UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2017
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to Commission File Number 001-34279
GULF ISLAND FABRICATION, INC.
(Exact name of registrant as specified in its charter)
Louisiana | 72-1147390 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
16225 Park Ten Place, Suite 300 Houston, Texas | 77084 | |
(Address of principal executive offices) | (Zip code) | |
(713) 714-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | GIFI | NASDAQ |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at June 30, 2017,2020, was approximately $166,411,000.
The number of shares of the registrant’s common stock, no par value per share, outstanding as of March 9, 2018,29, 2021, was 15,043,068.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement prepared for use in connection with the registrant’s 20182021 Annual Meeting of Shareholders have been incorporated by reference into Part III of this Form 10-K.
GULF ISLAND FABRICATION, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
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GLOSSARY OF TERMS
As used in this report filed on form 10-K for the year ended December 31, 2020 (“2020 Annual Report” or “this Report”), the following abbreviations and terms have the meanings listed below. In addition, the terms “Gulf Island,” “the Company,” “we,” “us” and “our” refer to Gulf Island Fabrication, Inc. and its consolidated subsidiaries, unless the context clearly indicates otherwise. Certain terms defined below may be redefined separately within this Report when we believe providing a definition upon the first use of the term will assist users of this Report. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.
ASU | Accounting Standards Update. |
Balance Sheet | Our Consolidated Balance Sheets, as filed in this Report. |
CARES Act | The Coronavirus Aid, Relief and Economic Security Act. |
COVID-19 | The ongoing global coronavirus pandemic. |
contract assets | Costs and estimated earnings recognized to date in excess of cumulative billings. |
contract liabilities | Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses. |
Covered Period | The eight-week period following the date of the PPP Loan of April 17, 2020. |
deck | The component of a platform on which drilling, production, separating, gathering, piping, compression, well support, crew quartering and other functions related to offshore oil and gas development are conducted. |
labor hours | Hours worked by employees directly involved in the production of our products or delivery of our services. |
DTA(s) | Deferred Tax Asset(s). |
EPC | Engineering, procurement and construction phases of a complex project that requires project management and coordination of these significant activities. |
ESG | Environmental, Social and Governance. |
Exchange Act | Securities Exchange Act of 1934, as amended. |
Fabrication & Services | Our Fabrication & Services Division (also referred to herein as F&S). |
FASB | Financial Accounting Standards Board. |
Financial Statements | Our Consolidated Financial Statements, including comparative consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders' Equity and Statements of Cash Flows, as filed in this Report. |
Flexibility Act | The Paycheck Protection Program Flexibility Act of 2020, which amended the CARES Act. |
GAAP | Generally Accepted Accounting Principles in the U.S. |
GOM | Gulf of Mexico. |
Gulf Coast | Along the coast of the Gulf of Mexico. |
Houma Yards | Our Shipyard Division and Fabrication & Services Division facilities located in Houma, Louisiana. |
Incentive Plans | Long-term incentive plans under which equity or cash-based awards may be made to eligible employees and non-employee directors. |
inland | Typically, bays, lakes and marshy areas. |
jacket | A component of a fixed platform consisting of a tubular steel, braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel pilings driven into the seabed. The jacket supports the deck structure located above the water. |
Jennings Yard | Our Shipyard Division's facility located near Jennings, Louisiana. |
Lake Charles Yard | Our Shipyard Division's facility located near Lake Charles, Louisiana. |
LC Facility | Our $20.0 million letter of credit facility with Hancock Whitney Bank maturing June 30, 2023, as amended. |
ii
LIBOR | London Inter-Bank Offered Rate. |
LNG | Liquified Natural Gas. |
modules | Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system. These modules are prefabricated at our facilities and then transported to the customer's location for final integration. |
MPSV | Multi-Purpose Service Vessel. |
NOL(s) | Net operating loss(es) that are available to offset future taxable income, subject to certain limitations. |
offshore | In unprotected waters outside coastlines. |
onshore | Inside the coastline on land. |
OSV | Offshore Support Vessel. |
OPEC | Organization of the Petroleum Exporting Countries. |
performance obligation | A contractual obligation to construct and transfer a distinct good or service to a customer. It is the unit of account in Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. |
Permissible Expenses | Expenses which may be paid using proceeds from the PPP Loan. Such expenses are limited to payroll costs, rent, utilities, mortgage interest and interest on other pre-existing indebtedness. |
piles | Rigid tubular pipes that are driven into the seabed to support platforms. |
PPP | Paycheck Protection Program administered by the SBA under the CARES Act. |
PPP Loan | Our $10.0 million loan from Whitney Bank issued pursuant to the PPP. |
platform | A structure from which offshore oil and gas development drilling and production are conducted. |
SBA | Small Business Administration. |
SEC | U.S. Securities and Exchange Commission. |
Shipyard | Our Shipyard Division. |
South Texas Properties | Our former Texas North Yard and Texas South Yard. |
Spud barge | Construction barge rigged with vertical tubular or square lengths of steel pipes that are lowered to anchor the vessel. |
Statement of Cash Flows | Our Consolidated Statements of Cash Flows, as filed in this Report. |
Statement of Operations | Our Consolidated Statements of Operations, as filed in this Report. |
Surety | A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to the performance of our contracts. |
T&M | Work performed and billed to the customer generally at contracted time and material rates, cost plus or other variable fee arrangements which can include a mark-up. |
Texas North Yard | Our former fabrication yard, and certain related machinery and equipment, located in Aransas Pass, Texas, which was sold on November 15, 2018. |
Texas South Yard | Our former fabrication yard, and certain related machinery and equipment, located in Ingleside, Texas, which was sold on April 20, 2018. |
Topic 606 | The revenue recognition criteria prescribed under ASU 2014-09, Revenue from Contracts with Customers. |
U.S. | The United States of America. |
USL&H | United States Longshoreman and Harbor Workers Act. |
VA(s) | Valuation Allowance(s). |
Whitney Bank | Hancock Whitney Bank. |
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Cautionary Statement on Forward-Looking Information
This Report on Form 10-K contains forward-looking statements in which we discuss our potential future performance, primarily inperformance. Forward-looking statements, within the sections entitled “Business and Properties,” “Legal Proceedings,” and “Management’s Discussion and Analysismeaning of Financial Condition and Resultsthe safe harbor provisions of Operations.” Forward-looking statementsthe U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical facts, such as projections or expectations relating to oil and gas prices, operating cash flows, capital expenditures, liquidity and tax rates. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” “potential” and any similar expressions are intended to identify those assertions as forward-looking statements.
We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements includeinclude: the duration and scope of, and uncertainties associated with, the ongoing global pandemic caused by COVID-19 and the corresponding weakened demand for, and volatility of prices of, oil and the impact thereof on our business and the global economy, which are evolving and beyond our control; the potential forgiveness of any portion of the PPP Loan; our ability to secure new project awards, including fabrication projects for refining, petrochemical, LNG and industrial facilities and offshore wind developments; our ability to improve project execution; the cyclical nature of the oil and gas industry, changes in backlog estimates, suspension or terminationindustry; competition; consolidation of projects,our customers; timing and award of new contracts,contracts; reliance on significant customers; financial ability and credit worthiness of our customers and consolidationcustomers; nature of our customers,contract terms; competitive pricing and cost overruns entry into new lineon our projects; adjustments to previously reported profits or losses under the percentage-of-completion method; weather conditions; changes in backlog estimates; suspension or termination of business,projects; our ability to raise additional capital,capital; our ability to amend or obtain new debt financing or credit facilities on favorable terms; our ability to generate sufficient cash flow; our ability to sell certain assets; any future asset impairments; utilization of facilities or closure or consolidation of facilities; customer or subcontractor disputes; our South Texas Properties, advancement on the SeaOne Project, ability to negotiate an amendmentresolve the dispute with a customer relating to the purported terminations of contracts to build two multi-purpose service vessels, ability to remain in compliance with our covenants contained in our credit agreement, credit worthiness of our customers, ability to employ skilled workers,MPSVs; operating dangers and limits on insurance coverage, weather conditions, competition, customer disputes, adjustmentcoverage; barriers to previously reported profits under percentage-of-completion method,entry into new lines of business; our ability to employ skilled workers; loss of key personnel,personnel; performance of subcontractors and dependence on suppliers; changes in trade policies of the U.S. and other countries; compliance with regulatory and environmental laws, ability to utilize navigationlaws; lack of navigability of canals performance of subcontractors,and rivers; systems and information technology interruption or failure and data security breachesbreaches; performance of partners in any future joint ventures and other strategic alliances; shareholder activism; focus on environmental, social and governance factors by institutional investors; and other factors described in more detail inItem 1A “Risk Factors” in Item 1A of this Report on Form 10-K foras may be updated by subsequent filings with the year ended December 31, 2017.
Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes, and we undertake no obligation to update any forward-looking statements.
PART I
Items 11. and 2. Business and Properties
Certain technical terms are defined in the “Glossary of Certain Technical Terms” beginning on page G-1.
Description of Operations
Gulf Island Fabrication, Inc. ("Gulf Island"), a Louisiana corporation incorporated in 1985, and together(together with its subsidiaries, (the "Company," "we" or "our"“Gulf Island,” “the Company,” “we,” “us” and “our”), is a leading fabricator of complex steel structures, modules and marine vessels, used in energy extraction and production, petrochemical and industrial facilities, power generation and alternative energy projects and shipping and marine transportation operations. We also provide related installation,a provider of project management, hookup, commissioning, repair, maintenance and maintenance services with specialized crews and integrated project management capabilities. We are currently fabricating complex modules for thecivil construction of a new petrochemical plant and completing newbuild construction of one technologically-advanced offshore support and two multi-purpose service vessels. During 2015, we fabricated wind turbine pedestals for the first offshore wind power project in the United States. We have also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States.services. Our customers include U.S. and, to a lesser extent, international energy producers,producers; refining, petrochemical, LNG, industrial, power and marine operators. operators; EPC companies; and certain agencies of the U.S. government.
During 2019, we operated and managed our business through three operating divisions (“Fabrication,” “Shipyard” and “Services”) and one non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. As a result, we operate and manage our business through two operating divisions (“Shipyard” and “Fabrication & Services”) and one non-operating division (“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects were transferred from our former Fabrication Division to our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Consolidated Financial Statements (“Financial Statements”) in Item 8 for further discussion of our realigned operating divisions.
Our corporate headquarters is located in Houston, Texas with fabricationand our operating facilities are located in Houma, Louisiana. In the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Louisiana, and Aransas Pass and Ingleside, Texas, each of which are marketedYard within our Shipyard Division. See “Overview” section in Item 7 for sale.
Shipyard Division
Fabrication & Services Division–Our Fabrication & Services (“F&S”) Division fabricates modules, skids and Lake Charles, Louisiana.
Corporate Division
Facilities and Equipment
Our Shipyard Division and Fabrication & Services Division operate from our Corporate Division.
Shipyard Division– Our Houma Fabrication Yard includes:
Fabrication & Services Division– Our Fabrication & Services Division facility is located on 226 acres on the east bank of the Houma Navigation Canal and has approximately 151,600on a slip adjacent to the Houma Navigation Canal. The facility includes 102,000 square feet of administrative and operations facilities, 341,000 square feet of covered fabrication area, 21,000facilities, 103,000 square feet of warehouse storage area,facilities, and two buildings providing 8,000a 13,000 square feet for administrative offices.
Facilities and Equipment– Facilities and equipment that we own at the North Yard includes:
• | Large assembly buildings equipped with overhead cranes for modular section fabrication and various equipment for pipe fitting and welding; |
• | Prefabrication shops equipped with overhead cranes, press brake for forming plate, cutting tables, coping machines, sub-arc welding stations, hydraulic iron workers, and various other equipment for fabricating steel structures and components; |
• | Alloy and carbon steel pipe fabrication and spooling shops equipped with overhead cranes, pipe benders, pipe cutters, pipe spooling and welding stations, and various equipment for pipe fitting and welding; |
• | Plate bending, rolling and assembly shop with the capability to roll steel and automatic weld process seams into tubular pipe sections; |
• | Automated panel line shop equipped with overhead cranes, cutting table, one-sided plate welder with magnetic holding system, panel marking station, stiffener fitting and welding stations, and various equipment for fitting and welding; |
• | Blast and coating shops that enable under roof blast and paint services; |
• | Large warehouse buildings for storage; |
• | Over 20 crawler cranes and 18 rubber-tired hydraulic modular transporters; |
• | A 400’ x 160’ floating drydock with a 15,000-ton lift capacity used for repair and conversion of vessels; |
• | A 200’ x 96’ floating drydock with a 4,000-ton lift capacity used for repair and conversion of vessels; |
• | Deck barge for transporting equipment and fabricated products; |
• | Truckable tug and spud barges with cranage for marine construction activities; and |
• | Various civil construction equipment. |
Materials and Supplies
The principal materials and supplies used in our operations byacross all of our divisions include standard steel shapes, steel plate, steel pipe, welding gases, welding wire, fuel, oil, gasoline and paint, all of which are currently available from many sources. We do not depend upon any single supplier or source. Our Shipyard Division uses third partiessource for our materials and supplies. We anticipate being able to obtain these materials for the purchaseforeseeable future; however, the pricing, availability and installation of propulsion systems as well as electricalschedules offered by our suppliers may vary significantly from year to year due to various factors, including supplier consolidations, supplier raw material shortages, costs and communications systemssurcharges, supplier capacity, customer demand, market conditions, and any duties and tariffs imposed on the materials or other equipment. Mostimport restrictions.
The majority of the steel used in our operations arrives at our fabrication yardsfacilities as steel plate. The plate, which is cut and rolled into the form needed or into tubular sections at our rolling mills in our fabrication yards.mill. Tubular sections (which vary in diameter up to 23 feet) can be welded together in long straight tubes to become legs or into shorter tubes to become part of thea network of bracing that support the legs.bracing. Various cuts and welds in the fabrication process are performed by computer-controlled equipment that operatesequipment. We procure steel from data developed during the design of the structure. We use modern weldingboth domestic and fabrication technology, and all of our projects are manufactured in accordance with industry standards, specifications and regulations, including those published by the American Petroleum Institute, the American Welding Society, the American Society of Mechanical Engineers, the American Bureau of Shipping and the United States Coast Guard. The quality
In addition to the contract price to offset increasesmaterials and supplies described above used in cost of materials purchased during the life of the contract.
The pricing of materials and Quality Assurancesupplies and the ability of our suppliers and subcontractors to meet delivery schedules have been impacted by the ongoing global coronavirus pandemic (“COVID-19”) and may continue to be impacted by COVID-19 in the future. See “Risk Factors” in Item 1A for further discussion of our use of raw materials and supplies and the impact of COVID-19 on our operations.
Human Capital Management
Our employees are our most important assets and serve as the foundation for our ability to achieve our financial and strategic objectives.
Employee Statistics – Our workforce varies based on our level of activity at any particular time. At December 31, 2020 and 2019, we had 875 and 944 employees, respectively, of which approximately 10 were part-time employees. In addition, we use independent contractors as necessary to supplement our workforce. None of our employees are employed pursuant to a collective bargaining agreement and we believe our relationship with our employees is good. Labor hours worked during 2020, 2019 and 2018, were 1.9 million, 2.4 million, and 1.9 million, respectively.
Recruitment, Training and Workforce Development –Our success depends on our ability to attract, develop, motivate and retain a highly-skilled workforce that includes craft labor as well as supervision and various other salaried positions, including engineering, construction and project management, and project controls. Specifically, during 2020, we began increasing our skilled workforce within our Shipyard Division to execute the division’s backlog. To support the development of our workforce, we offer supervision and other training programs to educate and elevate the skillsets of our front-line leaders. We also provide internal training programs for technical fitting and welding instruction to further develop our workforce and maintain high standards of quality. We have also created a succession plan for senior leadership positions.
Employee Engagement–During 2020, we launched an employee satisfaction survey to gather information from our employees regarding their perspectives on working at the Company and suggestions for improvements. We gathered valuable insights and feedback and were able to implement positive changes within our organization.
Employee Benefits – Our compensation programs are designed to enable us to attract, motivate and retain our employees to achieve our objectives. We provide competitive base wages and salaries that are consistent with employee positions, skills and experience levels, and our geographic location. Employees are eligible to receive paid and unpaid leave and participate in our health insurance and life, disability and accident insurance programs. During 2020, we conducted an employee benefits survey to gain a deeper understanding of how our various benefit programs are valued by our employees, and feedback from this survey was used to enhance our employee benefit program offerings for 2021. We also offer retirement benefits through our 401(k) plan which includes discretionary Company-matching contributions.
