Gulf Island Fabrication INC. Burkenroad Analyst Report

March 24, 2015
GULF ISLAND FABRICATION INC.
GIFI/NASDAQ

Continuing Coverage: Watch Your Backlog!

Investment Rating: Market Perform
PRICE: $ 15.69 S&P 500: 2,091.50   DJIA: 18,011.14   RUSSELL 2000: 1,263.46

 The oil free fall from $110 to $50 per barrel slams offshore rig activity.
 No long term debt helps Gulf Island endure industry headwinds.
 New wind projects help blow in a new era.
 Diminishing backlog poses new threat.
 New management opens new doors, business segments, projects.
 Our 12‐month target price is $18.00.

Valuation 2014 A 2015 E 2016 E
EPS $ 1.05 $ 1.03 $ 1.13
P/E 14.9x 15.2x 13.8x
CFPS $ 3.97 $ 2.71 $ 2.72
P/CFPS 4.0x 5.8x 5.8x

Market Capitalization Stock Data
Equity Market Cap (MM): $ 227.66 52‐Week Range: $12.32 ‐ $24.01
Enterprise Value (MM): $ 191.58 12‐Month Stock Performance: ‐24.66%
Shares Outstanding (MM): 14.51 Dividend Yield: 2.06%
Estimated Float (MM): 13.09 Book Value Per Share: $ 19.70
6‐Mo. Avg. Daily Volume: 68,639 Beta: 1.40

Company Quick View:

Gulf Island Fabrication is churning up the bayou. Located in Houma, Louisiana, with
headquarters in Houston, Texas, the Company is a diversified oil and gas field services
firm with a specialization in deep water drilling platforms. As part of the offshore oil rig
and platform construction industry, the Company fabricates, repairs, and maintains
deepwater drilling modules, living quarters, jackets, marine vessels, and skids through
its five subsidiaries.
Company Website: www.gulfisland.com

Analysts: Investment Research Manager:
Kelly M. Aucoin J. Brad Bauguss
Emma A. Brons
Edward L. Brucculeri
Katherine M. Gillespie
Ethyn J. Samuels
The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's
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.
Wall Street's Farm Team
BURKENROADREPORTS

Gulf Island Fabrication Inc. (GIFI) BURKENROAD REPORTS (www.burkenroad.org) March 24, 2015
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Figure 1: Five‐year Stock Price Performance
Source: Yahoo Finance, March 24, 2015
INVESTMENT SUMMARY
We give Gulf Island Fabrication, Inc. a rating of Market Perform with a target stock price of
$18.00. This price represents a 14.72% increase from its current March 24, 2015, price of
$15.69. We analyzed many factors to arrive at this target price. Firstly, we used a regression to
determine the relative influence of key revenue drivers, including oil price, rig count, and the
gross domestic product (GDP) of Texas. Secondly, we factored in Gulf Island’s improving
margins. Lastly, we considered Gulf Island’s shift in strategy in reaction to plummeting oil
prices.
Gulf Island provides services and products for oilrigs and specializes in the fabrication of
offshore drilling and production platforms. The Company is comprised of five distinct units,
each concentrating on a narrow range of services or products. Gulf Island operates in Houma,
Louisiana, but recently moved corporate headquarters to the energy corridor of Houston,
Texas. The new Houston location will improve communication and foster stronger
relationships with current and potential customers. While the Company produces the majority
of its products for oilrigs in the Gulf of Mexico, it engages in some fabrication for international
customers and recently won a contract for the production of wind turbine structures along
the Rhode Island coast.
One negative trend threatening Gulf Island’s prospects for the near future is the steep decline
in oil prices. Plunging oil prices have suppressed rig activity in the Gulf of Mexico and placed
pressure on the oil industry. Virtually all of Gulf Island’s major customers are negatively
impacted by falling oil prices, which may force customers to decrease the scope of projects or
halt them completely. Currently, the Company’s production lot in Houma, Louisiana, is storing
at least two halted projects. Additionally, Gulf Island is one of two domestic companies that
can produce jackets for water depths beyond 300 feet, but lower oil prices make drilling in
deeper water less financially feasible for customers because of extensive initial costs.
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Another negative trend is diminishing backlog hours. The Company’s main source of income is
from employee labor hours. Labor and revenue that is contracted, but not yet completed and
recognized, is classified as “backlog.” This number is a reasonable way of measuring the
Company’s short‐term future revenues. If the Company completes work faster than it wins
new contracts, then the backlog will decrease, but if the Company wins contracts faster than
it completes work, backlog will increase. Abundant backlog is positive because it
demonstrates the health of the Company’s workload. However, Gulf Island’s backlog has been
steadily decreasing over the past four years, which is troubling when considered with slowing
rig activity. Therefore, low oil prices and decreasing backlog could negatively impact Gulf
Island in the near future and investors should continue to monitor these factors going
forward.
In contrast, several factors support a positive long‐term outlook for Gulf Island. The
Company’s debt‐free capital structure adds a security blanket by significantly decreasing
bankruptcy risk. Along these lines, the fact that Gulf Island does not have to make significant
interest payments provides flexibility for the Company to adapt to changing industry
conditions, rather than being forced to focus on short‐term liquidity issues. Also,
diversification into new areas of energy production is a promising long‐term opportunity for
Gulf Island to reduce dependence on the volatile oil industry. For example, the Company is
beginning production on a project for a wind‐energy farm off the coast of Rohde Island.
Although Gulf Island’s decreasing backlog is a negative trend, the lower backlog may allow the
Company to bid more competitively from a scheduling perspective because it is not
overburdened with other projects. In addition, despite difficult industry conditions, new
management will bring in fresh ideas that may help to lift the Company’s historically low
return on invested capital. Although plunging oil prices threaten Gulf Island’s short‐term
success, several factors give investors a reason to be optimistic for the future, especially if oil
prices and Gulf of Mexico rig activity begin to steadily recover.

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Table 1: Historical Burkenroad Ratings and Prices
Date Rating Price*
03/14/14 Market Perform $24.00
04/02/13 Market Outperform $26.00
02/15/02 Buy $12.50
*Price at time of report date
INVESTMENT THESIS
Gulf Island’s near future is clouded by the effect of the sharp decline in oil price on offshore
rig activity, but decisions by new management and diversification efforts indicate a more
favorable long‐term outlook. The oil price plunge in the last quarter brings into question the
fiscal feasibility of the expensive deep water drilling industry, a main component to Gulf Island
operations. This is already impacting rig activity in the Gulf of Mexico, which is a critical
revenue source for the Company. Additionally, the Company’s backlog has been steadily
decreasing and, paired with possible suspensions or terminations of existing projects because
of low oil prices, could cause trouble. Gulf Island’s lack of long‐term debt cushions the blow of
rough industry conditions and allows the Company to focus more on adapting rather than
merely surviving. As such, the Company is expanding into alternative energy wind projects in
order to diversify operations. Additionally, new management is very experienced in the oilrig
and platform construction industry and is already making an impact by focusing on improving
margins.
The oil free fall from $100 to $50 per barrel slams offshore rig activity
Although Gulf of Mexico rig count is remaining relatively steady, rig activity has been severely
impacted by the plunge in oil prices. Marketed utilization measures the percentage of oil rigs
in use compared to the marketed supply of oil rigs available. According to IHS Petrodata, the
marketed utilization for Gulf of Mexico Rigs changed from 95.3% in 2013 to 79% as of January
2015. The sharp decrease in marketed utilization is a concerning trend for Gulf Island and the
entire oil rig and platform construction industry. If companies are not using rigs that are
already deployed, then increased demand for existing rigs and fabrication of more rigs is
unlikely. Oil prices in the $65 to $75 per barrel range would likely stimulate more deep water
drilling activity, but prices as of February 2015 were below $50 per barrel.

