213

31,195 74,414 377 18,874 2,053 6,150 4,036 137,100 193,773 700 331,572 26,017 40,264 6,291 2,517 1,579 76,668 17,937 94,605 9,610 88,304 139,053 236,967 331,572

29,015 83,336 384 19,219 2,892 6,194 4,036 145,077 198,779 700 344,556 29,744 41,002 6,406 2,563 1,624 81,339 17,937 99,276 9,610 88,808 146,863 245,280 344,556

13,708 99,830 386 19,315 1,878 6,157 4,036 145,310 203,786 700 349,796 26,408 41,206 6,438 2,575 1,626 78,254 17,937 96,191 9,660 89,261 154,684 253,605 349,796

20,780 97,546 394 19,686 2,859 6,275 4,036 151,577 208,792 700 361,069 28,464 41,998 6,562 2,625 1,615 81,264 17,937 99,201 9,660 89,765 162,444 261,868 361,069

20,780 97,546 394 19,686 2,859 6,275 4,036 151,577 208,792 700 361,069 28,464 41,998 6,562 2,625 1,615 81,264 17,937 99,201 9,660 89,765 162,444 261,868 361,069

44,438 80,168 407 20,333 2,114 6,625 4,036 158,122 209,901 700 368,724 25,701 43,378 6,778 2,711 1,686 80,253 17,937 98,190 9,760 90,167 170,606 270,533 368,724

37,850 89,897 415 20,733 2,979 6,681 4,036 162,590 210,539 700 373,829 20,470 44,230 6,911 2,764 1,780 76,156 17,937 94,093 9,860 90,571 179,305 279,736 373,829

38,265 107,942 418 20,885 1,934 6,657 4,036 180,137 211,269 700 392,106 29,184 44,554 6,962 2,785 1,775 85,259 17,937 103,196 9,960 90,974 187,976 288,910 392,106

45,985 105,617 426 21,315 2,945 6,794 4,036 187,118 212,591 700 400,409 26,956 45,472 7,105 2,842 1,811 84,186 17,937 102,123 10,060 91,378 196,848 298,286 400,409

45,985 105,617 426 21,315 2,945 6,794 4,036 187,118 212,591 700 400,409 26,956 45,472 7,105 2,842 1,811 84,186 17,937 102,123 10,060 91,378 196,848 298,286 400,409

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

5,047 45,161 88,886 (829) 138,265 163,806 $

SELECTED COMMON SIZE AMOUNTS (as a % of revenue) Contracts receivable, net 16.33% Contract retainage 0.35% Costs and est. earnings in excess of billings on uncompleted contracts 14.44% Prepaid expenses 1.25% Inventory 2.93% Property, plant and equipment, net 31.69% Accounts payable 3.84% Billings in excess of costs and est.earnings on uncompleted contracts 2.24% Accrued employee costs 1.76% Accrued expenses 0.80% SELECTED COMMON SIZE AMOUNTS (as a % of total assets) Total current assets 63.13% Property, plant and equipment, net 36.47% Total current liabilities 9.93% Deferred income taxes 5.66% Total liabilities 15.59% Total shareholders' equity 84.41%