Diversity and Inclusion–Our commitment to diversity extends across every division and discipline of our business. We leverage multiple social media platforms, including veteran, diversity and industry sites to expand our reach for diverse talent. We intend to continue evaluating our use of human capital measures or objectives in managing our business, such as the factors we employ or seek to employ in the attraction, development and retention of personnel and the maintenance of diversity in our workforce.
See “Risk Factors” in Item 1A for further discussion of our ability to attract and retain qualified employees.
Safety
We are committed to the safety and health of our employees. Weemployees and subcontractors and believe that a strong safety culture is a critical element of our success. We continue to improve and maintain a stringent safety assurance program designed to ensure the safety of our employees and subcontractors and allow us to remain in compliance with all applicable federal and state mandated safety regulations. We are committed to maintaining a well trainedwell-trained workforce and providing timely instruction to our workforce to ensure our workersemployees have the knowledge and skills to perform their work safely while maintaining the highest standards of quality possible.quality. We provide continuous quality safety education and training to both employees and subcontractors to ensure our peoplethey are ready for the challenges inherent in all fabricationour projects. Our employees and subcontractors begin theircommence training on their first day of employment with a comprehensive orientation class that addresses Company policies and procedures and provides clear expectations for working safely. The Company maintainsWe have a zero tolerance approach tozero-tolerance policy for drugs and alcohol use in the workplace. We support this policy through the useapplication of a comprehensive drug and alcohol screening program that includes initial screenings for all employees and periodic random screenings throughout employment. Additionally, we require our subcontractors to follow alcohol and drug screening policies substantially the same as ours.
Our employees are given opportunities to be a part of a dedicated safety committee which is comprised of peer-elected craft employees and members of management to assist in supporting our efforts to continuously improve safety performance. Since 2012, aA safety component has beenis also included in our annual incentive program guidelines for our executive officers and other key employees. See “Risk Factors” in Item 1A for further discussion of our safety.
We fabricateare continuing to take actions to mitigate the impacts of COVID-19 on our operations while ensuring the safety and well-being of our employees and subcontractors. We have initiated measures that include ongoing communications with our leadership teams to anticipate and proactively address COVID-19 impacts, work-place distancing of employees (including allowing some employees to work remotely) and regular monitoring of office and yard personnel for compliance. We are also monitoring employee and visitor temperatures prior to entering our facilities; have implemented employee and visitor wellness questionnaires; increased our monitoring of employee absenteeism and the reasons for such absences; and initiated protocols for employees returning from absences, including employees that have tested positive for COVID-19, or have come in contact with individuals that tested positive for COVID-19. In addition, we have installed hand sanitizing stations and taken additional actions to more frequently sanitize our facilities. See “Risk Factors” in Item 1A for further discussion of the impact of COVID-19 on our operations.
Quality Assurance
We use modern welding and fabrication technology, and all of our fabrication projects are executed in accordance with industry standards, specifications and regulations, ofincluding those published by the American Petroleum Institute, the American Welding Society, the American Society of Mechanical Engineers, the American Bureau of Shipping, the United StatesU.S. Coast Guard, the United StatesU.S. Navy and customer specifications. We use welding and fabrication procedures in accordance with the latest technology and industry requirements. We have in placemaintain training programs for technical fitting and welding instruction in order to prepare and upgrade our skilled labor workforce and maintain high standards of quality. In addition, we maintain on-site facilities for the non-destructive testing of all welds, a process performed by an independent contractor.
Our quality management systems are certified as ISO 9001-2015 programs. ISO 9001-2015 is an internationally recognized verification system for quality management overseen by the International Standard Organization based in Geneva, Switzerland. The certification is based on a review of our programs and procedures designed to maintain and enhance quality production and is subject to semi-annualannual review and full recertification every three years.
Customers and Contracting
Our principal customers for all of our divisions include large independent oilU.S. and, gas companies and their contractors,to a lesser extent, international energy producers; refining, petrochemical, companiesLNG, industrial, power and marine service companies, offshore support companies, offshoreoperators; EPC companies; and inland barge and support vessel operators, offshore construction contractors, alternative energy companies (including offshore wind), diving companies,certain agencies of the U.S. Army Corps of Engineers, the U.S. Coast Guard, the U.S. Navy and state and local governmental agencies and their contractors. Our international sales fluctuate from year to year depending on whether and to what extent our customers require installation of fabricated structures outside of the United States. Sales of fabricated structures installed outside the United States comprised between 0.0% and 14.0% of revenue during each of the last five years, and accounted for 0.0%, 14.0%, and 6.0% of revenue for the years ended December 31, 2017, 2016 and 2015, respectively.
• | For 2020, two customers accounted for 46% of our consolidated revenue, which related to the construction of three research vessels and five towing, salvage and rescue ships within our Shipyard Division; |
• | For 2019, four customers accounted for 54% of our consolidated revenue, which related to the construction of three research vessels and three towing, salvage and rescue ships for two customers within our Shipyard Division and the expansion of a paddle wheel riverboat and offshore hook-up and installation services for two customers within our Fabrication & Services Division; and |
• | For 2018, three customers accounted for 44% of our consolidated revenue, which related to the construction of harbor tug vessels for two customers within our Shipyard Division and offshore hook-up and installation services for a customer within our Fabrication & Services Division. |
Certain of our customers have requested to renegotiate pricing and suspended contracts in our backlog, and bidding activities for several new project opportunities have been delayed or suspended as a result of COVID-19. See “Risk Factors” in Item 1A and “Overview” and “New Awards and Backlog” in Item 7 for further discussion of our backlog by significant customer in any given year for any reason, including a sustained decline in that customer’s capital expenditure budget or competitive factors, can result in a substantial losscustomers and the impacts of revenue and could have a material adverse effectCOVID-19 on our operating performance.
Contracting
Our revenue is derived from customer contracts and agreements that individually comprise 10% or moreare awarded on a competitively bid and negotiated basis using a range of our revenues. For the year ended December 31, 2017, we had two customers who accounted for 26.9%contracting options, including fixed-price, unit-rate and 12.7%, of our revenue and relatedT&M. Our contracts primarily relate to the fabrication of
Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method, based on contract costs incurred to date compared to total estimated contract costs. Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred.
Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and collection is reasonably assured. Our T&M contracts provide for labor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our performance completed at the time of invoicing.
Certain of our customers have requested to renegotiate pricing and suspended contracts in our backlog, and bidding activities for several new project opportunities have been delayed or suspended as a result of COVID-19 as discussed above.
See “Risk Factors” in Item 1A, “Critical Accounting Policies” in Item 7, and Note 1 and Note 2 of our Financial Statements in Item 8 for further discussion of our contracting and revenue recognition. See also “Risk Factors” in Item 1A and “Overview” in Item 7 for further discussion of the impacts of COVID-19 on our customers and operations.
New Awards and Backlog
New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unrecognized revenue for our new project awards and may differ from the value of future performance obligations for our contracts required to be disclosed under Topic 606 and projectspresented in Note 2 of our Financial Statements in Item 8. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Backlog includes our performance obligations at December 31, 2020, plus signed contracts that are temporarily suspended or under protest that may not meet the criteria to be reported as future performance obligations under Topic 606 but represent future work that we believe will be performed. We believe that backlog, a non-GAAP financial measure, provides useful information to investors. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments.
Projects in our backlog are generally subject to delay, suspension, termination, or an increase or reduction in scope at any time prior to completion, at the option of the customer. Upon termination or reduction in scope, however,customer, although the customer is generally required to pay us for work performed and materials purchased through the date of termination.
At December 31, 2020, our backlog was $371.6 million, of which approximately 57% is anticipated to be paidrecognized as revenue beyond 2021. See “New Awards and Backlog” in Item 7 for our work at the price fixed in the contract, subject to adjustment only for change-orders approved by the customer. As a result, we retain all cost savings but are also responsible for all cost overruns. Under a unit rate contract, material items or labor tasks are assigned unit rates of measure. The unit rates of measure will generally be an amount of dollars per ton, per foot, per square foot or per item installed. A typical unit rate contract may contain hundreds to thousands of unit rates of measure. Profit margins are built into the unit rates and, similar to a fixed price contract, we retain all cost savings but are also responsible for all cost overruns. Under typical alliance/partnering arrangements, the parties agree in advance to a target price that includes specified levels of labor and material costs and profit margins. If the project is completed at less cost than that targeted in the contract, the contract price is reduced by a portion of the savings. If the cost of completion is greater than that targeted in the contract, the contract price is increased, but generally to the target price plus the actual incremental cost of materials and direct labor costs. Accordingly, under alliance/partnering arrangements, we have some protection from cost overruns but also share a portion of any cost savings with the customer. Under cost-plus arrangements, pursuant to which we receive a specified fee in excessfurther discussion of our direct labornew awards and material costs, we are protected against cost overruns but do not benefit directly from cost savings. Because we generally price materials as pass-through items on our contracts, the cost of our labor force is the primary factor affecting our operating costs. Consequently, it is essential that we control the cost and productivity of the direct labor hours worked on our projects.
Seasonality
Our operations may be subject to seasonal variations indue to weather conditions and available daylight hours. Since mostAlthough we have large, covered fabrication facilities, a significant amount of our construction activities take place outdoors, and accordingly, the number of direct labor hours worked generally declinesmay decline during the winter months due to an increase in rain, cold temperaturesunfavorable weather conditions and a decrease in daylight hours. In addition, the seasonality of oil and gas industry activity in the Gulf Coast region may also affect our operations. Our offshore oil and gas customers often schedule the completion of their projects during the summer months in order to take advantage of more favorable weather during such monthsmonths. Further, rainy weather, tropical storms, hurricanes and other storms prevalent in the GOM may also affect our operations. See “Risk Factors” in Item 1A for further discussion of the installation of their platforms. In recent years, seasonality has had less of an impact on productivity givenseasonal impacts to our covered fabrication areas.
Competition
We operate within highly competitive and largely influencedmarkets which are significantly impacted by oil and gas prices which are outside of the controland government spending. Declines in oil and gas prices and limits on government spending can create excess capacity and under-utilization of our customers. We compete intenselycompetitor's facilities, resulting in more intense competition in the bidding process for available projects, whichnew project awards. Further, there are generally awarded on a competitive bid basisnumerous regional, national and global competitors that offer similar services to those offered by each of our operating divisions. These competitors may be larger than us with customers usually requesting bids on projects one to three months prior to commencement. Although we believe pricemore resources and facilities in both the contractor’s ability to meet a customer’s delivery schedule are the principal factors in determining which fabricator
Although we may not be ablebelieve price and the contractor’s ability to remainmeet a customer’s delivery schedule and project requirements are principal factors in determining which contractor is awarded a project, customers also consider, among other things, a contractor’s past project experience, the availability of technically capable personnel, facility capacity and location, production efficiency, condition of equipment, reputation, safety record, customer relations and financial strength. We believe that our strategic location, competitive with foreign contractorspricing, expertise in fabricating and servicing onshore and offshore structures and vessels, and the certification of our facilities as ISO 9001-2015 will enable us to continue to compete effectively for large deepwater projects. See “Risk Factors” in Item 1A for further discussion of our competitive landscape.
Government and Environmental Regulation
Our operations and properties are subject to a wide variety of increasingly complex and stringent foreign, federal, state and local environmental laws and other regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, and the remediation of soil and groundwater contaminated by hazardous substances. Compliance with many of these laws is becoming increasingly complex, stringent and expensive. These laws may impose “strict liability” for damages to natural resources and threats to public health and safety, rendering a party liable for the environmental damage without regard to negligence or fault on the part of such party.
Our operations are also governed by laws and regulations relating to the health and safety of our employees, primarily the Occupational Safety and Health Act and regulations promulgated thereunder. Various governmental and quasi-governmental agencies require certain permits, licenses and certificates with respect to our operations. We believe that we have all material permits, licenses and certificates necessary for the conduct of our existing business.
Our employees may engage in certain activities, including interconnect piping and other service activities conducted on offshore platforms, activities performed on spud barges owned or chartered by us, and marine vessel fabrication and repair activities performed at our facilities and barges owned by us, that are covered in either the provisions of the Jones Act or U.S. Longshoreman and Harbor Workers Act (“USL&H”). These laws make the liability limits established under state workers’ compensation laws inapplicable to these employees and permit them or their representatives to pursue actions against us for damages or job-related injuries, with generally no limitations on our potential liability.
Many aspects of our operations and properties are materially affected by federal, state and local regulations, as well as certain international conventions and private industry organizations. The exploration and development of oil and gas properties located on the outer continental shelf of the United StatesU.S. is regulated primarily by the Bureau of Ocean Energy Management and Enforcement (“BOEM”) of the Department of Interior, (“DOI”). The Secretary of the Interior, through the BOEM,which is responsible for the administration of federal regulations under the Outer Continental Shelf Lands Act requiring the construction of offshore platforms located on the outer continental shelf to meet stringent engineering and construction specifications. Violations of these regulations and related laws can result in substantial civil and criminal penalties as well as injunctions curtailing operations. We believe that our operations are in compliance with these and all other regulations affecting the fabrication of platforms for delivery to the outer continental shelf of the United States.U.S. In addition, we depend on the demand for our services from the oil and gas and marine industries and, therefore, can be affected by changes in taxes, price controls and other laws and regulations affecting these industries. It is also possible that the new Biden Administration will impose additional environmental regulations that will restrict federal oil and gas leasing, permitting or drilling practices on public lands. For example, President Biden has already issued orders temporarily suspending leasing or permitting of oil and gas activities on federal lands and waters, and the President has also proposed a moratorium on hydraulic fracturing on federal lands and waters. Offshore construction and drilling in certain areas has also been opposed by environmental groups and, in certain areas, has been restricted. To the extent laws are enacted or other governmental actions are taken that prohibit or restrict offshore construction and drilling or impose environmental protection requirements that result in increased costs to the oil and gas industry in general and the offshore construction industry in particular, our business and prospects could be adversely affected. We cannot determine to what extent future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended and similar laws provide for responses to and liability for releases of hazardous substances into the environment. Additionally, the Clean Air Act, the Clean
In addition, our operations are subject to extensive government regulation by the United StatesU.S. Coast Guard, as well as various private industry organizations such as the American Petroleum Institute, American Society of Mechanical Engineers, American Welding Society and the American Bureau of Shipping.
Further, our operations have been impacted by national, state and local authorities recommending or mandating COVID-19 physical distancing and/or quarantine and isolation measures on large portions of the population, including mandatory business closures in the areas in which we operate.
Our compliance with these laws and regulations has entailed certain additional expenses and changes in operating procedures; however, we believe that compliance efforts have not resulted in a material adverse effect on our business or financial condition. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures by us, which could potentially adversely impactus. See “Risk Factors” in Item 1A for further discussion of government and environmental regulations impacting our future results of operations and financial position.
Insurance
We maintain insurance againstfor property damage caused by fire, flood, explosion and similar catastrophic events that may result in physical damage or destruction to our facilities. All policies are subject to deductibles and other coverage limitations. We also maintain a builder’s risk, policy for construction projects, general liability insurance and maritime employer’s liability insurance, which are also subject to deductibles and coverage limitations. The Company isWe are further self-insured for workers’ compensation and USL&H claims except for losses in excessthrough our use of adeductibles and self-insured retentions up to per occurrence threshold amount. Although management believes that our insurance is adequate, there can be no assurance that we will be able to maintain adequate insurance at rates which management considers commercially reasonable, nor can there be any assurance that such coverage will be adequate to cover all claims that may arise.
Available Information
We make available our annual reports on Form 10-K.
Item 1A. Risk Factors
The following discussion of risk factors contains forward-looking statements see "Cautionary(see “Cautionary Statement on Forward-Looking Information"Information”). These risk factors may beare important to understanding other statements in this Report on Form 10-K.Report. The following information should be read in conjunction with “Management’sItem 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statementsItem 8 “Financial Statements and related notesSupplementary Data” found elsewhere in this Report on Form 10-K.
Our business, prospects, financial condition, and operating results, cancash flows and stock price may be affected materially and adversely, in whole or in part, by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition, and operating results and cash flows to vary materially from historical results or those anticipated, projected or assumed in theour forward-looking statements. Any of these factors, in whole or in part, could materially and adversely affect ourOur business, prospects, financial condition, operating results, of operations,cash flows and stock price and cash flows. These could also be affected by additional factors that apply to all companies generally which are not specifically mentioned below.