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Gulf Island’s sufficient expertise, ideal location, and appropriate facilities allow it to be one of
two domestic companies that can produce larger equipment for water depths beyond 300
feet. Because of high initial investments, deep water wells are currently less financially
feasible with lower oil prices. Therefore, Gulf Island’s deep water competitive advantage will
be reduced while oil prices are low. Currently, Gulf Island has at least two halted projects with
more project halts possible if rig activity continues to decline. Any further decline in oil prices
would impose more downward pressure on rig activity in the Gulf of Mexico, which would
negatively impact Gulf Island’s revenues. However, a steady oil price recovery would
reenergize rig activity in the Gulf of Mexico and bolster revenues by providing the opportunity
for Gulf Island to win more contracts. Figure 2 shows the dramatic decrease in oil prices from
$100.08 on March 18, 2014, to $43.93 on March 16, 2015.
Figure 2: West Texas Intermediate (WTI) Spot Price (Dollars per Barrel)
Source: U.S. Energy Information Administration March 18, 2015
No long‐term debt helps Gulf Island endure industry headwinds
As of September 30, 2014, Gulf Island had $26.71 million of cash on its balance sheet and no
long‐term debt. Gulf Island only pays a small amount of interest on an $80 million revolving
credit line with Whitney Bank and JPMorgan Chase Bank. Other than the interest on its credit
line, the Company pays no other interest and is therefore more prepared to endure harsh
economic and industry environments. Without leverage constraints, Gulf Island can more
easily adapt to quick industry changes such as the current plunging oil prices. Gulf Island’s lack
of long‐term debt also limits bankruptcy risk significantly. Although oil prices are at five‐year
lows, Gulf Island is well positioned to avoid cash flow issues and bankruptcy. The Company’s
strong balance sheet will give it some breathing room to focus on adapting to harsh industry
conditions rather than merely surviving.

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Diminishing backlog poses threat
Backlog is an important indicator of revenue in the near future because it represents the
amount of direct labor hours needed to complete active contracts and the amount of revenue
yet to be recognized in those active contracts. Backlog revenue peaked at $614.5 million in
2011, declined to $358.7 million at the end of 2013, and as of the end of 2014 revenue
backlog totaled $184.7 million. The substantial backlog in 2011 was almost entirely
attributable to two large deep water projects. However, there has still been a noteworthy
downward trend in backlog in the past four years. Diminishing backlog, paired with an
increase in terminated and stalled projects, could hurt future revenues.
Though backlog is a good determinate of future earnings, it is imperfect because it is based on
management estimates. In addition, there is no guarantee that the Company will realize
backlog because customers have the option to stall or cancel projects. Currently, at least two
of Gulf Island’s customers have stalled ongoing contracts. Rather than building backlog
through two projects as it did in 2011, Gulf Island would ideally build backlog through several
projects with several different customers in order to reduce dependence on a small number
of projects and customers. However, achieving backlog growth will be difficult in the current
low oil price environment. Still, one major benefit of diminishing backlog is that the Company
may be able to win new contracts because it is able to start work faster than other, busier
competitors. Figure 3 illustrates Gulf Island’s backlog over the past five years.
Figure 3: Backlog Revenue and Hours (2010 – 2014)

Source: Gulf Island Fabrication, Inc. Form 10‐K (2010‐2014)

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New wind projects blowing in a new era
Gulf Island secured a contract with Deepwater Wind in November 2014 to construct
jacket/piles for the Company’s offshore Block Island Wind Farm off the coast of Rhode Island.
This project will be the first offshore wind farm installed in the U.S. Gulf Island’s involvement
in this project puts the Company at the cutting edge of the offshore wind industry.
Furthermore, Gulf Island’s involvement positions the Company to win two upcoming offshore
wind project bids by the end of the second quarter of 2015. These projects are similar to the
current Deepwater Wind project and create a potential future opportunity for Gulf Island to
take advantage of offshore wind energy growth. The 30‐watt wind farm will consist of five
wind turbines. Gulf Island is responsible for the fabrication of five jacket/piles to anchor all
five turbines. While Gulf Island is currently only engaged in one such wind contract, the
Company is looking to develop a relationship with Deepwater Wind and expand further into
the wind energy sector. The jackets that Gulf Island fabricates for offshore oilrigs can also be
used for wind turbines without any significant change to the construction process, making
production for the wind energy sector a straightforward process.
This Rhode Island venture is especially attractive to Gulf Island because it will reap the
benefits of a new customer segment without the cost of pioneering a completely new
product. Wind turbine projects would operate independently of current key revenue drivers
such as the price of oil and rig count. The industry is driven by tax credits and the demand for
alternative sources of energy, which is continually increasing in Europe and China. However,
since wind energy is just another segment of the energy sector, its diversification value for
Gulf Island is somewhat limited. Additionally, the Company faces the same cost drivers for
wind industry fabrication as they are for standard fabrication projects.
New management opens new doors, business segments, projects
Gulf Island’s new management is already making a positive impact. In 2013, Gulf Island
appointed Kirk Meche as its new Chief Executive Officer, Jeffrey Favret as its new Chief
Financial Officer, and John Laborde as the new Chairman of the Board. In 2014, Gulf Island
hired Todd as its new Chief Operating Officer. Meche, Ladd, and Laborde were all hired
internally and have almost 20 years of experience working in different roles at Gulf Island,
which brings the management team a very thorough knowledge of the Company and industry.
So far, new management has successfully improved margins. Gross margins more than
doubled in 2014 as compared to 2013, increasing to 8.8% from 3.9%. As oil prices plunge,
management is looking for new revenue streams that are less affected by poor oil industry
conditions. In addition to the offshore wind project, Gulf Island has pursued petrochemical
projects and more projects for the marine segment. New management will continue to seek
out new strategies as Gulf Island endures challenging industry conditions.

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VALUATION
Based on an equal weighted average of the discounted cash flow (DCF) method and the
relative multiples method, we project a 12‐month target price for Gulf Island Fabrication of
$18.00.
Discounted Cash Flow
We derived the discount rate from Bloomberg data and from the capital asset pricing model
(CAPM). Since Gulf Island has no long‐term debt, the discount rate that we used was
essentially Gulf Island’s cost of equity plus a liquidity risk premium. We included the liquidity
risk premium of 3% because Gulf Island’s stock trades at a low volume and there can be a
decent bid‐ask spread at times. The cost of equity includes the risk free rate added to the
market risk premium multiplied by the adjusted beta. We used the Constant Maturity
Treasury (CMT) 20‐year treasury rate of 2.33% as the risk free rate and pulled the market risk
premium of 5.7% from Bloomberg’s database. Then, we used an adjusted beta of 1.4 that we
also pulled from Bloomberg’s database. In order to compute a terminal value, we used the
projected oilrig and platform construction industry growth rate of 2.1%.
Relative Multiples
For the relative multiples valuation, we used the price to earnings (P/E), enterprise value (EV)
to earnings before interest, taxes, depreciation and amortization (EBITDA), and price to book
value (P/BV). Previous analyst reports utilized these valuation methods. We used McDermott
International, Dril‐Quip, and Conrad Industries as our peer group for the EV/EBITDA method
and used Gulf Island’s historical data for the P/E and P/BV methods. We multiplied the
Company’s most recent P/E ratio by 15, the Company’s average historical trading multiple, to
arrive at a target price of $17.02. We computed the Company’s most recent P/BV ratio and
multiplied it by the Company’s historical trading multiple of one to arrive at a target price of
$21.08. For the EV/EBITDA calculation, we averaged the EV/EBITDA ratio of our peer group
then multiplied that average by Gulf Island’s projected 2015 EBITDA. Finally, we divided this
EV/EBITDA multiple by the total number of shares outstanding to reach a target stock price of
$21.44. We weighted each of these methods equally in our computations. Each method
comprised 25% of the final target Gulf Island stock price.
INDUSTRY ANALYSIS
Gulf Island Fabrication, Inc. operates within the offshore oil rig and platform construction
industry. The industry provides a variety of construction and support services to oil companies
and can be considered a subsector of the larger oil and gas industry. The industry booked
revenues of $2.9 billion in 2013, while paying $626.6 million in wages. The industry is
projected to continue to grow at a steady rate over the next five years, though such growth
may be deterred by falling oil prices or increasing environmental legislation.