18.33% 0.57% 4.76% 0.91% 1.54% 49.79% 4.10% 6.34% 1.71% 0.74%

16.66% 0.09% 3.74% 0.59% 1.57% 39.93% 3.82% 9.37% 1.57% 0.51%

59.14% 15.00% 15.00% 1.63% 4.89% 154.00% 20.68% 32.00% 5.00% 2.00%

65.04% 15.00% 15.00% 2.26% 4.83% 155.14% 23.21% 32.00% 5.00% 2.00%

77.53% 15.00% 15.00% 1.46% 4.78% 158.26% 20.51% 32.00% 5.00% 2.00%

74.33% 15.00% 15.00% 2.18% 4.78% 159.09% 21.69% 32.00% 5.00% 2.00%

18.98% 3.83% 3.83% 0.56% 1.22% 40.62% 5.54% 8.17% 1.28% 0.51%

59.14% 15.00% 15.00% 1.56% 4.89% 154.84% 18.96% 32.00% 5.00% 2.00%

65.04% 15.00% 15.00% 2.16% 4.83% 152.32% 14.81% 32.00% 5.00% 2.00%

77.53% 15.00% 15.00% 1.39% 4.78% 151.74% 20.96% 32.00% 5.00% 2.00%

74.33% 15.00% 15.00% 2.07% 4.78% 149.61% 18.97% 32.00% 5.00% 2.00%

19.03% 3.84% 3.84% 0.53% 1.22% 38.30% 4.86% 8.19% 1.28% 0.51%

37.69% 61.82% 15.99% 4.17% 20.16% 79.84%

41.74% 58.04% 24.10% 5.52% 29.61% 70.39%

41.35% 58.44% 23.12% 5.41% 28.53% 71.47%

42.11% 57.69% 23.61% 5.21% 28.81% 71.19%

41.54% 58.26% 22.37% 5.13% 27.50% 72.50%

41.98% 57.83% 22.51% 4.97% 27.47% 72.53%

41.98% 57.83% 22.51% 4.97% 27.47% 72.53%

42.88% 56.93% 21.77% 4.86% 26.63% 73.37%

43.49% 56.32% 20.37% 4.80% 25.17% 74.83%

45.94% 53.88% 21.74% 4.57% 26.32% 73.68%

46.73% 53.09% 21.02% 4.48% 25.50% 74.50%

46.73% 53.09% 21.02% 4.48% 25.50% 74.50%

19

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

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 2008 E 30-Jun E 30-Sep E 31-Dec E 2008 E 31-Mar E 2009 E 30-Jun E 30-Sep E 31-Dec E 2009 E In thousands Cash Flow From Operations: Net income $ 12,987 Adjustments: Compensation expense - restricted stock 14 Impairment 454 Depreciation 6,279 Amortization Deferred income taxes (355) Excess tax benefit from share-based compensation plans Changes in operating assets and liabilities: Contracts receivable 6,287 Contract retainage 1,768 Costs and estimated earnings in excess of billings on uncompleted contracts (21,067) Income taxes payable/receivable (583) Prepaid expenses, Inventory and other assets (3,023) Inventory Accounts payable 1,448 Billings in excess of costs & estimated earnings on uncompleted contracts (2,651) Accrued employee costs 699 Accrued expenses 699 Net cash provided by operating activities 2,956 Cash flows from investing activities: Capital expenditures, net (5,677) Proceeds on the sale of property Short-term investments (1,873) Purchase of subsidiaries, net of cash acquired Net cash used in investing activities (7,550) Cash flows from financing activities: Proceeds from issuance of stock 1,834 Tax benefit from exercise of stock options 425 Dividends (3,672) Net cash provided by (used in) financing activities (1,413) Net increase (decrease) in cash (6,007) Cash at beginning of year 11,696 Cash at end of year 5,689 Operating cash flow per share excluding changes in working capital Operating cash flow per share including changes in working capital $1.57 $0.24

$ 21,325 736 11,653 856 1,208 (1,317) (20,262) (1,119) 12,350 (662) 938 5,550 9,159 1,842 792 43,049 (27,626) 30,212 (41,487) (38,901) 3,336 1,317 (4,188) 465 4,613 5,689 10,302 $2.57 $3.09

$ 31,167 669 314 13,577 544 3,423 (755) (21,519) 1,355 (2,821) 9,845 (2,885) 5,294 24,495 2,021 124 64,848 (46,905)

8,975 167 3,592

9,231 167 3,592

9,242 167 3,592

9,182 167 3,592

$ 36,631 669 14,369

9,583 167 3,561

$ 10,121 167 3,991

$ 10,092 167 4,459

$ 10,294 167 4,475

$ 40,091 669 16,486

(189) 4,334 53 (1,184) (4,563) 723 1,277 7,937 (4,037) (1,130) 98 16,054 (8,599)

(189) (8,921) (7) (345) 45 (839) (44) 3,727 737 115 46 7,315 (8,599)

(189) (16,494) (2) (96) 2 1,015 37 (3,336) 204 32 13 (5,812) (8,599)

(189) 2,283 (7) (371) (11) (982) (118) 2,056 792 124 49 16,567 (8,599)

(755) (18,798) 36 (1,996) (4,527) (83) 1,152 10,384 (2,303) (859) 206 34,124 (34,395)

(189) 17,378 (13) (647) 71 745 (350) (2,763) 1,380 216 86 29,226 (4,670)

(189) (9,729) (8) (399) 95 (865) (56) (5,230) 852 133 53 (1,063) (4,630)

(189) (18,045) (3) (152) (5) 1,045 24 8,713 325 51 20 6,501 (5,189)

(189) 2,325 (9) (430) 36 (1,011) (137) (2,228) 918 143 57 14,412 (5,796)

(755) (8,070) (33) (1,629) 196 (86) (519) (1,508) 3,475 543 217 49,077 (20,285)

(46,905) 1,330 755 (5,690) (3,605) 14,338 10,302 24,640 $3.48 $4.54

(8,599) 334 189 (1,423) (900) 6,555 24,640 31,195 $0.89 $1.12

(8,599) 336 189 (1,422) (897) (2,180) 31,195 29,015 $0.91 $0.51

(8,599) 336 189 (1,422) (897) (15,307) 29,015 13,708 $0.91 ($0.41)