Business and Industry Risks
The ongoing global pandemic caused by COVID-19 and certain developments in the global oil markets have had and may continue to have, and any future pandemic, epidemic, endemic or similar public health threats and resulting negative impact on the global economy and financial markets could have, a negative impact on our operations, the duration and extent of which is highly uncertain and could be material.
COVID-19 is a widespread public health crisis that continues to adversely affect global economies and financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and the U.S. President announced a national emergency relating to COVID-19. National, state and local authorities recommended physical distancing and many authorities imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. Authorities in some areas of the U.S. began to relax these restrictions in the second quarter 2020. However, the country, including areas where we have our headquarters and operating facilities, experienced several periods of resurgence in the spread of the virus in both the third and fourth quarters of 2020. Authorities have reacted to these resurgences by deferring the phasing out of these restrictions and, in some instances, re-imposing quarantine and isolation measures during the fourth quarter 2020. The measures taken, while intended to protect human life, have had and are expected to continue to have a serious adverse impact on domestic and foreign economies of uncertain severity and duration. Moreover, governmental and commercial responses to COVID-19 have exacerbated the already weakened condition of the energy industry, further reducing the demand for oil, and further depressing and creating volatility in oil prices. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. Any prolonged period of economic slowdown or recession could have a significant adverse effect on our financial condition and financial condition of our customers, subcontractors and other counterparties. The longer-term effectiveness of economic stabilization efforts, including government payments to impacted citizens and industries, is uncertain. Although the U.S. Food and Drug Administration has authorized three COVID-19 vaccines for emergency use, the overall supply of these vaccines may be limited or otherwise hampered by delivery issues, and distribution may therefore be delayed. Even with widespread distribution and acceptance of these vaccines, their long-term efficacy is unknown.
We operate in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we currently continue to operate across our footprint. Notwithstanding our continued operations, the progression of and global response to COVID-19, and related contraction in oil demand, combined with depressed and volatile crude oil prices have had and may continue to have negative impacts on our operations, which include but are subjectnot limited to:
• | Delays, Suspension or Termination of Backlog; Reduced Bidding Activity; Deterioration of Customer Financial Condition. Certain of our customers have requested to renegotiate pricing and suspended contracts in our backlog and bidding activities for several new project opportunities have been suspended. We may have additional delays, suspensions or terminations of contracts in our backlog and further reduced bidding activity for new project awards. In addition, financial strain on our customers could impact their ability pay or otherwise perform on their obligations to us. |
• | Availability of Workforce. We have seen an increase in employee absenteeism and turnover, experienced challenges recruiting and hiring craft labor, and implemented COVID-19 related mitigation measures to ensure the safety and well-being of our employees and contractors, all of which have impacted our project execution. The productivity of our workforce may be further impacted by COVID-19 (including, but not limited to, the temporary inability of the workforce to work due to illness, quarantine following illness, or absenteeism for fear of contracting COVID-19), which may further impact our progress on projects. |
• | Potential Supply Disruptions; Performance by Subcontractors. COVID-19 has also had an impact on our suppliers and subcontractors. Failure of suppliers and subcontractors, on which we rely, to deliver materials and provide services, or perform under their contracts on a timely basis or at all due to their own financial or operational difficulties or inability to fulfill their contractual obligations due to the reduced availability of their workforce, has had and may continue to have an adverse impact on our operations. For example, the impact of COVID-19 on our suppliers and subcontractors has resulted in and may continue to result in scheduling delays and higher costs for subcontracted services and materials. Further, certain deliverables from third-party engineering firms supporting our projects have been delayed. The inability of our suppliers or subcontractors to perform could result in the need to transition to alternative suppliers or subcontractors, which could result in significant incremental cost and delay, or the need for us to provide other supplemental means to support our existing suppliers and subcontractors. |
The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and reduction and volatility in crude oil prices cannot be reasonably estimated at this time. See Note 1 of our Financial Statements in Item 8 and “Overview” in Item 7 for further discussion of the impacts of COVID-19 and reductions and volatility in crude oil prices.
Our revenue and profitability may be impacted by the cyclical nature of the oil and gas industry.
Our business has dependedis significantly dependent on the level of capital expenditures by offshore(i) oil and gas producers, processors and their contractors, (ii) alternative energy companies and (iii) marine companies operating in the GOM and along the Gulf Coast. ThisThe level of activity has traditionally beenby these companies can be volatile primarily as a result ofand is significantly impacted by fluctuations in oil and gas and associated commodity prices. Oil and gas prices declined significantly beginning in the latter half of 2014continue to be depressed and since then, have not increased to a level that supports a recovery in offshore exploration and production spending. In addition to the price of oil and gas, the levels of our customers’ capital expenditures are influenced by, among other things:
• | the cost of exploring for, producing and delivering oil and gas; |
• | the ability of oil and gas companies to generate capital; |
• | the sale and expiration dates of offshore leases in the U.S. and overseas; |
• | the discovery rate, size and location of new oil and gas reserves; |
• | demand for energy, including hydrocarbon production, which is affected by worldwide economic activity and population growth; |
• | the ability of the Organization of the Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil and the level of production by non-OPEC countries; |
• | local, federal and international military, political and economic events and conditions, including regulatory changes under the Biden Administration, economic uncertainty, socio-political unrest, any government shutdown and instability or hostilities; |
• | demand for, availability of and technological viability of, alternative sources of energy; |
• | technological advances affecting energy exploration, production, transportation and consumption; and |
• | uncertainty regarding the U.S. energy policy under the Biden Administration, particularly any revision, reinterpretation or creation of environmental and tax laws and regulations that would negatively impact the oil and gas industry. |
The above factors have not favored increasedsuppressed capital spending by offshore oil and gas companies in recent years. The oil and gas industry has also experienced increased volatility beginning in the first quarter 2020 due to certain geopolitical developments in addition to COVID-19. Further, although a reduction in gas prices has benefited capital spending for petrochemical and other facilities, the timing of, and our ability to secure, new project awards for this end market continues to be uncertain. As a result, there are fewer project awards in our traditional oil and gas markets to replace completed projects, and pricing of new contracts remains increasingly competitive. This has createdcreates challenges with respect to our ability to operate our fabrication facilities at desired utilization levels throughout 2016 and 2017, resultingmay result in decreased revenue, lower margins, and losses during periods of lower margins. As a result, there are fewer project awardscapital spending. Should industry conditions not improve, we may continue to replace completed projects,suffer such decreased revenue, lower margins, and pricing of newer contracts remains increasingly competitive.losses in future quarters. In addition, we believe that the downturn in the oil and gas industry has also adversely impacted many of our customers' businesses. See also "
We are unable to predict future oil and gas prices or the level of oil and gas industry activity infor the GOM region. Higherproducts and services we provide. Further, an increase in oil and natural gas prices in the future may not necessarily translate into immediate or long- term increased activity, and even during periods of relatively high oil prices, our customers may cancel or curtail programs, or reduce their levels of capital expenditures for offshore exploration and production. Advances in onshore exploration and development technologies, particularly with respect to large, onshore shale production areas, could result in our historical customers allocating a higher percentage of their capital expenditure budgets to onshore exploration and production activities and lesswe may not be successful securing new project awards related to offshorethese onshore activities. An increase in gas prices could also negatively impact future investments in petrochemical and other facilities that benefit from lower gas prices. These factors could cause our revenue and margins to remain depressed and limit our future growth prospectsopportunities. See “Overview” in Item 7 for further discussion of the impacts of reductions and therefore, could have a material adverse effect on our financial position, results of operationsvolatility in crude oil prices.
We operate in an industry that is highly competitive.
The onshore refining, petrochemical, LNG and cash flows.
Competition with foreign competitors can also be challenging as such competitors often have lower operating costs and lower wage rates, and foreign governments often use subsidies and incentives to create local jobs, impose import duties and fees on products, and tax foreign operators. In addition, as a buyerresult of technological innovations, decreased transportation costs incurred by our customers when exporting structures from foreign locations to the GOM and Gulf Coast may hinder our ability to successfully bid projects destined for the GOM and Gulf Coast against foreign competitors. See “Competition” within Item 1 for further discussion of the competitive nature of our industry.
Certain of our customers are facing significant challenges and a period of consolidation within their industry.
The oil and gas industry is facing significant challenges due to a prolonged period of depressed and volatile oil and gas prices. This has also negatively impacted the marine industry that supports offshore exploration and production. Accordingly, many companies are unable to compete and, in some cases, are unable to pay their liabilities as they become due. This has resulted in many companies within the oil and gas and marine industries seeking bankruptcy protection or pursuing consolidation through mergers with, or acquisition by, other companies. During 2020, one of our customer’s filed for and emerged from Chapter 11 bankruptcy; however, our dispute with the customer relating to the construction of two MPSVs is ongoing. See “Legal Proceedings” in Item 3 for further discussion of the status of the dispute and the impact of the customer’s bankruptcy filing. We expect these trends to continue.
The consolidation of one or more of our primary customers, the acquisition of one or more of our primary customers by a company that is not a customer, or a primary customer’s acquisition of another company that provides services similar to those provided by us, could result in a reduction in such customers’ capital spending and a decrease in the demand for our North Yardproducts and remaining equipment,services. In addition, the liquidation of one or more of our primary customers could decrease the demand for our products and services. We can provide no assurances that we will realize any anticipated
Financial and Operational Risks
We depend on the award of new contracts and the timing of those awards.
It is difficult to predict whether or when we will be awarded a new contract due to complex bidding and selection processes, changes in existing or forecast market conditions, governmental regulations, permitting and environmental matters. Bidding activities for several new project opportunities have been delayed or suspended as a result of COVID-19 and low and volatile oil and gas prices. As these conditions continue, we may have further reduced bidding activity for new project opportunities during 2021 and beyond. In addition, political events within the U.S. have resulted, and may in the future result, in the shutdown of government services, which could impact inspections, regulatory review and certifications, grants or approvals. Because our revenue is derived from such sales. Evennew project awards, our results of operations and cash flows can fluctuate materially from period to period as contracts are typically awarded on a project-by-project basis.
The timing of new project awards may reduce our short-term profitability as we balance our current capacity with expectations of future project awards. If an expected new project award is delayed or not received, we may incur costs to maintain an idle workforce and facilities, or alternatively, we may determine that our long-term interests are best served by reducing our workforce and incurring increased costs associated with termination benefits. In recent years we have reduced our skilled workforce in response to decreases in the utilization of our facilities. A further reduction in our workforce could also impact our results of operations if customers are hesitant to award new contracts based upon our staffing levels or if we are ableunable to find purchasers,adequately increase our labor force and staff projects that are awarded subsequent to workforce reductions. See the risk factor below titled “We may be unable to employ a sufficient number of skilled personnel to execute our projects.”
We depend on significant customers for our revenue.
We derive a significant amount of our revenue from a small number of customers, including U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power, and marine operators; EPC companies; and certain agencies of the U.S. government. Because the level of services that we may provide to any customer depends, among other things, on the amount of that customer’s capital expenditure budget and our ability to meet the customer’s delivery schedule, customers that account for a significant portion of our revenue in one year may represent an immaterial portion of revenue in subsequent years. We define significant customers as those that individually comprise 10% or more of our consolidated revenue. For 2020, 2019 and 2018, two, four and three customers accounted for 46%, 54%, and 44%, respectively, of our consolidated revenue. The loss of a significant customer in any given year for any reason, including a sustained decline in that customer’s capital expenditure budget or competitive factors, could result in a substantial loss of revenue. See “Customers” in Item 1 for further discussion of our customers.
We are exposed to the credit risks of our customers, including nonpayment and nonperformance by our customers.
The concentration of our customers in the oil and gas and marine industries may impact our overall exposure to credit risk as customers may be similarly affected by prolonged changes in economic and industry conditions. We believe certain of our customers finance their activities through cash flows from operations and debt or equity financing. Many of these customers are facing significant challenges in light of the ongoing global pandemic caused by COVID-19 and the current oil and gas market and are experiencing decreased cash flows, reductions in borrowing capacity, the inability to access capital or credit markets, and reductions in liquidity, which may impact their ability to pay or otherwise perform on their obligations to us. Accordingly, our operations could be impacted due to nonpayment or nonperformance by our customers. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While we maintain reserves for potential credit losses, we can provide no assurances that such reserves will be sufficient to cover uncollectible receivable amounts or that our losses from such receivables will be consistent with our expectations.
Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to us. To the extent one or more of our key customers is in financial distress or commences bankruptcy proceedings, contracts with, or obligations from, these customers may be subject to renegotiation or rejection under applicable provisions of the U.S. Bankruptcy Code and similar international laws. During 2020, one of our customer’s filed for and emerged from Chapter 11 bankruptcy; however, our dispute with the customer relating to the construction of two MPSVs is ongoing. See “Legal Proceedings” in Item 3 for further discussion of the status of the dispute and the impact of the customer’s bankruptcy filing.
The nature of our contracting terms for our contracts could adversely affect our operating results.
As is common in the fabrication and marine construction industries, a substantial number of our projects are performed on a fixed-price or unit-rate basis. Under fixed-price contracts, our contract price is fixed, and is generally only subject to adjustment for changes in scope by the customer. Accordingly, we retain cost savings realized on a project but are also responsible for cost overruns. Under unit rate contracts, material items or labor tasks are assigned unit rates of measure. The unit rates of measure will generally be a reimbursable value per ton, per foot or square foot or per item installed. A typical unit rate contract can contain hundreds to thousands of unit rates of measure. Profit margins are incorporated into the unit rates and, similar to a fixed-price contract, we retain cost savings realized on a project but are also responsible for cost overruns. In many cases, our fixed-price and unit rate contracts involve complex
design and engineering, significant procurement of materials and equipment, and extensive project management. In addition, as projects increase or decrease in scope, the resulting changes in contract price or unit rates could be less than the actual costs incurred associated with such changes in scope. We employ our best efforts to properly estimate the costs to complete our projects; however, our actual costs incurred to complete our projects could materially exceed our estimates. The revenue, costs and profit realized on a contract will often vary from the estimated amounts on which such contract was originally estimated due to the following:
• | failure to properly estimate costs of engineering, materials, components, equipment, labor or subcontractors; |
• | unanticipated changes in the costs of engineering, materials, components, equipment, labor or subcontractors; |
• | failure to properly estimate the impact of engineering delays or errors on the construction of a project, including productivity, schedule and rework; |
• | difficulties in engaging third-party subcontractors, equipment manufacturers or materials suppliers, or failures by third-party subcontractors, equipment manufacturers or materials suppliers to perform, resulting in project delays and additional costs; |
• | late delivery of materials by our vendors or the inability of subcontractors to deliver contracted services on schedule or at the agreed upon price; |
• | increased costs due to poor project execution or productivity and/or weather conditions; |
• | unanticipated costs or claims, including costs for project modifications, delays, errors or changes in specifications or designs, regulatory changes or contract termination; |
• | unrecoverable costs associated with customer changes in scope and schedule; |
• | payment of liquidated damages due to a failure to meet contracted delivery dates; |
• | changes in labor conditions, including the availability, wage and productivity of labor; |
• | termination, temporary suspension or significant reduction in scope of our projects by our customers; |
• | unanticipated technical problems with the structures, equipment or systems we supply; |
• | under-utilization of our facilities and an idle labor force; and |
• | changes in general economic conditions. |
These variations and risks are inherent within our industry and may result in revenue and profit that differ from amounts originally estimated or result in losses on projects. Depending on the size of a project, variations from estimated contract performance can have a significant impact on our operating results. In addition, substantially all of our contracts require us to continue work in accordance with the contractually agreed schedule, and thus, continue to incur expenses for labor and materials, notwithstanding the occurrence of a disagreement with a customer over changes in scope, increased pricing and/or unresolved change orders or claims.
Competitive pricing common in the fabrication and marine construction industry could negatively impact our operating results.
Even when industry conditions are favorable, we operate in a very competitive industry, and as a result, we are not always successful in fully recovering our project costs or realizing a profit. Additionally, during periods of increased market demand, a significant amount of new service capacity may enter the market, which also places pressure on the pricing of our services. Furthermore, during periods of declining pricing for our services, we may not be able to obtain attractive termsreduce our costs accordingly, which could further affect our profitability.