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The offshore oil rig and platform construction industry is highly competitive as companies in
the industry place competitive bids for projects with drilling companies. However, the high
capital requirements needed to succeed in the field means that there are only a few major
companies in the industry. Gulf Island is one of the major players with a 12.6% market share
of the industry in the U.S. Key costs drivers for the industry include the price of steel and the
price of labor. A key revenue driver for the industry is the world price of oil. Major oil
companies rely on firms in this industry for oil rig production.
Key Metrics and Ratios
The key metrics and ratios in the offshore oil rig and platform construction industry focus on
labor and wages. One important metric is backlog hours, which is the number of labor hours
remaining to complete a contract. Such backlog hours indicate future revenue in this industry
because they determine time remaining until a contract is finished. Completion of such
backlog is based on the availability and price of skilled labor. Revenue per employee is
another key ratio for this industry because the metric relates a company’s ability to complete
projects and earn revenue with the number of employees it takes to earn such revenue. This
metric also communicates the efficiency of the company and its employees. The industry as a
whole has increased its revenue per employee significantly over the past decade. Wages per
employee is another important ratio for the industry. Wages represent a major expense for
most companies in this industry because such companies rely on in‐demand, skilled labor.
Wages per employee fell significantly in the mid 2000s, but have stagnated across the industry
since 2010 as the amount of excess skilled labor has decreased and demand for such labor has
increased. While wages per employee is variable between companies within this industry, all
companies attempt to keep this ratio low to minimize labor costs and maximize employment
productivity.
Regulatory Environment
The offshore oilrig and platform construction industry is bound by many of the laws that
regulate the broader oil production industry. While there is not much regulation over the
construction services industry, many of the restrictions imposed on the exploration and
production (E&P) industry directly impact the manufacturing industry. The U.S. government
has highly regulated the process by which oil can be extracted in U.S. waters. This level of
regulation in the Gulf of Mexico has steadily increased for many years but recently spiked
dramatically in the wake of the British Petroleum Deepwater Horizon oil spill in 2010.
As regulations become increasingly stringent, a company’s ability to construct equipment and
provide services in compliance with regulation becomes a more valuable competitive
advantage. Therefore, some regulations help companies that are industry leaders in providing
products and services in compliance with the most recent regulations. Gulf Island, being an
industry leader, has profited on these increased regulations.

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Competitive Rivals
The two main competitive rivals of Gulf Island are Kiewit Offshore Services and McDermott
International, Inc. Kiewit Offshore Services, Ltd., founded in 2001, is privately held. With only
500 employees and a smaller scope of products and competitors, this company is smaller than
Gulf Island. Kiewit’s reported revenue was $39.9 million in 2013, as compared with Gulf
Island’s revenue of $608.3 million. Kiewit does provide similar deepwater services to Gulf
Island but with a relatively smaller scope than the Company.
McDermott International, Inc., with a market capitalization of $639 million and 14,000
employees, is more established than Gulf Island and has a greater focus on foreign operations.
The company’s focus is on very complex operations, including deepwater fabrication. Because
of slowing offshore growth in the Gulf of Mexico, McDermott is focusing more resources on
foreign operations.
Availability of Substitutes
Because of the highly specialized nature of the offshore drilling industry, no viable substitute
for deep‐water oil rigs exists. The essential piece of equipment necessary for offshore oil
drilling is a drilling platform. Specialized fabrication companies are the only suppliers of these
oil rigs in the market. However, onshore drilling is a viable substitute for offshore drilling.
Certain harsh economic or regulatory conditions could force offshore drilling onshore.
Offshore drilling does rely on higher oil prices because the process is generally more
expensive than traditional onshore drilling. There are, however, substitutes for the oil and gas
industry as a whole.
The substitutes for the oil and gas industry are mostly new technologies such as shale mining,
solar energy, and wind energy. Though these technologies may one day become full‐fledged
substitutes for offshore drilling, they do not yet pose an immediate threat to the offshore
drilling industry.
Threat of Entry
The threat of entry into the oil rig construction industry is fairly low. The market for smaller
rigs is fairly easy to enter but much more difficult to enter for larger rigs. Building large oil
platforms requires skilled labor, a large fabrication space, huge amounts of raw materials,
good geographic positioning, and a hefty capital investment. Further, the skilled labor
involved in producing large oil rigs is the most important aspect of the production
process. Without skilled labor, fabricating a value‐adding product is impossible. Space is also
an important factor. In order to build very large platforms, the company must be able to
acquire a space large enough to house these items. With rising real estate prices and growing
restrictions on where construction can take place, these spaces are more difficult to find and
more expensive to purchase. Therefore, the large amount of materials needed to build is also
a significant barrier to entry in this field. Steel is the largest input for producing offshore rigs.
Acquiring steel can often be very expensive for new firms joining the industry.

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Geographic positioning is also a key factor in entering the construction industry. In order to
sell a product it must be deliverable, meaning the company has to be able to transport the
parts to the Gulf Mexico; therefore, coast‐side or riverside property is essential for these
companies, and there is a finite amount. Also included in the capital requirement are
specialized engines, cranes, and other equipment needed to build the rigs. Because of these
massive barriers to entry, minimal threat to entry in the oil rig construction industry exists.
Bargaining Power of Suppliers
The main raw material consumed by the oil platform fabrication industry is steel. Steel is a
high‐demand commodity traded on many markets throughout the world. Because of the high
demand for steel, each company has little to no bargaining power from suppliers. Because the
price of steel is set in a competitive market, the suppliers also have little bargaining power
over the consumers of steel. One way that companies soften this barrier is by purchasing a
steel producer. Gulf Island Fabrication vertically integrated in 1997 when the Company
acquired Dolphin Steel Sales, LLC.
Bargaining Power of Buyers
In the oil platform construction business, buyers have a great deal of bargaining power.
Because of the competitive nature of the fabrication business, the method used by buyers to
pick a contractor is a competitive bid process. In a bid process, each potential fabricator
attempts to bid a lower price than its competitors. This process is especially difficult for the
fabricators who build rigs for less than 300 feet because the rigs are almost identical to each
other, leading to very low prices and severely cut margins for the fabrication companies.
However, for larger platforms, the bargaining power for buyers lessens due to the more
specialized needs of the client. Overall, the level of power that buyers have in the market is
related to the level of specialization that the rig requires.
Customers
The major customers of the oil rig and platform construction industry are companies that
operate in the oil drilling and gas extraction industries. These companies are generally very
large firms looking to produce high quantities of oil in the Gulf of Mexico. Some examples of
customers in this industry are Chevron, ExxonMobil, British Petroleum, and ConocoPhillips.
Industry Trends
Gulf Island primarily operates within the offshore oilrig and platform construction industry, a
subset of the oil and gas field services industry. Gulf Island’s sub industry is oilfield support
services, which comprises 47% of total oil and gas field services. Competition in the industry is
increasing because of the emphasis placed on competitive price bidding. Additionally,
competition stems from each bidding company’s special techniques and services, since
companies generally have very similar end products. No companies have yet emerged as a
true leader of the industry, which leads to a more fragmented market.

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The oil and gas field services industry recorded revenue of $114.3 billion in 2014 with a profit
of $14.5 billion. The annual growth rate of the oil and gas field services industry from 2009 to
2014 was 11.5% but is expected to drop to 4% annually from 2014 to 2019. This decrease is
primarily due to the slowing growth in the natural gas sector because of low natural gas
prices. The annual growth rate of the industry would have been lower because of natural gas,
but the steady increase in offshore drilling operations pulls up industry growth.
Plummeting oil prices is a major trend currently affecting the industry. When oil prices fall,
demand for oil and gas field services decreases. Although Gulf of Mexico rig count is
remaining relatively steady, rig activity has been severely impacted by the plunge in oil prices.
Marketed utilization measures the percentage of oilrigs in use compared to the marketed
supply of oilrigs available. According to IHS Petrodata, the marketed utilization for Gulf of
Mexico rigs slumped from 95.3% in 2013 to 79% as of January 2015. The sharp decrease in
marketed utilization is a concerning trend for Gulf Island and the entire oil rig and platform
construction industry.
Seasonality is also a noteworthy trend in the oil rig and platform construction industry. In the
winter months, Gulf Island records a reduced amount of labor hours due to less daylight.
Therefore, revenue is often slightly lower during the winter months.
ABOUT GULF ISLAND FABRICATION
Gulf Island Fabrication, Inc. (GIFI/NASDAQ) provides products and services for offshore
drilling companies, specializing in construction services and offshore platform fabrication. In
1985, Alden J. Laborde and Huey J. Wilson established Gulf Island Fabrication, Inc., in Houma,
Louisiana. The Company’s initial public offering (IPO) was on February 14, 1997. Since its IPO,
Gulf Island has further diversified the Company’s offerings through its five subsidiaries,
located in Texas and Louisiana, as shown in Figure 4. Gulf Island relocated its corporate
headquarters to the Energy Corridor in Houston, Texas, in 2013. The Company is traded on
NASDAQ under the ticker symbol GIFI.
Figure 4: Gulf Island Subsidiary Locations