(8,599) 336 189 (1,422) (897) 7,072 13,708 20,780 $0.90 $1.15

(34,395) 1,343 755 (5,687) (3,589) (3,860) 24,640 20,780 $3.61 $2.38

(4,670) 336 189 (1,422) (897) 23,659 20,780 44,438 $0.93 $2.04

(4,630) 336 189 (1,422) (897) (6,589) 44,438 37,850 $1.00 ($0.07)

(5,189) 336 189 (1,422) (897) 416 37,850 38,265 $1.02 $0.45

(5,796) 336 189 (1,422) (897) 7,719 38,265 45,985 $1.04 $1.00

(20,285) 1,344 755 (5,686) (3,587) 25,205 20,780 45,985 $3.99 $3.42

20

Gulf Island Fabrication Inc. (GIFI)

BURKENROAD REPORTS (www.burkenroad.org)

April 15, 2008

GULF ISLAND FABRICATION, INC. (GIFI)


Ratios
2005 A Productivity Ratios Receivables turnover Inventory turnover Working capital turnover Net fixed asset turnover Total asset turnover # of days Sales in A/R # of days Cost of Sales in Inventory # of days cash-based expenses in payables Liquidity measures Current ratio Quick ratio Cash ratio Cash flow from operations ratio Working capital Financial Risk (Leverage) Ratios Total debt/equity ratio Debt/equity ratio (excluding deferred taxes) Total LT debt/equity ratio LT debt/equity (excluding deferred taxes) Total debt ratio Debt ratio (excuding deferred taxes) Profitability/Valuation Measures Gross profit margin Operating profit margin Return on assets Return on equity Earnings before interest and taxes margin EBITDA margin EBITDA/Assets 6.12 29.84 2.16 3.16 1.15 60 12 27 2006 A 5.45 57.12 5.72 2.01 1.24 67 6 27 2007 A 6.00 56.00 8.24 2.50 1.45 61 7 25 31-Mar E 1.64 16.31 2.14 0.66 0.38 53 5 29 2008 E 30-Jun E 30-Sep E 1.62 18.26 2.06 0.65 0.38 59 5 31 1.41 18.35 1.97 0.64 0.37 71 5 29 31-Dec E 1.33 18.58 1.91 0.64 0.37 68 5 30 2008 E 5.27 72.06 7.31 2.46 1.42 60 5 27 31-Mar E 1.53 18.49 1.83 0.65 0.37 53 5 27 2009 E 30-Jun E 30-Sep E 1.63 18.28 1.68 0.66 0.37 59 5 23 1.41 18.37 1.54 0.66 0.36 71 5 30 31-Dec E 1.33 18.59 1.44 0.67 0.36 68 5 27 2009 E 5.26 71.88 5.39 2.61 1.39 67 5 27