Our method of accounting for revenue using the percentage-of-completion method could have a negative impact on our results of operations.
Revenue for our fixed-price and conditionsunit-rate contracts is recognized using the percentage-of-completion method, based on contract costs incurred to date compared to total estimated contract costs. Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such sales,materials is only recognized to the extent of costs incurred. Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including attractive pricing.
We are susceptible to adverse weather conditions in our market areas.
Our operations may be subject to seasonal variations due to weather conditions and daylight hours. Although we have large covered fabrication facilities, a significant amount of our construction activities continues to take place outdoors, and accordingly, the number of labor hours worked may decline during the winter months due to unfavorable weather conditions and a decrease in daylight hours. In addition, the seasonality of oil and gas industry activity in the Gulf Coast region also affects our operations. Our offshore oil and gas customers often schedule the completion of their projects during the summer months in order to take advantage of more favorable weather during such sales occur if such salesmonths. Further, rainy weather, tropical storms, hurricanes and other storms prevalent in the GOM and along the Gulf Coast may also affect our operations. For example, in the third quarter 2020 we experienced damage to our facilities in Lake Charles, Louisiana due to Hurricane Laura, which made landfall as a high-end Category 4 hurricane. The impact of severe weather conditions or natural disasters may include disruption of our workforce, curtailment of services, weather-related damage to facilities and equipment, resulting in suspension of operations, inability to deliver equipment, personnel and products to job sites in accordance with contract schedules, and loss of productivity. Our suppliers and subcontractors are at a loss. Additionally, any decisions wealso subject to severe weather and natural or environmental disasters that could affect their ability to deliver products or services or otherwise perform under their contracts. Furthermore, our customers’ operations may make regardingbe materially and adversely affected by severe weather and seasonal weather conditions, resulting in reduced demand for services. Accordingly, our deployment or useoperating results may vary from quarter to quarter, depending on factors outside of any sales proceeds we receive in any sale involves risks and uncertainties.our control. As a result, full year results are not likely to be a direct multiple of any quarter or combination of quarters. We believe that we maintain adequate insurance coverage related to potential damage from weather. See Note 2 of our decisions with respectFinancial Statements in Item 8 and “Overview” in Item 7 for further discussion of the impacts of adverse weather conditions.
Our backlog is subject to such proceeds may not leadchange as a result of delay, suspension, termination or an increase or decrease in scope for projects currently in backlog.
New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to increased long-term stockholder value.
Projects included in our backlog are generally subject to amend our credit agreementdelay, suspension, termination, or obtain new debt financing ifan increase or decrease in scope at the option of the customer; however, the customer is required to pay us for work performed and when needed with favorable terms, if at all.
We may need to obtain debt financing or credit facilities or raise additionalequity capital in the future for working capital, capital expenditures, contract commitments and/or acquisitions, and we may not be able to do so or do so on favorable terms, or at all, which would impair our ability to operate our business or achieveexecute our strategic plan.
Our primary sources of liquidity are our cash, cash equivalents and scheduled maturities of our short-term investments. If oursuch amounts and cash flows from operating activities are not sufficient to fund our working capital requirements, capital expenditures, contract commitments, and/or acquisition opportunities, we would be required to further reduce theseour capital expenditures and/or forego certain contracts and/or acquisition opportunities, or we would be required to fund capital expendituressuch needs through debt or equity issuances or through alternativeother financing plans or sellingalternatives, including the sale of assets.
We incurred significant losses during 2017 and cash on hand, as of March 9, 2018, was approximately $10 million. Additionally, we were recently named by SeaOne, as the prime contractor for the SeaOne Project. We have created our EPC Division to manage this project and any future projects that are similar to it. We are working to strengthen our internal project management capabilities through the hiring of additional personnel to service this potential project. Additionally, we may be required to investmake capital expenditures relatedinvestments in our existing or new facilities and increase our working capital to facility upgrades where we expect to perform a portion of the fabrication of the modules for the SeaOne Project.support our backlog or new project awards. The timing of capital outlays and working capital required by us to execute the anticipated project with SeaOnesuch projects could exceed the availability under our credit agreement withexisting, cash, cash equivalents, scheduled maturities of our lending institutionshort-term investments and cash proceeds we expect to receiveflows from the sale of our South Texas Properties. Additionally,operating activities, and we may not be awarded other contracts as business activities improve that may require capital above current capacity levels. See also "Executive Overview and Summary" in Item 7 of this Report on Form 10-K.
Our ability to successfully obtain such additionaldebt financing or credit facilities or raise equity or debt capital in the future will depend in part upon prevailing capital market conditions, as well as conditions in our business and our operating results, and those factors may affect our efforts to successfully obtain additional capital on terms that are satisfactory to us. If adequate funds arecapital is not available, or are not available on beneficial terms, we may not be able to make future investments, take advantage of acquisitions or other investment opportunities, or respond to competitive challenges. This could limit our ability to bid on new project opportunities, thereby limiting our potential growth and profitability within our operating divisions.
We depend on significant customers and we are exposed to the credit risks of our customers, including the nonpayment and nonperformance by our customers.
There are a number of potential negative consequences for the energy sector that may result if oil and gas prices remain depressed or decline or if oil and gas companies continue to de-prioritize investments in exploration, development and production, including the continued or worsening of outflow of credit and capital from the energy sector and/or energy focused companies, further efforts by lenders to reduce their exposure to the energy sector, the imposition of increased lending standards for the energy sector, higher borrowing costs and collateral requirements, or a refusal to extend new credit or amend existing credit facilities in the energy sector. These potential negative consequences may be exacerbated by the pressure exerted on financial institutions by regulatory agencies to respond quickly and decisively to credit risk that develops in distressed industries. All these factors may complicate our ability to achieve a favorable outcome in obtaining debt financing or credit facilities.
In order to secure debt financing or credit facilities with borrowing capacity, if available, we may be required to provide further collateral, pay higher interest rates and otherwise agree to more restrictive terms. Collateral requirements and higher borrowing costs may limit our long- and short-term financial flexibility, and any failure to secure debt financing or credit facilities on terms that are acceptable to us could jeopardize our ability to fund, among other things, capital expenditures and general working capital needs or meet our other financial commitments. In addition, we have provided one of our Sureties a letter of credit of $7.0 million as partial collateral in support of the performance bonds issued by the Surety in connection with our contracts for the construction of two MPSVs that are subject to purported termination by our customer. We could be required to provide additional riskscollateral to the Surety in support of these performance bonds or implement successful business strategiesother performance bonds issued by the Surety or other Sureties.
Our LC Facility currently provides for letters of credit, which are subject to cash securitization. We provide our customers letters of credit under our LC Facility and surety bonds from financial institutions to secure advance payments or guarantee performance under our contracts, or in new lineslieu of business. Additionally,retention being withheld on our competitorscontracts. With respect to a letter of credit under our LC Facility, any advance in these linesthe event of businessnon-performance under a contract would become a direct obligation and reduction in our cash. With respect to a surety bond, any advance payment in the event of non-performance is subject to indemnification of the Surety by us, which may possess substantially greater operational knowledge, resourcesrequire us to use our cash, cash equivalents or short-term investments. When a contract is complete, the contingent obligation terminates, and experience than the Company. These diversification initiatives may not resultletters of credit or surety bonds are returned. It has been increasingly difficult to obtain letter of credit and bonding capacity and identify potential financing sources, due to, among other things, losses from our operations in an increaserecent years, including recent project charges, and given a majority of our backlog is at, or near, break-even or is in shareholder value.
We may not be able to generate sufficient cash flow to meet our obligations.
Our ability to fund our operations depends on our ability to generate future cash in the future. For more information on our business outlook and
In addition, On April 17, 2020, we entered into a $10.0 million PPP Loan with Whitney Bank. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the SBA for review. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the fabrication industry mayabsence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not provide sufficient protection from cost overruns.
If we do not receive the price fixed in the contract, subject to adjustment only for change-orders placed by the customer. Under a unit rate contract, material items or labor tasks are assigned unit ratesforgiveness of measure. The unit rates of measure will generally be an amount of dollars per ton, per foot, per square foot or per item installed. A typical unit rate contract can contain hundreds to thousands of unit rates of measure. Profit margins are built into the unit rates and, similar to a fixed price contract, we retain all cost savings but are also responsible for all cost overruns. In many cases, these project awards involve complex design and engineering, significant procurement of equipment and supplies and extensive construction management. Management uses its best efforts to properly estimate the costs to complete our project awards; however, our actual costs incurred to complete these projects could exceed our estimates.
Our strategy to monetize under-utilized assets, including the sale of assets held for sale, and rationalize under-utilized facilities to improve our facility utilization, could result in future losses or impairments and may not produce our desired results.
We are taking actions to monetize under-utilized assets. At December 31, 2020, our assets held for sale totaled $8.2 million and primarily consisted of three 660-ton crawler cranes and two drydocks. Further, our ongoing evaluation of under-utilized assets could result in the identification of additional assets for sale. During 2020, we recorded impairments associated with our assets held for sale and assets classified as held for sale during the period. We can provide no assurances that we will successfully sell our assets held for sale, that we will be able to do so in accordance with our expected timeline or that we will recover the carrying value of the assets, which could result in additional impairments or losses. Additionally, any decisions made regarding our deployment or use of any sales proceeds we receive in any sale involves risks and uncertainties. As a result, our decisions with respect to such proceeds may not lead to increased long-term shareholder value. See Note 3 of our Financial Statements in Item 8 for further discussion of our assets held for sale.
We are also taking actions to relocate assets, consolidate operations and rationalize under-utilized facilities to improve our facility and personnel utilization. Such actions may include the closure or consolidation of one or more of our facilities and the termination of facility employees. During the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Yard and relocated certain assets to our Houma Yards. We also relocated certain assets from our Shipyard Division to our Fabrication & Services Division, and we abandoned certain assets, within our Houma Yards to improve operational efficiency. In connection therewith, during 2020, we recorded impairments of certain assets associated with our Lake Charles Yard and Houma Yards. See Note 3 of our Financial Statements in Item 8 for further discussion of our closure of the Jennings Yard and Lake Charles Yard. A facility closure or consolidation could result in future impairments of facility assets and other restructuring or exits costs, including retention, severance or other costs associated with terminated personnel. Further, we can provide no assurances that any facility closure or consolidation will result in an improvement in our overall utilization or that the costs of doing so will not exceed the benefits expected to be gained from the closure or consolidation of a facility.
If we continue to be unable to maintain satisfactory utilization of our facilities or personnel, our results of operations and financial condition would be adversely affected.
In recent years we have experienced an under-utilization of our facilities and personnel and have not fully recovered our fixed overhead costs, due in part to the high fixed costs of our operations and the impact of the ongoing global pandemic caused by COVID-19 and low and volatile oil and gas prices. This has resulted in losses from our operations. If current or future facility and personnel capacity fails to match current or future customer demands for any particular fiscal quarterour services, our facilities would continue to be under-utilized, which could result in less profitable operations or year.ongoing losses from our operations.
We may be unable to successfully defend against claims made against us by customers or subcontractors, or recover claims made by us against customers or subcontractors.
Our projects are generally complex, and we may encounter difficulties in design, engineering, schedule changes and other factors, some of which may be beyond our control, that affect our ability to complete projects in accordance with contracted delivery schedules or to otherwise meet contractual performance obligations. We may bring claims against customers for additional costs incurred by us as a result of customer-caused delays or changes in project scope initiated by our customers that are not part of the original contract scope. In addition, substantially allclaims may be brought against us by customers relating to, among other things, alleged defective or incomplete work, breaches of warranty and/or late completion of work. We may also incur claims with our customer contractssubcontractors that are similar to those described above. These claims may be subject to lengthy and/or expensive litigation or arbitration proceedings and may require us to continue workinvest significant working capital in accordanceprojects to cover cost increases pending resolution of the claims. See “Legal Proceedings” in Item 3 for further discussion of our ongoing dispute with the contractually agreed
Our employees and subcontractors work on projects that are inherently dangerous. If we fail to maintain safe work sites, we can be exposed to significant financial losses and reputational harm.
We work on projects with large mechanized equipment, moving vehicles, and dangerous processes, which can place our employees and subcontractors in challenging environments. We maintain a safety assurance program designed to ensure the safety of our employees and subcontractors and to ensure that we are building for a customer. The cost overruns relateremain in compliance with all applicable federal and state mandated safety regulations. If our safety assurance program fails, our employees, subcontractors and others may become injured, disabled or lose their lives, and our projects may be delayed, causing exposure to engineering and electrical complexities encountered while installing electrical raceways for power and communications systems. These complexitieslitigation or investigations by regulators.
Unsafe conditions at project work sites also created delays in completinghave the vessels on schedule which resulted in liquidated damage penalties further reducing the fixed contract price for this contract. See also further discussion in
These risks may be greater should we acquire companies that have poor safety performance, requiring corrective actions during the integration process. This may result in our skilled labor force, increases in the wage rates we pay, increase in our use of contract labor or all of these. While we believe our relationship with our skilled labor force is good, the profits expected from work in progress and future projects could be reduced or eliminated to the extent weliabilities before such corrective actions are unable to properly increase our workforce or if potential wage increases could not be passed on to our customers, our production capacity could be diminished and our growth potential could be limited if we were to experience a rapid expansion of demand.implemented.
The dangers inherent in our operations and the limits on our insurance coverage could expose us to potentially significant liability costs and materially interfere with the performance of our operations.
The fabrication of our structures and the services we provide involves operating hazards that can cause accidents resulting in personal injury or loss of life, severe damage to and destruction of property and equipment and suspension of operations. The failureIn addition, due to the proximity to the GOM, our facilities are subject to the possibility of such structures during and after installation can result in similar injuries and damages. physical damage caused by hurricanes or flooding.
In addition, our employees may engage in certain activities, including interconnect piping and other service activities conducted on offshore platforms, activities performed on the spud barges owned or chartered by us, and marine vessel fabrication and repair activities performed at our facilities, and operating vessels owned by us, that are covered in either the provisions of the Jones Act or USL&H. These laws operate to make the liability limits established under state workers’ compensation laws inapplicable to these employees and, instead, permit them or their representatives to pursue actions against us for damages or job relatedjob-related injuries, with generally no limitations on our potential liability.
We may be exposed to the proximityfuture losses through our use of deductibles and self-insured retentions for our exposures related to the GOM, our facilities are subjectthird party liability and workers' compensation. We expect liabilities in excess of any deductible to the possibility of physical damage causedbe covered by hurricanes or flooding.
Changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. The availability of insurance that covers risks we typically insure against may decrease, and the insurance that we are able to obtain may have higher deductibles, higher premiums and more restrictive policy terms.
Our industry is highly competitive.
Our operations have historically been focused on fabrication and services for the offshore and marine fabrication industries are highly competitive and influenced by events largely outside of our control. Contracts for our services are generally awarded on a competitive bid basis, and our customers consider many factors when awarding a job. These factors include price, the contractor’s ability to meet the customer’s delivery schedule, the availability and capability of equipment, and the reputation, experience, and safety record of the contractor. Although we believe that our reputation
We may be unable to employ a sufficient number of skilled personnel to execute our projects.
Our operations require personnel with specialized skills and experience. In recent years we have reduced our skilled workforce in response to decreases in the utilization of our facilities. Our productivity and profitability are significantly dependent upon our ability to attract and retain skilled construction supervisors and craft labor, primarily welders, pipe fitters and equipment operators. Reductions in our labor force may make it more difficult to increase our labor force to desirable levels during periods of expanding customer demand and increases in our backlog. During 2020, we began increasing our skilled workforce within our Shipyard Division to execute the division’s backlog, and in connection therewith, and in part due to COVID-19, we experienced an increase in employee absenteeism and turnover as well as challenges recruiting and hiring craft labor, which has impacted our productivity.
In periods of increased demand for construction labor, the supply of skilled labor becomes increasingly limited resulting in higher costs of labor, including increases in wage rates and the costs of recruiting or eliminationtraining to attract and retain qualified employees. Further, during times of previously reported profits,higher demand for our services, if skilled labor become scarce, it could also increase our use of contract labor, which may have a higher cost and lower levels of productivity.