Source: Company Website

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Products and Services
Gulf Island Fabrication specializes in building offshore drilling and production structures.
These structures include platforms, deck sections of fixed and floating platforms, piles, and
utility modules. Gulf Island’s subsidiaries operate in various functions of the fabrication
process. Lines of business include construction and repair of marine support vessels, offshore
and inland construction services, steel production and sales, and contracted labor services.
Additionally, Gulf Island Fabrication services existing platforms by providing scaffolding,
painting, pipe insulation, and loading and unloading services. Vertical integration allows Gulf
Island to monitor and control its costs closely. The target customers for Gulf Island Fabrication
are oil and gas drilling companies seeking the fabrication of offshore production structures in
the central and western parts of the Gulf of Mexico. The Company’s large fabrication space,
over 650 acres combined across its five subsidiary fabrication facilities described in Table 2,
allows it to build some of the largest offshore structures in the Gulf.
Table 2: Gulf Island Subsidiaries
Name Area of Production Location
Gulf Island, LLC Fabrication Houma, LA
Dolphin Services, LLC Fabrication and Service Provider Houma, LA
Dolphin Steel Sales, LLC Steel Customization and Sales Houma, LA
Gulf Island Marine
Fabricators, LLC
Construction and Repair of
Marine Vessels
Houma, LA
Gulf Marine Fabricators, LP Fabrication
Ingleside, TX &
Aransas Pass, TX
Source: Company Website
Strategy
Gulf Island Fabrication’s strategy centers on offering its customers superior value through
quality facilities and equipment, knowledgeable personnel, and efficient services. The
Company’s 650‐acre fabrication space among its five subsidiaries allows the Company to
provide its customers with some of the largest offshore structures in the Gulf. Barriers to
entry are relatively low for domestic competition to enter the market for smaller offshore
structures. However, Gulf Island has sufficient expertise, an ideal location, and appropriate
facilities to produce larger equipment for water depths beyond 300 feet, a distinct
competitive advantage. In addition, Gulf Island offers a trustworthy reputation and safety
record that facilitates strong customer relations.
From a financial perspective, Gulf Island’s goal is to maintain a strong balance sheet that
mitigates risk and provides financial flexibility. The Company maintains substantial cash
reserves and avoids long‐term debt. At the end of the third quarter of 2014, Gulf Island had
$26.7 million in cash, no long‐term debt, and a market capitalization of $238.34 million.

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In 2013, Gulf Island Fabrication strategically relocated its headquarters to Houston, Texas. Its
new location in the energy corridor section of Houston will give the Company a presence in
the center of the industry and allow it to build stronger customer relationships. Many of Gulf
Island’s substantial customers, including Chevron, have a significant presence in Houston. The
new Houston headquarters will provide a more efficient communication and marketing
channel for Gulf Island, which will help the Company maintain strong customer relationships.
Gulf Island operates in a competitive industry where trust and reliability can be determining
factors in securing a contract.
Competitors
Gulf Island faces competition from platform fabrication companies that competitively bid on
project contracts. Most of the Company’s competition comes from domestic companies,
including Kiewit Offshore Services, Ltd., State Services Co., Inc., and McDermott International,
Inc., all three of which are headquartered in Texas. These companies usually compete for the
fabrication of deepwater projects in intermediate water depths of 150 feet to 300 feet in the
Gulf of Mexico.
For fabrication projects in waters deeper than 300 feet in the Gulf of Mexico and in
international waters, Gulf Island faces both domestic competition from Kiewit and foreign
competition from companies such as Technip in Paris, France, and Hyundai Heavy Industries
Co., Ltd., in Ulsan, South Korea. Gulf Island recognizes that it will face many obstacles to
remain competitive with foreign companies that bid on contracts for projects in international
waters. External factors such as transportation costs and subsidies and incentives from foreign
governments may hinder the Company’s ability to successfully bid on these international
projects.
Recent Developments
Regulation stemming from the Deepwater Horizon incident paired with falling oil prices is
leading to stagnated growth in the oil field services sector.
Oil price stability is key for Gulf Island Fabrication’s growth. The current falling oil prices will
slow industry growth and changing prices will make it difficult to project growth rates in the
coming years. The predicted growth rate for the offshore oil rig and platform construction
industry is about 2.8% until 2019, according to IBISWorld. The stark change in oil prices will
have a delayed effect on Gulf Island’s revenue because the Company is currently enjoying
revenues from contracts created in prior years.
Deepwater drilling is uneconomical when oil prices are low. If oil prices remain at their current
levels, deepwater drilling will be less profitable, which will impact long‐term success for Gulf
Island. However, the Company is not directly exposed to fluctuating oil prices and does not
mitigate risk through hedging.

15
The repercussions of the Deepwater Horizon incident increased regulation in the industry. The
U.S. government is restricting the creation of new rigs, so the demand for retrofitting existing
rigs is increasing. Gulf Island Fabrication is able to compete in this new environment through
state of the art machinery that has been installed and is ready for use.
Gulf Island Fabrication is also considering expanding into floating liquefied natural gas (FLNG),
petro chemicals, and refined oil products through potential joint ventures, mergers, or
subcontracts. However, no mergers or acquisitions are publicly ongoing at this time.
PEER ANALYSIS
Gulf Island Fabrication operates in a private‐firm dominated industry; therefore, identifying a
peer group is challenging. Because of a lack of data on privately owned companies in the
industry, the peer group we selected for Gulf Island contains companies that offer similar
products and services, but that may be larger than the Company. The peer group that we
selected for Gulf Island consists of McDermott International, Inc. (MDR), Dril‐Quip, Inc. (DRQ),
and Conrad Industries, Inc. (CNRD). These four companies are all strongly impacted by oil
prices, which drive drilling activity in the Gulf of Mexico and in international waters. Selected
financial measures of Gulf Island and its peers are shown in Table 3.
Table 3: Peer Analysis

Ticker
Symbol
Market
Cap
($MM)
EV
($MM)
P/E
(x)
P/BV
(x)
EV/
EBITDA
(x)
D/E
(%)
Dividend
Yield
(%)
ROE
(%)
Gulf Island
Fabrication, Inc.
GIFI 245.83 215.90 19.83 0.85 4.89 0.00 2.40 4.30
McDermott
International, Inc.
MDR 520.44 863.30 N/A 0.35 N/A 6.15 N/A 21.80
Dril‐Quip DRQ 2,882.30 2,584.50 15.00 2.31 8.73 0.00 N/A 16.10
Conrad Industries,
Inc.
CNRD 193.10 119.8 7.00 1.75 2.73 1.03 N/A 21.80
Averages 960.42 945.88 13.94 1.32 5.45 1.80 2.40 16.00
Source: Bloomberg, January 29, 2015
McDermott International, Inc. (MDR/NYSE)
McDermott International, Inc., concentrates on engineering, procuring, constructing, and
installing (EPCI) projects for offshore oil and gas companies worldwide. The company
operates both domestically and internationally in four offshore business segments: Asia
Pacific, Atlantic, Caspian, and the Middle East. The company was founded in 1923 as J. Ray
McDermott & Company, Inc., in Luling, Texas. In 1932, the company relocated its
headquarters to Houston, Texas, following the boom in oil exploration in the area.
McDermott currently has 16 significant subsidiaries, allowing McDermott to offer fully
integrated EPCI services. McDermott’s market capitalization of $520 million is almost double
Gulf Island’s market capitalization. Further, the company’s debt‐to‐equity ratio of 6.15 is the
highest in the peer group and is substantially higher than Gulf Island, which has no long‐term
debt.

16
Dril‐Quip, Inc. (DRQ/NYSE)
Dril‐Quip, Inc., produces, services, and sells a variety of offshore drilling equipment and other
products used in deep water and harsh environments. The company operates domestically
and internationally with its world headquarters in Houston, Texas, and three additional major
facilities in Scotland, Singapore, and Brazil. Although Dril‐Quip has a significant overseas
presence, the majority of the company’s revenues stem from its operations in the western
hemisphere.
Conrad Industries, Inc. (CNRD/Other OTC)
Conrad Industries, Inc., operates primarily in the Texas/Louisiana region as a fabricator and
restorer of tugboats, lift boats, barges, ferries, and other vessels. Conrad also fabricates
various components of offshore oilrigs. In 1948, J. Parker Conrad founded Conrad Industries
in Morgan City, Louisiana. With the acquisition of the Texas‐based Orange Shipbuilding
Company in 1997, Conrad substantially increased its presence as a vessel builder and
repairer. Conrad and Gulf Island have similar market capitalizations. Conrad’s operations are
strictly domestic with a focus on vessels, while Gulf Island’s operations are mostly domestic
and offer a wider variety of products and services.
MANAGEMENT PERFORMANCE AND BACKGROUND
Gulf Island’s management team has considerable expertise in the offshore oil rig and
platform construction industry. Despite the Company’s substantial management changes in
recent years, the team appears prepared to lead Gulf Island in the near future.
Over the past several years, substantial turnover has occurred at the top levels of leadership
within Gulf Island. Kirk J. Meche has led Gulf Island’s management team as Chief Executive
Officer (CEO) since January 1, 2013. His predecessor, Kerry J. Chauvin retired from the
Company on December 31, 2012, after serving Gulf Island for 22 years. In addition to
Chauvin’s retirement, Alden J. “Doc” Laborde also retired from the Board of Directors in
2012. Laborde was the co‐founder of Gulf Island Fabrication and served the Company for 25
years. Because of his service, Laborde was appointed as a Director Emeritus in 2013. Upon
the retirement of former Chief Financial Officer (CFO) Roy Breerwood in May 2013, Gulf
Island named Jeffrey Favret the CFO of the Company. Additionally, Todd Ladd was named
Chief Operating Officer (COO) in February 2014.
Return on Invested Capital
Return on invested capital (ROIC) is an important indicator of management’s performance.
Essentially, ROIC measures management’s ability to invest cash in quality projects that will
add to shareholder value. Historically, Gulf Island’s ROIC has lagged behind the ROIC of its
peers. As shown in Table 4, the five‐year average of Gulf Island’s ROIC is 4.19%, while the
five‐year average of its peers’ ROIC is 15%. Gulf Island’s recent management changes may
serve as an opportunity to improve its ROIC.