6.36 4.10 2.24 0.18 87,141

2.36 1.68 1.68 1.07 54,551

1.73 1.32 1.32 0.83 57,384

1.79 1.38 1.38 0.21 60,431

1.78 1.38 1.38 0.09 63,738

1.86 1.45 1.45 -0.07 67,056

1.87 1.46 1.46 0.20 70,313

1.87 1.46 1.46 0.42 70,313

1.97 1.55 1.55 0.36 77,869

2.13 1.68 1.68 -0.01 86,434

2.11 1.71 1.71 0.08 94,877

2.22 1.80 1.80 0.17 102,932

2.22 1.80 1.80 0.58 102,932

0.18 0.12 0.07 0.00 0.16 0.11

0.25 0.20 0.05 0.00 0.20 0.17

0.42 0.34 0.08 0.00 0.30 0.26

0.40 0.32 0.08 0.00 0.29 0.24

0.40 0.33 0.07 0.00 0.29 0.25

0.38 0.31 0.07 0.00 0.27 0.24

0.38 0.31 0.07 0.00 0.27 0.24

0.38 0.31 0.07 0.00 0.27 0.24

0.36 0.30 0.07 0.00 0.27 0.23

0.34 0.27 0.06 0.00 0.25 0.21

0.36 0.30 0.06 0.00 0.26 0.23

0.34 0.28 0.06 0.00 0.26 0.22

0.34 0.28 0.06 0.00 0.26 0.22

12.73% 9.71% 7.93% 9.39% 6.89% 13.54% 15.59%

12.30% 9.38% 8.48% 10.62% 6.83% 13.90% 17.26%

12.02% 9.83% 9.58% 13.62% 6.59% 12.91% 18.76%

12.02% 9.92% 2.73% 3.85% 7.13% 13.20% 5.06%

12.02% 9.92% 2.73% 3.83% 7.20% 13.26% 5.02%

12.02% 9.92% 2.66% 3.71% 7.18% 13.20% 4.90%

12.02% 9.92% 2.58% 3.56% 7.00% 12.89% 4.76%

12.02% 9.92% 10.15% 13.99% 7.13% 13.14% 18.70%

12.02% 9.92% 2.63% 3.60% 7.07% 12.88% 4.79%

12.02% 9.92% 2.73% 3.68% 7.32% 13.51% 5.03%

12.02% 9.92% 2.64% 3.55% 7.25% 13.72% 4.99%

12.02% 9.92% 2.60% 3.51% 7.24% 13.66% 4.90%

12.02% 9.92% 10.01% 13.44% 7.22% 13.45% 18.64%

21

BURKENROAD REPORTS RATING SYSTEM Market 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 companys 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 longterm 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 UNIVERSE
AFC Enterprises Inc. (AFCE) Amerisafe Inc. (AMSF) Callon Petroleum Company (CPE) Cal-Maine Foods Inc. (CALM) Carbo Ceramics Inc. (CRR) CLECO Corporation (CNL) Conns Inc. (CONN) Craftmade International Inc. (CRFT) Crown Crafts Inc. (CRWS) EastGroup Properties Inc. (EGP) Energy Partners Ltd. (EPL) EnergySouth Inc. (ENSI) First M&F Corporation (FMFC) Frozen Food Express (FFEX) Gulf Island Fabrication Inc. (GIFI) Hibbett Sports Inc. (HIBB) Hornbeck Offshore Services Inc. (HOS) IBERIABANK Corp. (IBKC) ION Geophysical Corp. (IO) Marine Products Corp. (MPX) McMoRan Exploration Co. (MMR) MidSouth Bancorp Inc. (MSL) NATCO Group Inc. (NTG) Parkway Properties Inc. (PKY) PetroQuest Energy Inc. (PQ) Pool Corporation (POOL) Powell Industries Inc. (POWL) Rollins Incorporated (ROL) RPC Incorporated (RES) Sally Beauty Holdings (SBH) Sanderson Farms Inc. (SAFM) SEACOR Holdings Inc. (CKH) Shaw Group Inc. (SGR) Stone Energy Corp. (SGY) Superior Energy Services Inc. (SPN) Team Incorporated (TMI) Teche Holding Company (TSH) Tuesday Morning Corp. (TUES) W&T Offshore (WTI) Willbros Group Inc. (WG)

Peter Ricchiuti Director of Research BURKENROAD REPORTS Tulane University New Orleans, LA 70118-5669 (504) 862-8489 (504) 865-5430 Fax Peter.Ricchiuti@tulane.edu

Pamela Shaw Senior Director of Accounting BURKENROAD REPORTS Tulane University New Orleans, LA 70118-5669 (504) 865-5033 (504) 865-5430 Fax pshaw@tulane.edu

Karla Timmons Abe Topham Associate Directors of Research BURKENROAD REPORTS Tulane University New Orleans, LA 70118-5669 (504) 862-8489 (504) 865-5430 Fax

Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter of Tulanes business school, and funded through contributions from his family and friends, BURKENROAD REPORTS is a nationally recognized program, publishing objective, high quality investment research reports on public companies in our region. Students at Tulane Universitys A. B. Freeman School of Business prepare these reports.
Alumni of the BURKENROAD REPORTS program are employed at a number of highly respected financial institutions including: ABN AMRO Bank (Chicago), Aegis Value Fund (New York), AG Edwards & 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 Financial Management (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 (New Delhi-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), Duquesne Capital Management (New York) Entrust (New York), Financial Models Inc. (New York), First Albany (Albany, Houston), Fiduciary Trust (New York), Fitch Investors Services (New York), FleetBoston (Boston), Forex Trading (New York), Franklin Templeton (San Mateo), Fulcrum Global 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), Johnson Rice & Co. (New Orleans), KBC Financial (New York), Keystone Investments (Boston), Knight Securities (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), Raymond James (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, New Orleans), 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 (New Orleans), Susquehanna Investment Group (Chicago), Thomas Weisel Partners (San Francisco), TD Securities (New York), Tanaka Capital Management (New York), Texas Employee Retirement System (Austin), The GulfStar Group (Houston), Tivoli Partners (New York), Turner Investment Partners (Philadelphia), UBS PaineWebber (New York), UBS Warburg (New York), Value Line Investments (New York), Vardon Capital (New York), Vilquest, Inc. (Mandeville), Wachovia Securities (Charlotte, Houston, New Orleans, Palm Beach, San Francisco), Wells Fargo Capital Management (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 University A.B. Freeman School of Business BURKENROAD REPORTS Phone: (504) 862-8489 Fax: (504) 865-5430 E-mail: Peter.Ricchiuti@Tulane.edu Please visit our web site at www.burkenroad.org
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