If we are requiredunable to recognize a charge against current earnings, whichhire and retain necessary skilled labor, we may be significant depending onunable to win new project awards and expand our operations. Further, any shortage of skilled labor or ongoing challenges hiring and retaining skilled labor could negatively affect the sizequality, safety, timeliness and profitability of the project or the adjustment. For example, during 2017, we recorded contract losses of $34.5 million, including $11.2 million in liquidated damages related to cost overruns and delays that we encountered in the newbuild construction of two multi-purpose offshore vessels that we are building for a customer. The cost overruns relate to engineering and electrical complexities encountered while installing electrical raceways for power and communications systems. These complexities also created delays in completing the vessels on schedule which resulted in liquidated damage penalties further reducing the fixed contract price for this contract. See also further discussion in
Our success is dependent on key personnel.
Our success depends to a great degree onis dependent upon the abilities of our keyexecutives, management, personnel, particularly our executives and other key employees who have significant experience within our industry. Our success also depends on our ability to attract, retain and motivate highly-skilled personnel in various areas, including engineering, construction supervision, project management, procurement, project controls and finance. The loss of the services of one or more key personnel or our inability to attract, retain and motivate necessary personnel could impact our operations. In addition, we may not be able to retain key employees assumed in an acquisition, which may impact our ability to successfully integrate or operate the business acquired.
We depend on third parties to provide services to perform our contractual obligations and supply raw materials.
We rely on third parties to provide raw materials, and major components and to perform certain services required by our contracts. Disruptions and performance problems caused by our suppliers and subcontractors, or a misalignment between our contractual obligations to our customers and our agreements with our subcontractors and suppliers, could have an adverse effect on our ability to meet our commitments to customers. Our ability to perform our obligations on a timely basis could be adversely affected if one or more of our suppliers or subcontractors are unable to provide the agreed-upon products or materials or perform the agreed-upon services in a timely, compliant and cost-effective manner or otherwise fail to satisfy contractual requirements. The inability of our suppliers or subcontractors to perform could also result in the need to transition to alternate suppliers or subcontractors, which could result in significant incremental cost and delay, or the need for us to provide other supplemental means to support our existing suppliers and subcontractors.
We depend upon subcontractors for a variety of reasons, including: (i) to perform work we would otherwise perform with our employees but are unable to do so as a result of scheduling demands; (ii) to supervise and/or perform certain aspects of the contract more efficiently considering the conditions of the contract; and (iii) to perform certain services that we are unable to do or which we believe can be performed at a lower cost by subcontractors.
We work closely with these subcontractors to monitor progress and address our customer requirements. However, the inability of our subcontractors to perform under the terms of their contracts could cause us to incur additional costs that reduce profitability or result in losses on projects.
We may be protected from increases in material costs through cost escalation provisions in some of our contracts. However, the difference between our actual material costs and these escalation provisions may expose us to cost uncertainty. In addition, we may experience significant delays in deliveries of key raw materials, which may occur as a result of availability or price.
Systems and information technology interruption or failure and data security breaches could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
We rely heavily on computer information, communications technology and related systems in order to properly operate our business. From time to time, we experience occasional system interruptions and delays. In the event we are unable to deploy software and hardware, effectively upgrade our systems and network infrastructure, and take other steps to maintain or improve the efficiency and efficacy of our systems, the operation of such systems could be interrupted or result in the loss, corruption or release of data. In addition, our computer and communications systems and operations could be damaged or interrupted by natural disasters, force majeure events, telecommunications failures, power loss, acts of war or terrorism, physical or electronic security breaches, intentional or inadvertent user misuse or error, or similar events or disruptions. Any of these individualsor other events could cause interruptions, delays, loss of critical and/or sensitive data or similar effects.
In addition, we face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code, organized cyber-attacks and other security problems and system disruptions. If we were to be subject to a cyber incident or attack, it could result in the disclosure of confidential or proprietary customer information, theft, loss, corruption or misappropriation of intellectual property, damage to our reputation with our customers and the market, failure to meet customer requirements or customer dissatisfaction, theft, exposure to litigation, damage to equipment and other financial costs and losses. We rely on industry accepted security measures and technology to securely maintain all confidential and proprietary information on our computer systems, but these systems are still vulnerable to these threats. In addition, as cybersecurity threats continue to evolve, we may be required to expend significant resources to protect against the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches.
We may conduct a portion of our operations through joint ventures and strategic alliances over which we may have limited control, and our partners in such arrangements may not perform.
We may conduct a portion of our operations through joint ventures and strategic alliances with business partners. In any such arrangement, differences in views among the participants may result in delayed decisions or in failures to reach agreement on certain matters, or to do so in a timely manner. In any joint venture or strategic alliance in which we hold a non-controlling interest, we may have limited control over many decisions relating to joint venture operations and internal controls relating to operations. We also cannot control the actions of our partners, including any non-performance, default, or bankruptcy of our partners, and we would likely share liability or have joint and/or several liability with our partners for joint venture matters.
Actions of activist shareholders could create uncertainty about our future strategic direction, be costly and divert the attention of our management and board. In addition, some institutional investors may be discouraged from investing in the industries that we service.
In recent years, activist shareholders have placed increasing pressure on publicly-traded companies to effect changes to corporate governance practices, executive compensation practices or social and environmental practices or to undertake certain corporate actions or reorganizations. There can be no assurances that activist shareholders will not publicly advocate for us to make additional corporate governance changes or engage in certain corporate actions. Responding to challenges from activist shareholders, such as proxy contests, media campaigns or other public or private means, could be costly and time consuming and could have an adverse effect on our reputation and divert the attention and resources of management and our board, which could have an adverse effect on our business and operational results. Additionally, shareholder activism could create uncertainty about our leadership or our future strategic direction, resulting in loss of future business opportunities, which could adversely affect us.
In addition to risks associated with activist shareholders, some institutional investors are increasingly focused on environmental, social and governance (“ESG”) factors when allocating their capital. These investors may be seeking enhanced ESG disclosures or may implement policies that discourage investment in certain of the industries that we service. To the extent that certain institutional investors implement policies that discourage investments in industries that we service, it could have an adverse effect our financing costs and access to sources of capital.
Legal and Regulatory Risks
Any changes in U.S. trade policies and retaliatory responses from other countries may significantly increase the costs or limit supplies of materials and products used in our fabrication projects.
The federal government has imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with our fabrication business, including steel, raising our costs for these items (or products made with them), and has threatened to impose further tariffs, duties and/or trade restrictions on imports. Foreign governments, including China and Canada, and trading blocs, such as the European Union, have responded by imposing or increasing tariffs, duties and/or trade restrictions on U.S. goods, and are reportedly considering other measures. These trading conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could increase our costs, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or local economies.
The nature of our industry subjects us to compliance with regulatory and environmental laws.
Our operations and properties are materially affected by state and federal laws and other regulations relatingsubject to the oil and gas industry in general, as well as a wide variety of existing foreign, federal, state and local environmental laws and other regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances and the health and safety of employees. In addition, we could be affected by future laws or regulations, including those imposed in response to concerns over climate change, other aspects of the environment, or natural resources. For example, because of concerns that carbon dioxide, methane and certain other greenhouse gases may produce climate changes that have significant impacts on public health and the environment, various governmental authorities have considered and are continuing to consider the adoption of regulatory strategies and controls designed to reduce the emission of greenhouse gases resulting from regulated activities, which if adopted in areas where we conduct business, could require us or our customers to incur additional compliance costs, may result in delays in pursuit of regulated activities and could adversely affect demand for the oil and natural gas that some of our customers produce, thereby potentially limiting demand for our services.
Compliance with many of these laws is becoming increasingly complex, stringent and expensive. Many of theseThese laws may impose “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for the environmental damage without regard to its negligence or fault. Certain environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to natural resources. In addition, we could be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Such laws and regulations may also
The demand for our services is also affected by changing taxes, price controls and other laws and regulations relatingrelated to the oil and gas, chemicals, commodities, marine and marinealternative energy industries. The current environment has federal, state and local governments faced with spending deficits. We may not be able to pass any potential increases in taxes on to our customers.
Offshore construction and drilling in certain areas is opposed by many environmental groups and, in certain areas, has been restricted. To the extent laws are enacted or other governmental actions are taken that prohibit or restrict offshore construction and drilling or impose environmental protection requirements that result in increased costs to the oil and gas industry in general and the offshore construction industry, in particular, our business and prospects could be adversely affected. We cannot determine to what extent future operations and results of operations may be affected by new legislation, new regulations or changes in existing regulations.
Our business is highly dependent on our ability to utilize the navigation canals adjacent to our facilities.
Our facilities in Houma, Louisiana are located on the Houma Navigation Canal approximately 30 miles from the GOM and on a slip adjacent to the Houma Navigation Canal. The Houma Navigation Canal provides the shortest and least restrictive means of access from our facilities in Houma, Louisiana, to open waters. With respect to our South Texas Properties, the U.S. Intracoastal Waterway provides access between our North and South yards. From our South Yard, the Corpus Christi Ship Channel provides access to the GOM. Our Jennings Shipyard in Jennings, Louisiana, is located on the west bank of the Mermentau River approximately 25 miles north of the U.S. Intracoastal Waterway and our Lake Charles Shipyard is 17 miles from the GOM on the Calcasieu River near Lake Charles, Louisiana. These waterways are considered to be navigable waterways of the United StatesU.S. and, as such, are protected by federal law from unauthorized obstructions that would hinder water-borne traffic. Federal law also authorizes maintenance of these waterways by the U.S. Army Corps of Engineers. These waterways are dredged from time to time to maintain water depth and, while federal funding for dredging has historically been provided, there is no assurance that Congressional appropriations sufficient for adequate dredging and other maintenance of these waterways will be continued indefinitely.continued. If sufficient funding were not appropriated for that purpose, some or all of these waterways could become impassable by barges or other vessels required to transport many of our products and could have a material adverse effect on our operations and financial position.
Item 1B. Unresolved Staff Comments
None.
Item 3. Legal Proceedings
We are subject to various routine legal proceedings in the normal conduct of our business, primarily involving commercial disputes and claims, workers’ compensation claims, and claims for personal injury under the general maritime laws of the United StatesU.S. and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believeswe believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or cash flows.
On October 2, 2018, we filed a lawsuit against our customer to enforce our rights and remedies under the applicable construction contracts for two MPSVs. The lawsuit was filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and is styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC. The customer responded to our lawsuit denying many of the allegations in the lawsuit and asserting a counterclaim against us. We filed a response to the counterclaim denying all of the customer’s claims. The customer subsequently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also filed a motion for partial summary judgment with the trial court seeking, among other things, to obtain possession of the vessels. A hearing on the motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels was denied by the trial court. The customer subsequently filed a second motion for partial summary judgment re-urging its previously denied request to obtain possession of the vessels. A hearing on the second motion was held on November 5, 2019, and the customer’s request to obtain possession of the vessels was again denied by the trial court. Thereafter, the customer requested that the appellate court exercise its discretion and review and reverse the trial court’s denial of the customer’s second motion. We opposed the discretionary appellate review request of the customer, and that review, as well as the pending lawsuit, were stayed during the pendency of the customer’s Chapter 11 bankruptcy case that is referenced below. However, the customer’s Chapter 11 bankruptcy plan was confirmed, and accordingly, the appellate matter and the lawsuit are no longer stayed. The appellate court has since denied the customer’s appellate review request and the lawsuit will proceed in the ordinary course. Discovery in connection with that lawsuit is ongoing and no trial date or other deadlines have been scheduled in connection with that lawsuit.
On May 19, 2020, the customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to obtain possession of the vessels. In response, we filed a motion to dismiss the adversary proceeding and to allow the dispute regarding the vessels and the construction contracts to continue in state court where our lawsuit against the customer is currently pending. On September 1, 2020, a hearing was held in connection with the motion to dismiss; however, the bankruptcy court’s decision was delayed to allow the parties an opportunity to mediate their dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the vessels. The mediation between the parties was not successful.
See Note 8 of our Financial Statements in Item 8 for further discussion of this litigation.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related StockholderShareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the Nasdaq Global Select Market, under the symbol “GIFI.” As of March 7, 2018, we had approximately 2,820At February 23, 2021, there were 2,640 holders of record of our common stock.
| High | Low | Dividend | |||||||||
| Fiscal Year 2017 | |||||||||||
| First Quarter | $ | 13.90 | $ | 10.20 | $ | 0.01 | |||||
| Second Quarter | 11.60 | 9.05 | 0.01 | ||||||||
| Third Quarter | 12.70 | 10.60 | 0.01 | ||||||||
| Fourth Quarter | $ | 13.50 | $ | 12.15 | $ | 0.01 | |||||
| Fiscal Year 2016 | |||||||||||
| First Quarter | $ | 10.21 | $ | 7.78 | $ | 0.01 | |||||
| Second Quarter | 7.93 | 6.37 | 0.01 | ||||||||
| Third Quarter | 9.47 | 6.80 | 0.01 | ||||||||
| Fourth Quarter | $ | 12.75 | $ | 9.25 | $ | 0.01 | |||||
Issuer Purchases of Equity Securities
We had no repurchases of our common stock we repurchasedsecurities during the three-month period ended December 31, 2017.
| Current Program | |||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||
| October 1 to 31, 2017 | — | — | — | — | |||||||||
| November 1 to 30, 2017 | — | $ | — | — | — | ||||||||
| December 1 to 31, 2017 | 4,213 | $ | 12.41 | — | — | ||||||||
| Total | 4,213 | (a) | $ | 12.41 | — | — | |||||||
ANNUAL RETURN PERCENTAGE Years Ending | |||||||||||
| Company / Index | Dec 13 | Dec 14 | Dec 15 | Dec 16 | Dec 17 | ||||||
| Gulf Island Fabrication, Inc. | (1.66) | (14.85) | (44.22) | 14.30 | 13.22 | ||||||
| S&P 500 Index | 32.39 | 13.69 | 1.38 | 11.96 | 21.83 | ||||||
| S&P 500 Oil & Gas Equipment & Services | 30.65 | (7.80) | (18.75) | 31.93 | (14.68) | ||||||
Base Period Dec 12 | INDEXED RETURNS Years Ending | ||||||||||
| Company / Index | Dec 13 | Dec 14 | Dec 15 | Dec 16 | Dec 17 | ||||||
| Gulf Island Fabrication, Inc. | 100 | 98.34 | 83.74 | 46.71 | 53.39 | 60.46 | |||||
| S&P 500 Index | 100 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | |||||
| S&P 500 Oil & Gas Equipment & Services | 100 | 130.65 | 120.46 | 97.87 | 129.13 | 110.16 | |||||
Item 6. Selected Financial Data
| Years Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||
| Revenue | $ | 171,022 | $ | 286,326 | $ | 306,120 | $ | 506,639 | $ | 608,326 | |||||||||
| Cost of revenue | 213,947 | 261,473 | 321,276 | 462,083 | 584,665 | ||||||||||||||
| Gross profit (loss) | (42,925 | ) | 24,853 | (15,156 | ) | 44,556 | 23,661 | ||||||||||||
| General and administrative expenses | 17,800 | 19,670 | 16,256 | 17,409 | 11,555 | ||||||||||||||
| Asset impairment | 7,672 | — | 7,202 | 3,200 | — | ||||||||||||||
| Operating income (loss) | (68,397 | ) | 5,183 | (38,614 | ) | 23,947 | 12,106 | ||||||||||||
| Net interest (expense) income | (349 | ) | (308 | ) | (139 | ) | (24 | ) | (234 | ) | |||||||||
| Other, income (expense) | (213 | ) | 681 | 20 | (99 | ) | (337 | ) | |||||||||||
| Income (loss) before income taxes | (68,959 | ) | 5,556 | (38,733 | ) | 23,824 | 11,535 | ||||||||||||
| Income tax expense (benefit) | (24,193 | ) | 2,041 | (13,369 | ) | 8,504 | 4,303 | ||||||||||||
| Net income (loss) | $ | (44,766 | ) | $ | 3,515 | $ | (25,364 | ) | $ | 15,320 | $ | 7,232 | |||||||
| Income Summary Data: | |||||||||||||||||||
| Basic and fully diluted earnings (loss) per share—common shareholders | $ | (3.02 | ) | $ | 0.24 | $ | (1.75 | ) | $ | 1.05 | $ | 0.50 | |||||||
| Basic and fully diluted weighted-average common shares | 14,838 | 14,631 | 14,546 | 14,505 | 14,463 | ||||||||||||||
| Cash dividends declared per common share | $ | 0.04 | $ | 0.04 | $ | 0.40 | $ | 0.40 | $ | 0.40 | |||||||||
Not applicable.