17
Table 4: ROIC Analysis
Year
Gulf Island
Fabrication, Inc.
(GIFI)
McDermott
International, Inc.
(MDR)
Dril‐Quip
(DRQ)
Conrad
Industries, Inc.
(CNRD)
Peer
Average
2014 4.82% ‐‐ 16.28% 24.11% 20.20%
2013 2.43% ‐‐ 14.32% 24.11% 19.22%
2012 ‐‐ ‐‐ 11.71% 19.04% 15.38%
2011 ‐‐ 7.48% 10.68% 19.31% 12.49%
2010 3.05% 16.10% 13.08% 11.85% 13.68%
2009 6.99% 17.02% 16.38% 16.41% 16.60%
Average 4.19% 13.53% 13.23% 18.24% 15.00%
Source: Bloomberg February 12, 2015
Kirk J. Meche
President, Chief Executive Officer, and Director (51)
Kirk J. Meche was recently appointed CEO at the beginning of 2013. He has also served as the
President of Gulf Island since 2009. Meche previously worked as the COO from 2009 to the
end of 2012 and Executive Vice President of Operations from 2001 to 2009. He has worked
with many of Gulf Island’s subsidiaries, including Gulf Marine, Gulf Island, L.L.C. and
Southport. Meche began working with Gulf Island in 1996 as a Project Manager after leaving
McDermott International, where he worked as an engineer.
Jeffrey M. Favret
Chief Financial Officer, Treasurer, and Vice President (52)
Jeffrey M. Favret joined Gulf Island as CFO in April of 2013. He previously worked at FMC
Technologies as the Director of Finance within the Energy Infrastructure before leaving for
Gulf Island. Favret has also served as the Chief Accounting Officer at Trico Marine Services,
Inc. Favret started his career with Ernst & Young as a Certified Public Accountant before
joining Postlethwaite & Netterville in 2007 as an Associate Director.
Todd F. Ladd
Chief Operating Officer (47)
Todd F. Ladd was named COO in February 2014. Ladd has over 25 years of offshore platform
fabrication industry experience. He previously served as Gulf Island’s Vice President and
General Manager from July 2013 until he began serving as COO. Prior to his employment at
Gulf Island, Ladd served as a partner and Senior Project Manager at Paloma Energy
Consultants for 12 years. Ladd’s introduction to the Company occurred in April 1996, when
he was hired as Project Manager for Gulf Island, L.L.C. Additionally, Ladd served as
Production Engineer and Facility Engineer at McDermott Marine Construction for eight years,
beginning in January 1988.

18
John P. Laborde
Chairman of the Board (64)
John P. Laborde has served as the Chairman of the Board for Gulf Island since 2013. Laborde
consulted with Gulf Island extensively throughout 1996 before joining the Company as the
International Marketing Manager and as Director at the end of that year. Laborde is also the
President of Overboard Holdings, L.L.C. and President and CEO of All Aboard Development
Corporation, which are both companies in the oil and gas exploration industry.
Board of Directors
The Board of Directors consists of eight directors and the Company President and CEO. John
P. Laborde, who was elected to the Board in 1997, has served as Chairman since 2013. The
Board elected three new directors to serve effective March 13, 2014. Additionally, Alden J.
Laborde was named Director Emeritus upon his retirement from Gulf Island in 2012 in honor
of his service to Gulf Island and his position as Co‐Founder of the Company. Table 5 shows
the composition of Gulf Island’s Board of Directors as of February 10, 2015.
Table 5: Gulf Island Fabrication Board of Directors
Name Position Year Elected
John P. Laborde Chairman of the Board 1997
Kirk J. Meche Director, President, CEO 2012
Gregory J. Cotter Director 1985
Michael A. Flick Director 2007
Christopher M. Harding Director 2007
Jerry D. Dumas Director 2011
William E. Chiles Director 2014
Michael J. Keeffe Director 2014
Murray W. Burns Director 2014
Source: MorningStar February 10, 2015
SHAREHOLDER ANALYSIS
As of March 19, 2015, Gulf Island Fabrication (GIFI) has 14,738,900 shares of common stock
outstanding with 80% of these outstanding shares owned by institutional investors and
mutual funds. As illustrated in Figure 5 and detailed in Table 6, most funds investing in Gulf
Island are index, core value, and growth at a reasonable price (GARP) funds. One reason why
index funds hold so much of the Company is because Gulf Island is a member company for
the Russell 2000 index. According to the Russell website, the Russell 2000 aims to measure
the performance of the small‐cap segment of the U.S. equity universe. Both GARP and core
value style funds look for stability. The top‐ten shareholders of the Company changed little in
the past year and the top‐three shareholders remained the same. Though two of the top‐
three shareholders slightly decreased their stake in Gulf Island, the fact that they retained the
large majority of Company holdings is a sign of continued belief in Gulf Island.

19
Figure 5: Ownership by Investment Style

Source: Thompson One February 2, 2015
Table 6: Gulf Island Shareholder Investment Styles
Investment Style
% Shares
Outstanding
Investors Shares Value ($)
Index 15.66 98 2,274,967 38,765,437.68
Core Value 14.22 24 2,067,515 35,230,455.60
GARP 13.40 27 1,947,225 33,180,714.00
Deep Value 4.91 3 721,886 12,300,937.44
Core Growth 3.08 24 449,235 7,654,964.40
Growth 1.55 6 225,591 3,844,070.64
Yield 0.51 3 73,647 1,254,944.88
Specialty 0.35 1 51,310 874,322.40
Aggressive Growth 0.05 7 7,369 125,567.76
Equity Hedge 0.04 1 5,882 100,229.28
Income Value 0.01 1 1,519 25,883.76
Table 7 lists the top‐ten shareholders of Gulf Island. T. Rowe Price Associates, Inc. is the
number one shareholder, holding 1.8 million shares, which is 12.54% of all outstanding
shares. In the past year, T. Rowe sold 4,100 as the stock price climbed to $23.50 in April of
2014. The number two shareholder is Heartland Advisors, Inc., holding 1.54 million shares
constituting 10.64% of total shares outstanding. After Heartland, BlackRock holds the third
largest amount of outstanding shares of the Company. Blackrock increased its position in Gulf
Island by 7.87% from last year, from 1.13 million shares up to 1.22 million shares. These large
investment companies include Gulf Island holdings as part of value and index funds, which
account for 20% of Gulf Island ownership.
Index, 15.66%
Core Value,
14.22%
GARP, 13.40%
Deep Value,
4.91%
Core Growth,
3.08%
Growth, 1.55%
Other, 0.96%

20
Table 7: Gulf Island Top‐Ten Shareholders
No. Holder Name Shares Held
% of Shares
Outstanding
1 T. Rowe Price Associates, Inc. 1,819,380 12.54
2 Heartland Advisors, Inc. 1,543,805 10.64
3 BlackRock Institutional Trust Company, N.A. 1,127,320 7.77
4 Dimensional Fund Advisors, L.P. 950,806 6.55
5 Starboard Enterprises, L.L.C. 884,700 6.10
6 Royce & Associates, LLC 746,025 5.14
7 The Vanguard Group, Inc. 617,092 4.25
8 Killen Group, Inc. 508,057 3.50
9 DePrince, Race & Zollo, Inc. 438,680 3.02
10 Columbia Management Investment Advisers, LLC 349,936 2.41
Insider Analysis
As shown below in Table 8, Gulf Island insiders own just less than 1% of Gulf Island’s stock.
Kirk Meche is the largest insider owner of Gulf Island stock. Meche, the President and CEO of
Gulf Island, owns roughly 0.43% of Gulf Island stock, which is equal to 62,265 shares and is
valued at $1,063,486 as of February 2015. Joseph Gallagher, former Chief Financial Officer of
Gulf Island, owns the second largest portion of Gulf Island stock with 31,200 shares. The
remaining top insider shareholders are all major executives at Gulf Island.
Table 8: Gulf Island Top‐Five Shareholders
No. Holder Name Shares Held
% of Shares
Outstanding
Value of
Holdings ($)
1 Meche (Kirk J)   62,265 0.43 1,060,996
2 Gallagher (Joseph P. III)   31,200 0.21 531,648
3 Blanchard (William G.)   16,398 0.11 279,422
4 Smith (Francis A. Jr.)   15,320 0.11 261,053
5 Ladd (Todd F.)   15,000 0.10 255,600
Source: Thompson One, February 2, 2015
RISK ANALYSIS AND INVESTMENT CAVEATS
Operational Risks
Gulf Island Fabrication is subject to various risks that can affect the Company and its
operations. Risks include fluctuating commodity prices of both steel and oil, the impacts of
seasonality and weather, the small customer base, competition in the labor market, and
backlog.

21
Commodity Risk
Gulf Island Fabrication is subject to risk from by fluctuating oil and steel prices. Steel is the
most important material input for Gulf Island operations, which means that fluctuations in
steel prices are highly impactful on the Company. Steel prices were relatively stable until the
early 2000s but began to fluctuate, trending upward, during the past ten years. Figure 6
illustrates increasing steel prices and analyst predictions for the future.
Gulf Island is affected by price fluctuations of steel in two ways. First, increasing steel prices
could increase costs for the subsidiary Dolphin Steel Sales, L.L.C. Second, increasing steel
prices could impact the Company as a whole by increasing costs. Because Gulf Island employs
a fixed cost method of bidding, in most cases, fluctuations among variables, such as steel, can
cause margins to increase or decrease. Occasionally, the Company can pass a portion of a
severe increase in steel prices on the customer; however, this cost‐shift is not common. To
mitigate steel risk, Gulf Island receives forward‐looking reports from the industry and
prepares accordingly. Still, steel pricing risk remains relatively low compared to oil price risk.
Figure 6: World Price of Steel

Source: IBISWorld, February 6, 2015
The price of oil can be extremely volatile and is the largest commodity risk to the Company.
An increase in supply shocked the market in late 2014 and the price of oil has since
plummeted. According to IBISWorld, the price of oil is expected to increase in the next few
years to around $60 to $70 per barrel, as shown in Figure 7. With future oil prices expected
to remain lower than the early 2010s, cost‐intensive projects with high break‐even points,
like deepwater drilling, will become too expensive to continue. Most of Gulf Island’s revenue
comes from deepwater projects, so if demand for retrofitting or fabrication of new rigs
decreases, the Company will see fewer projects.

22
Figure 7: World Price of Crude Oil

Source: IBISWorld, February 6, 2015
Seasonality and Weather Risk
Gulf Island’s operations are greatly affected by both seasonality and weather. Most of the
Company’s projects are completed during the summer months because the spring/summer
season is mild and more conducive to intense work. Workers can only work during daylight
hours, so winter months are less productive. Winter also brings harsher weather, making
deepwater rig work much more difficult.
Gulf Island is also subject to risk caused by extreme weather events. Hurricanes in the
summer months interrupt the Company’s operations and can destroy projects under
construction. Deepwater platforms are particularly defenseless against storms in the Gulf of
Mexico. This is a major consideration for Gulf Island as the majority of deepwater platforms
the Company services are located in the Gulf. Additionally, the Company undertakes all of its
fabrication and construction in coastal Louisiana and Texas, which border the Gulf. Gulf Island
carries insurance to cover property damage in case of fire, flood, explosion, and other similar
incidents, which mitigates this risk to an extent. However, incidents could make it impossible
for the Company to continue work for unknown durations on specific projects, causing
backlog hours to increase. Figure 8 illustrates the effects of seasonality on Gulf Island’s
revenue.

23
Figure 8: Average Quarterly Revenue (2010‐2014)

Source: Gulf Island Fabrication, Inc. Form 10‐K (2010‐2014)
Customer Risk
Gulf Island earns the majority of its yearly revenue from a small number of major energy
companies. While the companies are not always the same year to year, the amount of work
performed for a few customers remains significant over time. Together, Williams Field
Services and Chevron, USA comprised 60% of revenues in 2013 and 61% of revenues in 2012.
Other past major customers include Bluewater Industries, Inc. and Eni U.S. Operating, Co. If
Gulf Island’s customers decide to reduce or cancel projects, or to decrease capital
expenditures, the impact on Gulf Island’s operations can be significant. Similarly, since the
majority of Gulf Island’s revenues are derived from a small number of large projects, failure
to secure one or two of these large contracts could significantly reduce Gulf Island’s
revenues.
Labor Risk
Gulf Island Fabrication, Inc. depends on highly skilled labor to complete its manufacturing
and fabrication projects. Labor is a significant factor in determining Gulf Island’s production
capabilities because of the limited supply of skilled labor in the gulf region. Gulf Island
requires the labor of skilled construction workers, including welders, fitters, and equipment
operators for its operations. The supply of labor in the Gulf region is limited while the
demand for skilled labor is high. Gulf Island faces the possibility that the Company will be
unable to employ the necessary levels of skilled labor.
A related risk is that the wages of skilled laborers will increase. Because supply is limited and
demand is high, Gulf Island is a price taker for skilled labor. If competitors offer a higher
wage, Gulf Island would be forced to increase wages as well. Gulf Island faces the risk that
wages may become so costly that projects are no longer profitable.
$95,000
$100,000
$105,000
$110,000
$115,000
$120,000
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

24
This labor risk has the potential to decrease Gulf Island’s profits significantly, especially in the
short run when projects have already begun. If Gulf Island is unable to supply enough labor to
complete such projects, the Company may be forced to use subcontractors, which can
increase labor costs and decrease profit margins. Subcontracting also incurs additional risks
because subcontractors themselves may not be able to meet Gulf Island’s labor demands.
Backlog Risk
Gulf Island uses the percentage of completion method to recognize revenues. This
accounting method requires management to estimate the number of hours necessary to
complete the Company’s outstanding contracts. Therefore, the accuracy of Gulf Island’s
revenues is partially dependent on management’s estimates. If management estimates are
incorrect, revenue is subject to negative adjustments.
Contract Risk
Virtually all of Gulf Island’s contracts allow its customers to terminate, suspend, or decrease
the scope of projects at any time. Poor industry or economic conditions and other
circumstances could cause Gulf Island’s customers to terminate, suspend, or decrease the
scope of projects, and thus, negatively impact revenues.
Regulatory Risk
Regulations affect the drilling industry as a whole. Stricter regulations could make
construction of rigs too expensive or so difficult that companies might create fewer new rigs
or halt rig production altogether. However, retrofitting of existing rigs might be necessary
after these new regulations are in place, and the Company might see higher demand for
these kinds of projects.
Financial Risk
Because Gulf Island has no long‐term debt, the Company has limited financial risk. However,
Gulf Island does make purchases on credit, which exposes it to credit risk. In addition, Gulf
Island currently has an undrawn $80 million revolving line of credit with Whitney Bank and
JPMorgan Chase because the business requires significant capital expenditures. Although the
Company has historically been capable of financing operations with funds generated from
operations, access to credit provides a meaningful safety cushion in case of cash flow issues.
If conditions in the industry changed and Gulf Island had to take out long‐term debt, then the
Company would be subject to greater credit risk.