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Working capital | $ | 130,499 | $ | 78,012 | $ | 77,968 | $ | 97,084 | $ | 89,721 | |||||||||
| Property, plant and equipment, net | 88,899 | 206,222 | 200,384 | 224,777 | 223,555 | ||||||||||||||
| Total assets | 270,840 | 322,408 | 316,923 | 395,297 | 426,234 | ||||||||||||||
| Debt | — | — | — | — | — | ||||||||||||||
| Cash Flow Data: | |||||||||||||||||||
| Net cash provided by (used in) operating activities | (39,385 | ) | 14,568 | 10,694 | 32,110 | 38,003 | |||||||||||||
| Net cash provided by (used in) investing activities | (1,135 | ) | 2,698 | (6,007 | ) | (26,729 | ) | (20,802 | ) | ||||||||||
| Net cash (used in) financing activities | (1,664 | ) | (927 | ) | (5,944 | ) | (5,865 | ) | (5,520 | ) | |||||||||
| Operating Data: | |||||||||||||||||||
Direct labor hours worked for the year ended December 31, (1) | 1,926 | 2,784 | 2,655 | 3,646 | 4,060 | ||||||||||||||
Backlog as of December 31, (2) | |||||||||||||||||||
| Direct labor hours | 1,544 | 1,265 | 1,914 | 1,654 | 3,256 | ||||||||||||||
| Dollars | $ | 222,617 | $ | 132,972 | $ | 232,411 | $ | 184,667 | $ | 358,732 | |||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following “Management’s Discussion and Summary
Overview
We are a leading fabricator of complex steel structures, modules and marine vessels, and a provider of project management, hookup, commissioning, repair, maintenance and civil construction services. Our EPC Division
During 2019, we operated and managed our business through three operating divisions (“Fabrication,” “Shipyard” and “Services”) and one non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. As a result, we operate and manage our business through two operating divisions (“Shipyard” and “Fabrication & Services”) and one non-operating division (“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in oilthe first quarter 2020, management and gas industry drilling activities and capital spendingproject execution responsibility for our two forty-vehicle ferry projects were transferred from our traditional customer base. former Fabrication Division to our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions.
Our corporate headquarters is located in Houston, Texas, with operating facilities located in Houma, Louisiana. In 2015the fourth quarter 2020, we closed our Jennings Yard and through 2017, the Company implemented a number of initiatives to strategically reposition the Company to attract new customers, participate in the buildup of petrochemical facilities, pursue offshore wind markets and diversify our customers within our shipyard business. Additionally, the Company initiated efforts to preserve cash and lower costs including: reducing our workforce in certain divisions, developing a plan to sell certain underutilized assets, and diversifying our service offerings and fabrication capabilities.
Since 2014, the price of oil has been at depressed levels, resulting in their class.a significant and sustained reduction in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows were negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing, significant under-utilization of our operating facilities and losses on certain projects.
During the first quarter 2020, oil prices declined even further to historical lows due to a decline in demand for oil resulting in part from an unprecedented global health crisis caused by COVID-19. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. We operate in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we have continued to operate across our footprint. However, the progression of and global response to COVID-19, and related contraction in oil demand, combined with depressed and volatile crude oil prices have had and may continue to have negative impacts on our operations. The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and the related contraction in oil demand and the depressed crude oil prices cannot be reasonably estimated at this time.
During 2020, COVID-19 significantly impacted our operations. Specifically, as we have ramped up our workforce to support our longer duration projects, we have been impacted by physical distancing measures, higher employee absenteeism and turnover, as well as challenges recruiting and hiring craft labor, particularly within our Shipyard Division. Further, certain deliverables from third-party engineering firms supporting our projects have been delayed and our suppliers and subcontractors are being impacted by COVID-19, resulting in schedule delays and higher cost overruns relate primarilyestimates for subcontracted services and materials. The more significant impacts to complexitiesour projects associated with COVID-19 during 2020 are summarized below:
• | Towing, salvage and rescue ship projects – The cumulative effect of COVID-19 related impacts has resulted in disruptions, inefficiencies and lower than anticipated productivity and progress on our five towing, salvage and rescue ship projects, which are expected to have compounding effects over the duration of the projects and result in extensions of schedules and the re-sequencing of construction activities on the projects. The re-sequencing of construction activities will require us to perform construction activities on a concurrent basis, which is less efficient and reduces our ability to incorporate the benefits of previous experience into each follow-on vessel. These impacts have resulted in forecast cost increases on the projects. We have submitted a request for equitable adjustment to our customer, the U.S. Navy, to extend our project schedules and recover the increased forecast costs associated with the impacts of COVID-19; however, we can provide no assurances that we will be successful in recovering these costs. |
• | Research Vessel Projects – Construction activities for our three research vessel projects have been delayed until production engineering achieves a satisfactory level of completion to limit impacts on construction, including disruption and rework. These construction delays are expected to continue in the near term due to production engineering delays experienced by our customer’s engineering subcontractor as a result of COVID-19. We are working with the customer to collectively assess the execution and schedule impacts to the projects due to these production engineering delays. |
• | Harbor Tug Projects – Physical distancing measures associated with COVID-19 resulted in lower than anticipated productivity and progress on our final two harbor tug projects, resulting in extensions of schedules and forecast cost increases on the projects. The final two projects were completed in October 2020 and January 2021, respectively. |
• | Seventy-Vehicle Ferry Project and Two Forty-Vehicle Ferry Projects – The cumulative effect of COVID-19 related impacts has resulted in disruptions, inefficiencies and lower than anticipated productivity and progress on our seventy-vehicle ferry project and two forty-vehicle ferry projects, resulting in extensions of schedules and forecast cost increases on the projects. Although we have received extensions of the project schedules, we have been unable to recover the cost impacts of COVID-19 on the projects. |
While we believe it is likely that there will continue to be an impact from COVID-19 for the installationforeseeable future, as discussed above, we are unable to estimate the ultimate impacts on our productivity, schedules and costs on our projects over the longer-term if mitigation measures, employee absenteeism and turnover, craft labor hiring challenges, engineering delays and supplier and subcontractor disruptions continue as a result of COVID-19. See Note 2 of our Financials in Item 8 for further discussion of the power and communications systems. We believe the best course of action for the Company is to perform additional engineering and construction planning to ensure we are meeting the contractual performance requirements for these vessels and mitigating any further construction risk. With the additional electrical engineering, planning and construction estimates, the estimated delivery datesimpacts of the vessels will be extended beyond the contractual delivery dates,aforementioned on our projects, and we estimate that the maximum amount“Risk Factors” in Item 1A and Note 1 of liquidated damages of $11.2 million will be incurredour Financial Statements in the absence of a signed amendment with the customer. We have included the maximum liquidated damages in our 2017 loss provision above and reduced our estimateItem 8 for further discussion of the contract price. impacts of COVID-19 and reductions and volatility in crude oil prices.
In addition to the impacts of COVID-19 during 2020, our projects and operations were further impacted by the following:
• | Hurricanes – During the third quarter 2020, Hurricane Laura made landfall near our Lake Charles Yard as a high-end Category 4 hurricane, damaging primarily drydocks, warehouses, bulkheads and our ninth harbor tug project at our Lake Charles Yard. In the fourth quarter 2020, we closed our Lake Charles Yard. See Note 2 of our Financials in Item 8 for further discussion of the impacts of Hurricane Laura on our operations. |
• | Overhead Crane Incident – During the third quarter 2020, our first forty-vehicle ferry project was damaged by an overhead crane, which disengaged from its tracks, and landed on the hull that was under construction. See Note 2 of our Financial Statements in Item 8 for further discussion of the crane incident and the impact on our first forty-vehicle ferry project. |
We continue to address these operational, market and economic challenges through a strategy focused on the following initiatives to:
• | Mitigate the impacts of COVID-19 on our operations, employees and contractors; |
• | Improve and maintain our liquidity through cost reduction efforts and the sale of under-utilized assets; |
• | Improve our resource utilization and centralize key project resources through the rationalization and integration of our facilities and operations; |
• | Improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures; and |
• | Reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector by repositioning the Company to: |
– | Fabricate modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities; |
– | Fabricate newbuild marine vessels for the government and other customers unrelated to the offshore oil and gas sector; |
– | Fabricate foundations, secondary steel components and support structures for offshore wind developments; and |
– | Fabricate structures in support of our customers as they make energy transitions away from fossil fuels. |
See below for further discussion of these initiatives.
Progress on our Initiatives
Efforts to mitigate the impacts of COVID-19 on our operations, employees and contractors – We are continuing to take actions to mitigate the impacts of COVID-19 on our operations while ensuring the safety and well-being of our employees and contractors.
• | COVID-19 measures – We have initiated measures that include ongoing communications with our leadership teams to anticipate and proactively address COVID-19 impacts, work-place distancing of employees (including allowing some employees to work remotely) and regular monitoring of office and yard personnel for compliance. We are also monitoring employee and visitor temperatures prior to entering our facilities, implemented employee and visitor wellness questionnaires, increased monitoring of employee absenteeism and the reasons for such absences, and initiated protocols for employees returning from absences, including employees that have tested positive for COVID-19, or have come in contact with |
individuals that tested positive for COVID-19. In addition, we have installed hand sanitizing stations and taken additional actions to more frequently sanitize our facilities. |
• | Pursuit of force majeure – We are providing appropriate notices to our customers and making the appropriate claims for extensions of schedule for our projects which have been impacted by COVID-19. |
• | Loanagreement – In April 2020, we entered into a loan agreement for proceeds of $10.0 million (“PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The proceeds were used for payroll costs, rent and utilities, of which approximately 93% was used for payroll costs. See “Liquidity and Capital Resources” below and Note 5 of our Financial Statements in Item 8 for further discussion of the PPP Loan. |
Efforts to preserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity, and at December 31, 2020, our cash and short-term investments totaled $51.2 million. To preserve our liquidity position, we have undertaken cost reduction initiatives (including reducing the compensation of our directors and executive officers and reducing the size of our board), monetized under-utilized assets and facilities and are maintaining an ongoing focus on project cash flow management. During 2020, we received proceeds of $1.7 million from the sale of assets held for sale, and at December 31, 2020, our assets held for sale totaled $8.2 million. Further, as discussed above, we received the PPP Loan in the second quarter 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19. It also provided us important additional liquidity as a strong balance sheet is required to execute our backlog and compete for new project awards, and we experience significant monthly fluctuations in our working capital.
Efforts to improve our resource utilization and centralize our key project resources – We are improving our resource utilization and centralizing our key project resources through the rationalization and integration of our facilities and operations.
• | Closure of Jennings Yard and Lake Charles Yard – During the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Yard. The closures will consolidate our marine vessel construction and repair and maintenance activities in our Houma Yards, enabling us to maximize the utilization of our facilities and resources (including reducing overhead costs), combine our management and supervision talent in a single location, and improve our project execution. See Note 3 of our Financial Statements in Item 8 for further discussion of our closure of the Jennings Yard and Lake Charles Yard. |
• | Combination of our Fabrication Division and Services Division and Realignment of Projects – As discussed above, in the first quarter 2020, we combined our Fabrication and Services Divisions to form an integrated new division called Fabrication & Services. The integration will enable us to capitalize on the best practices and execution experience of the former divisions, conform processes and procedures, maximize the utilization of our resources (including reducing overhead costs) and improve project execution. In addition, as discussed above, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division. |
Efforts to improve our competitiveness and project execution – We have taken, and continue to take, actions to improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures. Our actions include strategic changes in management and key personnel, the addition of functional expertise, project management training, development of a formal “lessons learned” program to incorporate experiences gained from previous projects into current and future projects, and other measures designed to strengthen our personnel, processes and procedures. Further, we are taking a disciplined approach to pursuing and bidding project opportunities, putting more rigor around our bid estimates to provide greater confidence that our estimates are achievable, increasing accountability and providing incentives for the execution of projects in line with our original estimates and subsequent forecasts, and incorporating previous experience into the bidding and execution of future projects.
Efforts to reduce our reliance on the offshore oil and gas sector – We are pursuing several initiatives to reduce our reliance on the fabrication of structures and marine vessels associated with the customeroffshore oil and gas sector.
• | Fabrication of onshore modules, piping systems and structures – We continue to focus our business development efforts on the fabrication of modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities. We have experienced success with several smaller project opportunities, and our volume of bidding activity for onshore modules, piping systems and structures is increasing; however, our pursuit of large project opportunities has been impacted by the timing and delay of certain opportunities due in part to COVID-19, volatile oil prices and an ongoing competitive market environment. We also continue to believe that our strategic location in Houma, Louisiana and track record of quality and on-time completion of onshore modules position us well to compete in the onshore fabrication market. However, we do not expect large project opportunities to be awarded by customers until late 2021 or 2022. This timing may be impacted by ongoing uncertainty created by the volatility of oil prices and COVID-19. In the interim, we continue to strengthen our relationships with key customers and strategic partners and enhance our resources as discussed above. |
• | Fabrication of newbuild marine vessels for the government and other non-oil and gas related customers – We continue to pursue newbuild marine vessel opportunities for customers unrelated to the offshore oil and gas sector. During the first quarter 2020, the U.S. Navy exercised its options for the construction of two additional towing, salvage and rescue ships. At December 31, 2020, nearly all of the backlog within our Shipyard Division was attributable to government and other customers unrelated to the offshore oil and gas sector, including the construction of three research vessels, five towing, salvage and rescue ships and three vehicle ferries. During 2020, we also made capital improvements to our facilities associated primarily with erection sites and warehouse storage to support our backlog and future new project awards. |
• | Fabrication of offshore wind foundations, secondary steel components and support structures – We continue to believe that current initiatives, and potential future requirements, to provide electricity from renewable and green sources will result in growth of offshore wind projects. Furthermore, we believe that we possess the expertise to fabricate foundations, secondary steel components and support structures for this emerging market. This is demonstrated by our previous fabrication of wind turbine foundations for the first offshore wind project in the U.S. and the fabrication of a meteorological tower and platform for an offshore wind project. While we believe we have the capability to participate in this emerging market, we do not expect meaningful opportunities in the near term. |
• | Fabricate structures in support of our customers as they make energy transitions away from fossil fuels– We believe that our expertise and capabilities provide us with the necessary foundation to fabricate steel structures in support of our customers as they transition away from fossil fuels to green energy end markets. Examples of these opportunities involve refiners who are looking to process biofuels and customers looking to embrace the growing hydrogen economy. |
Operating Outlook
Our focus remains on securing profitable new project awards and backlog in the near-term and generating operating income and cash flows in the longer-term while ensuring the safety and well-being of our employees and contractors, which has been further challenged due to completeCOVID-19. Our success, including achieving the contractaforementioned initiatives, will be determined by, among other things:
• | Oil and gas prices and the level of volatility in such prices, including the impact of environmental regulations that restrict the oil and gas industry under the Biden Administration; |
• | COVID-19, for which the ultimate business and financial impacts cannot be reasonably estimated at this time; |
• | The level of fabrication opportunities in our traditional offshore markets and the new markets we are pursuing, including refining, petrochemical, LNG and industrial facilities, offshore wind developments and green energy; |
• | The level of new build marine vessel activity within, and outside of, the oil and gas sector; |
• | Our ability to secure new project awards through competitive bidding and/or alliance and partnering arrangements; |
• | Our ability to execute projects within our cost estimates and successfully manage them through completion; |
• | Our ability to hire, motivate and retain key personnel and craft labor to execute our projects; |
• | The successful integration of our Fabrication Division and Services Division; and |
• | Our ability to resolve our dispute with a customer related to the construction of two MPSVs. See Note 8 of our Financial Statements in Item 8 and “Legal Proceedings” in Item 3 for further discussion of the dispute. |
In addition, in the near-term: (i) the utilization of our Shipyard Division will be adversely affected by temporary delays in construction activities for our three research vessel projects until engineering achieves further completion, (ii) the utilization of our Fabrication & Services Division will be impacted by the delay in timing of new project awards, and (iii) the utilization of both divisions and our projects will be impacted by inefficiencies and disruptions associated with COVID-19 related health and safety mitigation measures, employee absenteeism and turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our near-term results may also be adversely affected by costs associated with investments in key personnel and process improvement efforts to support our aforementioned initiatives. In addition, our gross profit for both divisions will be impacted in the near-term as certain projects within our backlog are in a manner thatloss position and a majority of our remaining backlog is acceptableat, or near, break-even gross profit. Specifically, due to both parties;previous new project awards bid at competitive pricing (including the option exercises by our customer in the first quarter 2020 for two additional towing, salvage and rescue ships) and recent and previous project charges, approximately 30% of our backlog is in a loss position, 65% of our backlog is at, or near, break-even, and a majority of our remaining backlog is at a low gross profit margin. Accordingly, this backlog will result in future revenue with low or no gross profit; however, resolutionwe continue to focus on improvements to our personnel, processes and procedures to improve project gross profit. Further, we have submitted a request for equitable adjustment to our customer, the U.S. Navy, to extend our project schedules and recover increased forecast costs associated with this customer could take several months. Wethe impacts of COVID-19 on our five towing, salvage and rescue ship projects; however, we can provide no assuranceassurances that we will be successful in signing an amendment to the contract, or that in the event we are successful in negotiating an amendment,recovering these costs. Lastly, as to when such an amendment will be signed or if such amendment will result in recovery of any cost overruns or liquidated damages that we have recognized to date. We believe that our estimates to complete the vessels are reasonable; however, we cannot guarantee that we will not incur additional costs as we negotiate with our customer.