25
FINANCIAL PERFORMANCE AND PROJECTIONS
Gulf Island Fabrication (GIFI) has performed well financially over the past five years, despite
the more troubling revenues of 2014. The recent drop in oil prices, along with other factors,
leads our analyst team to forecast lower revenues in the short run, but steady growth in the
long run as the economy recovers. The steep drop in oil prices, coupled with lower rig counts
in the Gulf of Mexico, foreshadow difficult times are ahead for Gulf Island.
Operating
In order to forecast revenue for Gulf Island, our team used both a multiple regression model
and a growth rate model. For the years 2015 and 2016 we used a regression model which
matched historical revenues to two types of rig counts, oil prices, and the Texas gross
domestic production (GDP). We also used three different “dummy variables” to negate the
effects of the economic downturn in 2008, the Deep Water Horizon oil crisis, and a third
event specific to the Company which took place in 2011. Because of the lagging nature of the
offshore oil rig and platform construction industry, we used a leading technique on the oil
price and Texas GDP variables, leading oil prices by six quarters and Texas GDP by 2 quarters.
This leading technique helped to properly match the variables to the affected revenue
period.
From 2017 through 2024, the team used a growth rate model to forecast revenues for Gulf
Island. This growth rate model used the IBIS World Industry Growth Forecast, which has the
offshore oil rig and platform construction industry growing at a slow and steady pace for
those ten years. The combination of these two revenue models leads us to conclude that
revenues for the next year will continue to decline at about 8% per year, after which
revenues will begin to rise again as the market recovers from the current unusually low oil
prices.
Investing and Financing Activities
In recent years, Gulf Island has acquired many subsidiaries and made very large investments.
However, due to the economic downturn and lowered levels of business our team is
forecasting no major investments or acquisitions in the next ten years. Along the same lines,
we are predicting no major increases in any of the investing or financing activities through
2024. For most of these activities, we used a rate of change method of forecasting, holding
the percent change in year‐over‐year spending constant. This method allowed us to
realistically determine how much spending would be necessary to support the amount of
forecasted revenue in areas such as capital expenditures, stock compensation programs, and
dividend distributions. Notably, the Company has remained completely debt free, a trend
that we forecasted would continue throughout the foreseeable future. Though we did not
forecast any major acquisitions or mergers, the Company remains open to considering all
investment opportunities available.

26
SITE VISIT
Our team visited Gulf Island Fabrication’s Houma, Louisiana, operations on February 20,
2015. We met with William “Bill” Blanchard, a Vice President and General Manager of Gulf
Island. Mr. Blanchard gave us a detailed description of the Company’s products, services, and
processes, which gave us a greater understanding of the Company’s operations.
Our team took away several key points from the presentation and question and answer
session. First, Mr. Blanchard gave us a better explanation of how the Company is awarded
contracts. The most important part of most contracts is pricing. Companies that can provide
customers with their desired product at the cheapest cost will most often win the contract.
Second, scheduling and availability of Gulf Island is important. The third most important, but
still necessary component to winning a contract, is the Company’s relationship with its client,
something Gulf Island strives to maintain at a high level. Mr. Blanchard also provided us with
more information about the Company’s products, which are produced in various facilities,
both in Louisiana and Texas.
Mr. Blanchard then led us on a tour of the facility after his presentation. Safety was top
priority throughout the tour. The subsidiaries we visited included facilities for Dolphin Steel
Supply, Dolphin Marine Services, and Gulf Marine, LLC. The majority of our tour focused on
the facilities of Gulf Island and Gulf Marine Services. The site held several ongoing projects
and a few completed projects that the Company was storing for a later delivery date. Dolphin
Steel Supply was considerably smaller in size than our team had anticipated, which was
helpful to note. Overall, the facility tour was helpful to understand the sizes of the
subsidiaries and the Company as a whole.
Thanks to the very helpful presentation and tour by Mr. Blanchard, our team better
understands the diversity of Gulf Island Fabrication and we have clarified our knowledge
about the financial position of the Company.

27
INDEPENDENT OUTSIDE RESEARCH
To gain insight into the oil rig and platform construction industry, our team spoke with two
industry professionals. On March 11, 2015, our team had a conference call with Johan Yokay,
McDermott International’s Investor Relations Manager. We began the conversation by
discussing the dramatic drop in oil prices at the end of 2014. Mr. Yokay explained to us that
this drop in oil prices will not have an immediate effect on companies operating in oil and gas
services industries because projects are contracted. However, if oil prices remain low, these
companies may begin to see pricing pressure and fewer projects in the coming years.
Essentially, the effects of low oil prices have a one‐ to two‐year lag on projects in the
industry.
Additionally, on March 17, 2015, we contacted Martin Malloy, the Director of Equity
Research at Johnson Rice. Mr. Malloy explained that Gulf Island is beginning to feel the
effects of declining oil prices. Since Gulf Island’s customers are making less money, the
Company is contracting fewer projects altogether. Rig counts are down, and shallow water
projects are especially affected. In addition, deep water projects are delayed or cancelled
altogether due to high initial costs. Still, Mr. Malloy believes that Gulf Island is in a good
position to weather the storm because the Company has no debt and a substantial cash
balance that should continue to grow. He also said that diversification into wind energy is a
smart move for Gulf Island because the company is applying its jacket‐building expertise to
these new projects.
In 2014, when oil prices were at $110 a barrel, oil and gas companies were making decisions
based on $80 barrels. Today, companies are making decisions based on oil prices around $60
per barrel, even though the current price is lower. Using information gathered in our
interviews, our team predicts that oil prices should be about $65 to $75 in order to
meaningfully revive industry activity. These prices should remain stable for six months to
begin seeing industry growth. In order to see vibrant industry activity that we saw a year ago,
prices would have to recover to north of $80 per barrel.
If low prices prolong, our team believes that we may begin to see a push toward
diversification of companies in the industry. Specific diversification efforts may include
pushes into lower margin liquid natural gas (LNG) and petrochemical work. However, since
diversification is difficult, we are more likely to see merger and acquisition activity in the
industry in an effort to sustain growth in difficult market conditions. As the industry endures
harsh conditions, companies will try to protect their margins by securing specialty projects
rather than blueprint projects that usually yield smaller margins.

28
ANOTHER WAY TO LOOK AT IT
ALTMAN Z‐SCORE
The Altman Z‐Score Analysis, created by Edward Altman in 1968, measures the probability
that a company will go bankrupt in the following two years. This analysis takes into
consideration five financial ratios including working capital to total assets, retained earnings
to total assets, earnings before interest and taxes to total assets, market value of equity to
book value of total liabilities, and sales to total assets. The Analysis weights the five financial
ratios according to the relative importance within the Z‐Score and the final Z‐Score falls into
one of three groupings; a low risk of default with a Z‐Score above 2.99, a high risk of default
with a Z‐Score of below 1.8, and a moderate risk of default with a Z‐Score between 1.8 and
2.99.
Table 9 shows Gulf Island Fabrication’s Z‐Scores for the past eight years. The Company’s Z‐
Score for 2014 is 3.91, which puts Gulf Island well within the low‐risk range. This Z‐Score
means that the Company is unlikely to experience a bankruptcy within the next two years.
The 2014 Z‐Score is an improvement on 2013’s Z‐Score of 2.21, which was in the moderate
risk range. The Company’s recurring debt, which inflates the Z‐Score, makes the Company’s
future look bright.
Table 9: Z Scores
Year Z Score
2007 5.51
2008 3.75
2009 5.31
2010 7.26
2011 3.94
2012 3.62
2013 2.21
2014 3.91
Source: Bloomberg March 25, 2015

29
PETER LYNCH EARNINGS MULTIPLE VALUATION
Peter Lynch is a renowned businessman and stock investor who managed Fidelity’s Magellan
fund from 1977 to 1990. Over the course of Lynch’s 13 years of management, the Magellan
fund averaged an astounding 29.2% annual return. Lynch outlines the principles he used to
earn this extraordinary return in his book One Up on Wall Street.
Lynch is a strong believer in value investing principles. The 12‐month trailing earnings per
share (EPS) is one of the many tools that Lynch uses to determine if a stock is a good value.
He takes the company’s EPS and multiplies it by 15 to compare its current price with the price
that the stock would be if it were trading at 15 times earnings. To make the comparison
easier, Lynch plots the stock price and the EPS on a chart. If the stock price line is below the
EPS line, then Lynch considers the stock to be a good value. Figure 9 shows Lynch’s chart
strategy applied to Gulf Island Fabrication. Line A tracks Gulf Island’s stock price over the last
five years, while line B represents 15 times the Company’s earnings.
As of March 24, 2015, Gulf Island’s stock is trading at $15.69. The Company last reported EPS
of $1.05 on December 31, 2014. Multiplying Gulf Island’s EPS by 15 results in a value of
$15.75. As demonstrated by Figure 9, the stock price and EPS value are very close. Peter
Lynch would most likely consider Gulf Island a good value but may wait for the stock price to
drop further to take advantage of a better value.
Figure 9: Peter Lynch Chart
Source: Bloomberg March 24, 2015

A
B

30
WWBD?
What Would Ben (Graham) Do?

Ben Graham was a legendary investor who championed the method of “Value Investing”
throughout his career. Graham used his experience to craft a formula for choosing which
stocks to invest in, which was published by Graham in Forbes Magazine in 1977 as “Last Will &
Testament.” The formula focuses on evaluating eight specific hurdles that identify
undervalued stocks with growth potential. The first four hurdles distinguish stocks with low
price to operation ratios, while the second four hurdles assess risk.
Gulf Island Fabrication, Inc. passes five of the hurdles outlined by Graham in his formula and
should therefore be seriously considered as a good investment (see Figure 10). Gulf Island
successfully meets four of the first five hurdles, suggesting that the market may be
undervaluing the stock. The Company meets three of these hurdles considerably, with a P/E
ratio significantly lower than half of its highest over the past five years and a stock price $15
lower than one and half times its book value. Most notably, Gulf Island has no debt, so its
total debt is far below its book value. However, Gulf Island fails to meet either of Graham’s
last hurdles that identify growth stocks. This result is unsurprising as Gulf Island is a mature,
asset heavy company whose earnings depend heavily on the price of oil. Nonetheless, Gulf
Island is an attractive investment under Graham’s methodology.
Figure 10: Ben Graham Analysis

31
Earnings per share (ttm) 1.06$              Price: 15.69$
Earnings to Price Yield 6.73%
10 Year Treasury (2X) 3.85%
P/E ratio as of 2010 29.3
P/E ratio as of 2011 (211.7)
P/E ratio as of 2012 (68.0)
Current P/E Ratio 14.9
Dividends per share (ttm) 0.40$              Price: 15.69$
Dividend Yield 2.55%
1/2 Yield on 10 Year Treasury 0.96%
Stock Price 15.69$
Book Value per share as of 12/31/14 19.70$
150% of book Value per share as of 12/31/14 29.56$
Interest‐bearing debt as of 12/31/14 ‐$
Book value as of 12/31/14 285,798$
Current assets as of 12/31/14 172,495$
Current liabilities as of 12/31/14 72,765$
Current ratio as of 12/31/14 2.4
EPS for year ended 2014 1.05$
EPS for year ended 2012 (0.28)$
EPS for year ended 2011 (0.13)$
EPS for year ended 2014 1.05$                        110%
EPS for year ended 2013 0.50$                        ‐277%
EPS for year ended 2012 (0.28)$                      118%
EPS for year ended 2011 (0.13)$                      ‐114%
Stock price data as of M arch 24, 2015
No
Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury
Yes
Hurdle # 4: A Stock Price less than 1.5 BV
Yes
Hurdle # 5: Total Debt less than Book Value
Yes
Hurdle # 6: Current Ratio of Two or More
Yes
Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years
No
Hurdle # 8:  Stability in Growth of Earnings
Yes
GULF ISLAND FABRICATION INC. (GIFI)
Ben Graham Analysis
Hurdle # 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

Gulf Island Fabrication Inc. (GIFI) BURKENROAD REPORTS (www.burkenroad.org)March 24, 2015
32
GULF ISLAND FABRICATION INC. (GIFI)
Annual and Quarterly Income Statements
In thousands
For the period ended 2012 A2013 A2014 A31‐Mar E30‐Jun E30‐Sep E31‐Dec E2015 E30‐Mar E29‐Jun E29‐Sep E30‐Dec E2016 E
Revenue521,340$           608,326$           506,639$           114,573$           113,570$           122,117$           114,756$           465,015$           128,904$           132,753$           126,497$           109,377$           497,532$
Cost of revenue502,999             584,665             462,083             104,376             103,462             111,248             104,542             423,629             117,432             120,938             115,239             99,642               453,252
Provision for loss on contract receivable14,501
Gross profit3,840                 23,661               44,556               10,197               10,108               10,868               10,213               41,386               11,472               11,815               11,258               9,735                 44,280
General and administrative expenses9,806                 11,555               20,609               2,869                 3,405                 3,422                 9,250                 18,946               3,228.12            3,980.48            3,544.53            8,816.09            19,569
Operating income(5,966)                12,106               23,947               7,328                 6,702                 7,447                 964                    22,440               8,244                 7,835                 7,714                 918                    24,711
Other expense (income):
Interest expense153                    (237)                   (37)
Interest income(586)                   3                        13
Other, net(128)                   (337)                   (99)
Total other expense (income)(561)                   (571)                   (123)                   ‐                     ‐                     ‐                     ‐                     ‐                     ‐                     ‐                     ‐                     ‐                     ‐
Income before income taxes(5,405)                11,535               23,824               7,328                 6,702                 7,447                 964                    22,440               8,244                 7,835                 7,714                 918                    24,711
Income taxes(1,314)                4,303                 8,504                 2,418                 2,212                 2,457                 318                    7,405                 2,721                 2,585                 2,546                 303                    8,155
Net income(4,091)$              7,232$               15,320$             4,910$               4,491$               4,989$               646$                  15,035$             5,524$               5,249$               5,168$               615$                  16,556$
Earnings per share:
Basic earnings per share (0.28)$                0.50$                 1.05$                 0.34$                 0.31$                 0.34$                 0.04$                 1.03$                 0.38$                 0.36$                 0.35$                 0.04$                 1.13$
Basic earnings per share excluding non‐recurring 0.39$                 0.50$                 1.05$
Diluted earnings per share(0.28)$                0.50$                 1.05$                 0.34$                 0.31$                 0.34$                 0.04$                 1.03$                 0.38$                 0.36$                 0.35$                 0.04$                 1.13$
Diluted earnings per share excluding non‐recurring0.39$                 0.50$                 1.05$                 0.34$                 0.31$                 0.34$                 0.04$                 1.03$                 0.38$                 0.36$                 0.35$                 0.04$                 1.13$
Weighted average shares of common shares:
Basic14,452 14,494 14,505 14,502 14,518 14,534 14,550 14,531 14,565 14,580 14,595 14,610 14,593
Diluted14,452 14,469 14,505 14,502 14,518 14,534 14,550 14,531 14,565 14,580 14,595 14,610 14,593
Dividends paid per share0.40$                 0.40$                 0.40$                 0.10$                 0.10$                 0.10$                 0.10$                 0.40$                 0.10$                 0.10$                 0.10$                 0.10$                 0.40$
SELECTED COMMON SIZE AMOUNTS
Cost of revenue96.48%96.11%91.21%91.10%91.10%91.10%91.10%91.10%91.10%91.10%91.10%91.10%91.10%
Gross profit0.74%3.89%8.79%8.90%8.90%8.90%8.90%8.90%8.90%8.90%8.90%8.90%8.90%
General and administrative expenses1.88%1.90%4.07%2.50%3.00%2.80%8.06%4.07%2.50%3.00%2.80%8.06%3.93%
Operating income‐1.14%1.99%4.73%6.40%5.90%6.10%0.84%4.83%6.40%5.90%6.10%0.84%4.97%
Total other expense (income)‐0.11%‐0.09%‐0.02%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%
Income before income taxes‐1.04%1.90%4.70%6.40%5.90%6.10%0.84%4.83%6.40%5.90%6.10%0.84%4.97%
Net income‐0.78%1.19%3.02%4.29%3.95%4.09%0.56%3.23%4.29%3.95%4.09%0.56%3.33%
YEAR‐TO‐YEAR CHANGES
Revenue69.4%16.7%‐16.7%‐14.9%‐12.1%3.5%‐8.0%‐8.2%12.5%16.9%3.6%‐4.7%7.0%
Cost of revenue70.2%16.2%‐21.0%‐17.1%‐12.9%7.6%‐8.3%‐8.3%12.5%16.9%3.6%‐4.7%8.6%
Gross profit‐15.2%516.2%88.3%16.2%‐2.1%‐25.8%‐5.5%‐7.1%12.5%16.9%3.6%‐4.7%7.0%
General and administrative expenses19.8%17.8%78.4%‐14.9%‐12.1%3.5%‐8.0%‐8.1%12.5%16.9%3.6%‐4.7%3.3%
Operating income63.1%‐302.9%97.8%35.7%3.9%‐34.4%28.1%‐6.3%12.5%16.9%3.6%‐4.7%10.1%
Total other expense (income)‐53.7%1.8%‐78.5%n/an/an/an/an/an/an/an/an/an/a
Income before income taxes120.8%‐313.4%106.5%38.9%3.7%‐34.2%21.5%‐5.8%12.5%16.9%3.6%‐4.7%10.1%
Net income126.8%‐276.8%111.8%38.9%4.2%‐34.2%‐681.7%‐1.9%12.5%16.9%3.6%‐4.7%10.1%
2016 E2015 E

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