New Awards and Backlog
New project awards represent expected revenue values of conditions, including agreement on terms of the engagement with SeaOne. We are working to strengthen our internal project management capabilities through the hiring of additional personnel to service this potential project. The SeaOne Project is expected to start during mid-2018 with construction expected to start later in 2018 or early 2019.
Projects in our backlog are generally are subject to delay, suspension, termination, or a reductionan increase or decrease in scope at the option of the customer, althoughcustomer; however, the customer is typically required to pay us for work performed and materials purchased through the date of termination, suspension, or decrease in scope. Depending on the size of the project, the delay, suspension, termination or increase or reduction in scope. In addition, customers have the ability to delay the executionscope of projects.
|
| Years Ended December 31, |
| |||||
Division |
| 2020 |
|
| 2019 |
| ||
Shipyard |
| $ | 140,428 |
|
| $ | 251,424 |
|
Fabrication & Services |
|
| 66,654 |
|
|
| 132,659 |
|
Total New Awards |
| $ | 207,082 |
|
| $ | 384,083 |
|
Backlog by Division at December 31, 2017, September 30, 2017,2020 and as of December 31, 2016,2019, is as follows (amounts(in thousands):
|
| December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019(2) |
| ||||||||||
Division |
| Amount |
|
| Labor hours |
|
| Amount |
|
| Labor hours |
| ||||
Shipyard |
| $ | 352,181 |
|
|
| 2,784 |
|
| $ | 373,969 |
|
|
| 2,507 |
|
Fabrication & Services |
|
| 19,381 |
|
|
| 236 |
|
|
| 63,357 |
|
|
| 630 |
|
Total Backlog (1), (3) |
| $ | 371,562 |
|
|
| 3,020 |
|
| $ | 437,326 |
|
|
| 3,137 |
|
Backlog at December 31, 2020, is expected to be recognized as revenue in thousands, except for percentages)the following periods (in thousands):
Year (4) |
| Total |
|
| Percentage |
| ||
2021 |
| $ | 161,370 |
|
|
| 43.4 | % |
2022 |
|
| 140,018 |
|
|
| 37.7 | % |
Thereafter |
|
| 70,174 |
|
|
| 18.9 | % |
Total Backlog (1), (3) |
| $ | 371,562 |
|
|
| 100.0 | % |
As of December 31, 2017 (1) | As of September 30, 2017 | As of December 31, 2016 | ||||||||||||
| $'s | Labor hours | $'s | Labor hours | $'s | Labor hours | |||||||||
| Fabrication | $ | 15,771 | 150 | $ | 29,554 | 254 | $ | 65,444 | 707 | |||||
| Shipyard | 184,035 | 1,104 | 200,909 | 1,045 | 59,771 | 457 | ||||||||
| Services | 23,181 | 290 | 21,918 | 265 | 7,757 | 101 | ||||||||
| Intersegment eliminations | (370 | ) | — | (649 | ) | — | — | — | ||||||
| Total Backlog | $ | 222,617 | 1,544 | $ | 251,732 | 1,564 | $ | 132,972 | 1,265 | |||||
| Number | Percentage | Number | Percentage | Number | Percentage | |||||||||
| Major customers | four | 73.0% | (2) | five | 82.7% | two | 80.5% | |||||||
| $'s | Percentage | $'s | Percentage | $'s | Percentage | |||||||||
| Deepwater locations | $ | — | —% | $ | — | —% | 2,743 | 2.1% | ||||||
| Foreign locations | — | —% | — | —% | 4,774 | 3.6% | ||||||||
| Backlog that is expected to be recognized in revenue during: | ||||||||||||||
| $'s | Percentage | |||||||||||||
| 2018 | $ | 158,065 | 71.0% | (3) | ||||||||||
| 2019 | 56,578 | 25.4% | (3) | |||||||||||
| 2020 | 7,974 | 3.6% | (3) | |||||||||||
| Total Backlog | $ | 222,617 | 100% | |||||||||||
(1) | At December 31, 2020, seven customers represented approximately 98% of our backlog and at December 31, 2019, eleven customers represented approximately 96% of our backlog. At December 31, 2020, backlog from the seven customers consisted of: |
(i) | Construction of three regional class research vessels within our Shipyard Division. We estimate completion of the vessels in 2022 and 2023, subject to potential schedule impacts discussed further in “Overview” above and Note 2 of our Financial Statements in Item 8; |
(ii) | Construction of five towing, salvage and rescue ships within our Shipyard Division. We estimate completion of the vessels in 2022, 2023 and 2024, subject to the potential schedule impacts discussed further in “Overview” above and Note 2 of our Financial Statements in Item 8; |
(iii) | Construction of two forty-vehicle ferries within our Shipyard Division. We estimate completion of the vessels in 2021 and 2022, subject to the potential schedule impacts discussed further in “Overview” above and Note 2 of our Financial Statements in Item 8; |
(iv) | Construction of a seventy-vehicle ferry within our Shipyard Division. We estimate completion of the vessel in 2021; |
(v) | Fabrication of modules for an offshore facility within our F&S Division. We estimate completion of the project in 2021; |
(vi) | Material supply for an offshore jacket and deck within our F&S Division. We estimate completion of the project in 2021; and |
(vii) | Fabrication of marine docking structures within our F&S Division. We estimate completion of the project in 2021. |
(2) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, backlog as of December 31, |
(3) | Backlog at December 31, 2019 for our Shipyard Division was $21.9 million higher than our remaining performance obligations under Topic 606 (the most comparable GAAP measure as presented in Note 2 of our Financial Statements in Item 8), as it included contracts for the construction of |
(4) |
The timing of recognition of the revenue |
Our contract for the sizeconstruction of five towing, salvage and rescue ships contains options which grant our customer, the project,U.S. Navy, the termination, postponement, or reduction in scoperight, if exercised, for the construction of any one project could significantly reducethree additional vessels at contracted prices. During the first quarter 2021, the U.S. Navy determined it would not exercise the three remaining options under our backlog and could have a material adverse effect on revenue, results of operations and cash flow. For
Critical Accounting Policies
Our consolidated financial statementsFinancial Statements are prepared in accordance with generally accepted accounting principles withinin the United States ("GAAP"U.S. (“GAAP”) which require us to make estimates and assumptions.judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We also discuss the development and selection of our critical accounting policies with the Audit Committee of our Board of Directors. We believe that the following significantcritical accounting policies (see Note 1affect our more significant judgments and estimates used in the Notes to Consolidated Financial Statements), involve a higher degree of judgment and complexity:
Revenue Recognition
General – Our revenue is recognizedderived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We recognize revenue for our contracts in accordance with Accounting Standards Update (“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers.”
Fixed-Price and Unit-Rate Contracts – Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion basismethod (an input method), based on the ratio of direct labor hours actually performedcontract costs incurred to date compared to the total estimated contract costs. Contract costs include direct costs, such as materials and labor, hoursand indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims achievement of contractual performance requirements, and contingency, among others. Although our customers retain the right and ability to change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for completion. Accordingly, contract price andthe work performed to date. The cumulative impact of revisions in total cost estimates are reviewed monthly asduring the work progresses, and adjustments proportionate to the percentage-of-completion are reflected in revenue for the period when such estimates are revised. If these adjustments were to result in a reduction of previously reported profits, we would recognize a charge against current earnings, which may be significant depending on the size of the project or the adjustment.
T&M Contracts – Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are determined. Forincurred and collection is reasonably assured. Our T&M contracts provide for labor and materials to be billed at rates specified within the years ended December 31, 2017, 2016contract. The consideration from the customer directly corresponds to the value of our performance completed at the time of invoicing.
Variable Consideration – Revenue and 2015, there was no significant revenue related togross profit for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, or claims.
See also Note 61 and Note 2 of the Notesour Financial Statements in Item 8 for further discussion of our revenue recognition policy.
Long-Lived Assets
Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to Consolidated Financial Statements.
Assets Held for Sale
Assets held for sale at December 31, 2017. See Note 4 of the Notes to Consolidated Financial Statements. We measure and record assets held for saleare measured at the lower of their carrying amount or fair value less cost to sell. Our net book value of property, plant and equipment for these assets was $104.6 million at December 31, 2017. On December 20, 2017, we granted an exclusive option to a third party for the purchaseSee Note 3 of our South YardFinancial Statements in Item 8 for a purchase pricediscussion of $55 million. We compared our carrying valueimpairments of our South Yard to the the purchase price less costs to sell and determined that there was no impairment. For our North Yard, we have obtained third party appraisals, level 3 inputs, to determine the fair value of the asset group due to the uncertainty with respect to the future cash flows and compared them to the carrying value which did not result in impairment. For the remaining South Texas equipment and the Prospect Shipyard assets we compared the carrying value of the assets to management's estimates of fair value less costs to sell, and we recorded impairments totaling $989,000 related to our Prospect Shipyard assets. We had no assets held for sale at December 31, 2016, and had no impairments charges during 2016.
Income Taxes
Income taxes have been provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the basis differences are expected to reverse. Due to changing tax laws, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future.
A valuation allowance is provided to reserve for deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assetsDTAs will not be realized. AsThe realization of December 31, 2017, we had a valuation allowanceour DTAs depends on our ability to generate sufficient taxable income of $392,000 offsetting our deferred tax assets.
Reserves for uncertain tax positions are recognized when the positions arewe consider it more likely than not tothat additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not be sustained upon audit.we have received tax assessments. Interest and penalties on uncertain tax positions are recorded inwithin income tax expense. Our federal tax returns have been examinedSee Note 6 of our Financial Statements in Item 8 for further discussion of our income taxes, DTAs, and settled through the 2012 tax year. There were no material uncertain tax positions recorded for the years presented in these statements.
Stock-Based Compensation
Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. We use the straight-line method to recognize share-based compensation expense over an estimated useful life of three to 25 years for machinery and equipment. See Note 5the requisite service period of the Notes to Consolidated Financial Statements. The determination of useful life requires judgment and includes significant estimates that management reassesses as circumstances warrant. Depreciation expense foraward. We recognize the years ended December 31, 2017, 2016 and 2015 was $12.9 million, $25.4 million and $26.2 million, respectively. The reduction in depreciation expense during 2017 is the result of classifying our South Texas Properties and our Prospect Shipyard assets as assets held for sale during the first quarter of 2017, and suspending the recognition of depreciation expense for those assets.
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2017 | 2016 | Amount | Percent | ||||||||||
| Revenue | $ | 171,022 | $ | 286,326 | $ | (115,304 | ) | (40.3 | )% | ||||
| Cost of revenue | 213,947 | 261,473 | (47,526 | ) | (18.2 | )% | |||||||
| Gross profit (loss) | (42,925 | ) | 24,853 | (67,778 | ) | 272.7 | % | ||||||
| Gross profit (loss) percentage | (25.1 | )% | 8.7 | % | |||||||||
| General and administrative expenses | 17,800 | 19,670 | (1,870 | ) | (9.5 | )% | |||||||
| Asset impairment | 7,672 | — | 7,672 | 100.0 | % | ||||||||
| Operating income (loss) | (68,397 | ) | 5,183 | (73,580 | ) | (1,419.6 | )% | ||||||
| Other income (expense): | |||||||||||||
| Interest expense | (349 | ) | (332 | ) | (17 | ) | |||||||
| Interest income | — | 24 | (24 | ) | |||||||||
| Other income (expense) | (213 | ) | 681 | (894 | ) | ||||||||
| Total Other income (expense) | (562 | ) | 373 | (935 | ) | (250.7 | )% | ||||||
| Net income (loss) before income taxes | (68,959 | ) | 5,556 | (74,515 | ) | (1,341.2 | )% | ||||||
| Income taxes | (24,193 | ) | 2,041 | (26,234 | ) | (1,285.4 | )% | ||||||
| Net income (loss) | $ | (44,766 | ) | $ | 3,515 | $ | (48,281 | ) | (1,373.6 | )% | |||
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2017 | 2016 | Amount | Percent | ||||||||||
| Revenue | $ | 57,880 | $ | 88,683 | $ | (30,803 | ) | (34.7 | )% | ||||
| Gross profit (loss) | (1,941 | ) | 5,276 | (7,217 | ) | (136.8 | )% | ||||||
| Gross profit (loss) percentage | (3.4 | )% | 5.9 | % | |||||||||
| General and administrative expenses | 3,416 | 3,776 | (360 | ) | (9.5 | )% | |||||||
| Asset impairment | 6,683 | — | 6,683 | 100.0 | % | ||||||||
| Operating loss | $ | (12,040 | ) | $ | 1,500 | $ | (13,540 | ) | 902.7 | % | |||
Insurance
We maintain insurance coverage for various aspects of our South Texas Properties have been completed or transferredbusiness and operations. However, we may be exposed to future losses through our Houma fabrication yard.
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2017 | 2016 | Amount | Percent | ||||||||||
| Revenue | $ | 52,699 | $ | 109,502 | $ | (56,803 | ) | (51.9 | )% | ||||
| Gross profit (loss) | (44,870 | ) | 7,801 | (52,671 | ) | (675.2 | )% | ||||||
Gross profit (loss) percentage | (85.1 | )% | 7.1 | % | |||||||||
| General and administrative expenses | 3,926 | 5,426 | (1,500 | ) | (27.6 | )% | |||||||
| Asset impairment | $ | 989 | — | 989 | 100.0 | % | |||||||
| Operating (loss) income | $ | (49,785 | ) | $ | 2,375 | $ | (52,160 | ) | (2,196.2 | )% | |||
Fair Value Measurements
Our fair value determinations for financial assets and liabilities are based on the second vessel under contract with this customer. We successfully resolved our dispute with this customerparticular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the customer accepted deliverylowest level of input that is significant to the fair value measurement. The three levels of the first vessel less a reduction in the amounts owed under the contract of $233,000 in November 2017. We have also recommenced construction of the second vessel to be delivered in 2018 for the remaining contract price less $233,000.valuation hierarchy are as follows:
• | Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets. |
• | Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market. |
• | Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques. |
See Note 111 of the Notes to Consolidated Financial Statements. Additionally, our Shipyard Division incurred lower bonuses accrued during 2017, as a result of a combination of a smaller workforce and our consolidated operating loss and cost reduction efforts implemented by management during the first part of 2016.
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2017 | 2016 | Amount | Percent | ||||||||||
| Revenue | $ | 65,445 | $ | 91,414 | $ | (25,969 | ) | (28.4 | )% | ||||
| Gross profit | 4,575 | 12,420 | (7,845 | ) | (63.2 | )% | |||||||
| Gross profit percentage | 7.0 | % | 13.6 | % | |||||||||
| General and administrative expenses | 2,701 | 3,314 | (613 | ) | (18.5 | )% | |||||||
| Operating income | $ | 1,874 | $ | 9,106 | $ | (7,232 | ) | (79.4 | )% | ||||
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2017 | 2016 | Amount | Percent | ||||||||||
| Revenue | $ | — | $ | — | $ | — | — | % | |||||
| Gross profit (loss) | (689 | ) | (644 | ) | (45 | ) | (7.0 | )% | |||||
| Gross profit (loss) percentage | n/a | n/a | |||||||||||
| General and administrative expenses | 7,757 | 7,154 | 603 | 8.4 | % | ||||||||
| Operating income (loss) | $ | (8,446 | ) | $ | (7,798 | ) | $ | (648 | ) | 8.3 | % | ||
Results of personnel that were previously included in our operating divisions related to shared services that are now included within our Corporate Division during 2017 as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the proceeds to be received from the sale of our South Texas Properties. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. This has been partially offset by lower bonuses accrued during 2017 as a result of our consolidated operating loss.
Comparison of the years ended December 31, 20162020 and 2015
In the comparative tables below, percentage changes that are not considered meaningful are shown below as “nm” (generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100%).
Consolidated
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 207,082 |
|
| $ | 384,083 |
|
| $ | (177,001 | ) |
|
| (46.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 250,959 |
|
| $ | 303,308 |
|
| $ | (52,349 | ) |
|
| (17.3 | )% |
Cost of revenue |
|
| 268,710 |
|
|
| 320,307 |
|
|
| 51,597 |
|
|
| 16.1 | % |
Gross loss |
|
| (17,751 | ) |
|
| (16,999 | ) |
|
| (752 | ) |
|
| (4.4 | )% |
Gross loss percentage |
|
| (7.1 | )% |
|
| (5.6 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 13,858 |
|
|
| 15,628 |
|
|
| 1,770 |
|
|
| 11.3 | % |
Impairments and (gain) loss on assets held for sale |
|
| 4,130 |
|
|
| 17,528 |
|
|
| 13,398 |
|
| nm |
| |
Other (income) expense, net |
|
| (8,580 | ) |
|
| (134 | ) |
|
| 8,446 |
|
| nm |
| |
Operating loss |
|
| (27,159 | ) |
|
| (50,021 | ) |
|
| 22,862 |
|
|
| 45.7 | % |
Interest (expense) income, net |
|
| (268 | ) |
|
| 531 |
|
|
| (799 | ) |
| nm |
| |
Loss before income taxes |
|
| (27,427 | ) |
|
| (49,490 | ) |
|
| 22,063 |
|
|
| 44.6 | % |
Income tax (expense) benefit |
|
| 52 |
|
|
| 96 |
|
|
| (44 | ) |
|
| (45.8 | )% |
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | 22,019 |
|
|
| 44.6 | % |
New Project Awards – New project awards for 2020 and 2019 were $207.1 million and $384.1 million, respectively. Significant new project awards for 2020 include:
• | The exercise of options by the U.S. Navy for a fourth and fifth towing, salvage and rescue ship in the first quarter 2020 within our Shipyard Division, |
• | Additional scopes of work for our research vessel projects in the fourth quarter 2020 within our Shipyard Division, and |
• | A marine docking structures project and additional scopes of work for our offshore jacket and deck project in the second quarter 2020 within our Fabrication & Services Division. |
Significant new project awards for 2019 include:
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019 within our Shipyard Division, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019 within our Shipyard Division, |
• | A seventy-vehicle ferry in the third quarter 2019 within our Shipyard Division, |
• | An offshore jacket and deck project and subsea components project in the first quarter 2019 within our Fabrication & Services Division, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019 within our Fabrication & Services Division, and |
• | A material supply project and offshore modules project in the fourth quarter 2019 within our Fabrication & Services Division. |
Revenue – Revenue for 2020 and our inability to recover certain costs on disputed change orders related to a large deepwater project which2019 was delivered in 2015. In the second quarter of 2016, we initiated legal action to recover our costs from these disputed change orders. No recoveries from our legal action were included in the preparation of our Consolidated Financial Statements for the years ended December 31, 2016 or 2015.
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2016 | 2015 | Amount | Percent | ||||||||||
| Revenue | $ | 286,326 | $ | 306,120 | $ | (19,794 | ) | (6.5 | )% | ||||
| Cost of revenue | 261,473 | 321,276 | (59,803 | ) | (18.6 | )% | |||||||
| Gross profit (loss) | 24,853 | (15,156 | ) | 40,009 | 264.0 | % | |||||||
| Gross profit percentage | 8.7 | % | (5.0 | )% | |||||||||
| General and administrative expenses | 19,670 | 16,256 | 3,414 | 21.0 | % | ||||||||
| Asset impairment | — | 7,202 | (7,202 | ) | (100.0 | )% | |||||||
| Operating (loss) income | 5,183 | (38,614 | ) | 43,797 | (113.4 | )% | |||||||
| Other income (expense): | |||||||||||||
| Interest expense | (332 | ) | (165 | ) | (167 | ) | |||||||
| Interest income | 24 | 26 | (2 | ) | |||||||||
| Other income (expense) | 681 | 20 | 661 | ||||||||||
| Total Other income (expense) | 373 | (119 | ) | 492 | 413.4 | % | |||||||
| (Loss) income before income taxes | 5,556 | (38,733 | ) | 44,289 | 114.3 | % | |||||||
| Income taxes | 2,041 | (13,369 | ) | 15,410 | 115.3 | % | |||||||
| Net (loss) income | $ | 3,515 | $ | (25,364 | ) | $ | 28,879 | 113.9 | % | ||||
Decreased revenue for our Fabrication & Services Division of $37.7 million, primarily attributable to an overall decrease in work experienced in our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in activity in the GOM. Additionally, our Fabrication Divisionto:
• | Lower revenue for our paddlewheel river boat and subsea components projects that were completed |
• | Reduced offshore services activity and small fabrication project activity, offset partially by, |
• | Higher revenue for our offshore jacket and deck project, and |
• | Higher revenue for our marine docking structures project, material supply project and offshore modules project. |
Decreased revenue for the year ended December 31, 2016,our Shipyard Division of $14.8 million, primarily attributable to:
• | Lower revenue for our harbor tug projects as we had fewer vessels under construction, |
• | Lower revenue for our ice-breaker tug project which was completed in the second quarter 2020 and towboat projects which were completed in 2019, |
• | Lower revenue for our research vessel projects due to construction delays associated with the previously disclosed temporary suspension of construction activities on the projects until engineering achieves further completion, and |
• | Lower revenue associated with less repair and maintenance activity, offset partially by, |
• | Higher revenue for our towing, salvage and rescue ship projects associated with increased construction activities and procurement progress on engineered equipment, and |
• | Higher revenue for our seventy-vehicle ferry project associated with increased construction activities and procurement progress on engineered equipment. |
Gross loss – Gross loss for 2020 and to a lesser extent, experienced a decrease of pass through costs in 2016 as compared to 2015. Pass-through costs, as described in Note 2 in the Notes to Consolidated Financial Statements, are included in revenue but have no impact on the gross profit recognized on a project for a particular period. Pass-through costs as a percentage of revenue were 36.5% and 44.4% for the years ended December 31, 2016 and 2015, respectively.
• | Project charges of $16.6 million for our Shipyard Division, |
• | A low margin backlog for our Shipyard Division and low revenue for our Fabrication & Services Division, |
• | The partial under-recovery of overhead costs, primarily associated with the under-utilization of our facilities and resources within our Fabrication & Services Division, and to a lesser extent within our Shipyard Division, including: |
− | Costs associated with retaining salaried overhead and hourly craft employees to perform process improvements, special projects and facility maintenance and repairs, and |
− | Lower utilization of our facilities and resources due to, and costs incurred to prepare for, Hurricane Laura, Hurricane Marco and Hurricane Sally in the third quarter 2020. |
• | Holding costs of $0.7 million related to the two MPSV vessels which remain in our possession and are subject to dispute, and |
• | Incremental direct costs associated with work-place monitoring, enhanced sanitization efforts and other measures related to COVID-19, offset partially by, |
• | Project improvements of $2.7 million for our Fabrication & Services Division. |
The increase in gross loss for 2020 relative to 2019 was primarily due to:
• | The aforementioned project charges of $16.6 million for 2020 for our Shipyard Division, |
• | Lower revenue and an increase in the under-recovery of overhead costs for our Fabrication & Services Division, and |
• | A lower margin mix (excluding the aforementioned project charges) for our Shipyard Division, offset partially by, |
• | Project charges of $12.3 million and $4.9 million for 2019 for our Shipyard Division and Fabrication & Services Division, respectively, |
• | The aforementioned project improvements of $2.7 million for 2020 for our Fabrication & Services Division, and |
• | A higher margin mix (excluding the aforementioned project improvements) for our Fabrication & Services Division. |
See “Operating Segments” below and Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2020 and 2019 was $13.9 million (5.5% of revenue) and $15.6 million (5.2% of revenue), respectively, representing a decrease of 11.3%. The decrease was primarily due to:
• | Cost reduction initiatives including combining our former Fabrication and Services Divisions, |
• | Reduced professional fees associated with the evaluation of strategic alternatives, and |
• | Other costs savings including reductions in board size and the salaries of our executives, offset partially by, |
• | Higher incentive plan costs (due primarily to the 2019 period benefiting from the partial reversal of long-term incentives that were accrued in periods prior to 2019 but ultimately not earned), and |
• | Higher legal and advisory fees and insurance costs. |
General and administrative expense includes legal and advisory fees related to a contract dispute for a completed project that was settled during the first quarter 2020 and a contract dispute associated with our MPSV projects which are subject to purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes totaled $1.3 million and $1.4 million for 2020 and 2019, respectively, and are reflected within our Corporate Division. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute and Note 8 for further discussion of our MPSV dispute.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2020 and 2019 was loss of $4.1 million and $17.5 million, respectively. The loss for 2020 was primarily due to:
• | Impairments of $1.4 million associated with assets held for sale within our Fabrication & Services Division, |
• | Impairments of $0.9 million for certain fixed assets associated with the relocation and consolidation of such assets to improve operational efficiency within our Fabrication & Services Division, |
• | Impairments of $1.0 million for lease assets and fixed assets (primarily drydocks) attributable to the closure of our Lake Charles Yard in the fourth quarter 2020 within our Shipyard Division, |
• | Costs of $0.6 million primarily associated with the closures of our Jennings Yard and Lake Charles Yard in the fourth quarter 2020 within our Shipyard Division, and |
• | A loss of $0.2 million on the sale of a barge and other assets held for sale within our Fabrication & Services Division. |
The loss for 2019 was primarily due to:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory within our Fabrication & Services Division, |
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard within our Shipyard Division, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard within our Shipyard Division, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold within our Shipyard Division, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale within our Fabrication & Services Division. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale and closures of the Jennings Yard and Lake Charles Yard.
Other (income) expense, net – Other (income) expense, net for 2020 and 2019 was income of $8.6 million and $0.1 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items. Other income for 2020 was primarily due to:
• | A gain of $10.0 million associated with the settlement of a contract dispute for a project completed in 2015. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute. The gain was offset partially by, |
• | Charges of $1.3 million associated with damage caused by Hurricane Laura to our drydocks, warehouses, bulkheads and ninth harbor tug project at our Lake Charles Yard in the third quarter 2020. The charges relate to deductibles associated with our insurance coverages and our estimates of cost associated with uninsurable damage. See Note 2 of our Financial Statements in Item 8 for further discussion of the impacts of Hurricane Laura. |
Other income for 2019 was primarily due to net gains on the sales of equipment.
Interest (expense) income, net – Interest (expense) income, net for 2020 and 2019 was expense of $0.3 million and income $0.5 million, respectively. Interest (expense) income, net consists of interest earned on our cash and short-term investment balances, interest incurred on our PPP Loan and the unused portion of our LC Facility, and interest amortization associated with our long-term lease liability. The expense for 2020 relative to income for 2019 was primarily due to interest on our PPP Loan and lower interest rates and lower average cash and short-term investment balances for the 2020 period.
Income tax (expense) benefit –Income tax (expense) benefit for 2020 and 2019 was a benefit of $0.1 million and $0.1 million, respectively. The tax benefits for 2020 and 2019 represent state income taxes. No federal income tax benefit was recorded for losses during 2020 or 2019 as a full valuation allowance was recorded against our net deferred tax assets generated during the periods. See Note 6 of our Financial Statements in Item 8 for further discussion of our NOLs, deferred tax assets and valuation allowance.
Operating Segments
Shipyard Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 140,428 |
|
| $ | 251,424 |
|
| $ | (110,996 | ) |
|
| (44.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 153,698 |
|
| $ | 168,466 |
|
| $ | (14,768 | ) |
|
| (8.8 | )% |
Gross loss |
|
| (19,274 | ) |
|
| (16,025 | ) |
|
| (3,249 | ) |
|
| (20.3 | )% |
Gross loss percentage |
|
| (12.5 | )% |
|
| (9.5 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 1,980 |
|
|
| 2,445 |
|
|
| 465 |
|
|
| 19.0 | % |
Impairments and (gain) loss on assets held for sale |
|
| 1,639 |
|
|
| 7,920 |
|
|
| 6,281 |
|
| nm |
| |
Other (income) expense, net |
|
| 1,450 |
|
|
| 38 |
|
|
| (1,412 | ) |
| nm |
| |
Operating loss |
|
| (24,343 | ) |
|
| (26,428 | ) |
|
| 2,085 |
|
|
| 7.9 | % |
(1) | In the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2020 and 2019 were $140.4 million and $251.4 million, respectively. Significant new project awards for 2020 include:
• | The exercise of options by the U.S. Navy for a fourth and fifth towing, salvage and rescue ship in the first quarter 2020, and |
• | Additional scopes of work for our research vessel projects in the fourth quarter 2020. |
Significant new project awards for 2019 include:
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019, and |
• | A seventy-vehicle ferry in the third quarter 2019. |
Revenue – Revenue for 2020 and 2019 was $153.7 million and $168.5 million, respectively, representing a decrease of $14.8 million. The decrease was primarily due to:
• | Lower revenue for our harbor tug projects as we had fewer vessels under construction, |
• | Lower revenue for our ice-breaker tug project which was completed in the second quarter 2020 and towboat projects which were completed in 2019, |
• | Lower revenue for our research vessel projects due to construction delays associated with the previously disclosed temporary suspension of construction activities on the projects until engineering achieves further completion, and |
• | Lower revenue associated with less repair and maintenance activity, offset partially by, |
• | Higher revenue for our towing, salvage and rescue ship projects associated with increased construction activities and procurement progress on engineered equipment, and |
• | Higher revenue for our seventy-vehicle ferry project associated with increased construction activities and procurement progress on engineered equipment. |
Gross loss – Gross loss for 2020 and 2019 was $19.3 million (12.5% of revenue) and $16.0 million (9.5% of revenue), respectively. The gross loss for 2020 was primarily due to:
• | Project charges of $7.3 million related to forecast cost increases on our towing, salvage and rescue ship projects, |
• | Project charges of $7.2 million related to forecast cost increases and liquidated damages on our two forty-vehicle ferry projects, |
• | Project charges of $1.0 million related to forecast cost increases on our final two harbor tug projects, |
• | Project charges of $1.1 million related to forecast cost increases on our seventy-vehicle ferry project, |
• | A low margin backlog as all of our Shipyard Division’s backlog is at, or near, break-even or is in a loss position, and accordingly, results in revenue with low or no gross profit, |
• | The partial under-recovery of overhead costs primarily due to: |
− | The under-utilization of our facilities and resources due to construction delays for our three research vessel projects, |
− | The under-utilization of our Jennings Yard and Lake Charles Yard which were closed in the fourth quarter 2020, and |
− | Lower utilization of our facilities and resources due to, and costs incurred to prepare for, Hurricane Laura, Hurricane Marco and Hurricane Sally in the third quarter 2020. |
• | Holding costs of $0.7 million related to the two MPSV vessels which remain in our possession and are subject to dispute. |
The increase in gross loss for 2020 relative to 2019 was primarily due to:
• | The aforementioned project charges of $16.6 million for 2020, and |
• | A lower margin mix (excluding the aforementioned project charges), offset partially by, |
• | Project charges of $12.3 million for 2019 on our forty-vehicle ferry projects, harbor tug projects, ice-breaker tug project and research vessel projects. |
• |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2020��and 2019 was $2.0 million (1.3% of revenue) and $2.4 million (1.5% of revenue), respectively, representing a decrease of 19.0%. The decrease was primarily due to our cost reduction initiatives.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2020 and 2019 was a loss of $1.6 million and $7.9 million respectively. The loss for 2020 was primarily due to:
• | Impairments of $1.0 million for lease assets and fixed assets (primarily drydocks) attributable to the closure of our Lake Charles Yard in the fourth quarter 2020, and |
• | Costs of $0.6 million primarily associated with the closures of our Jennings Yard and Lake Charles Yard in the fourth quarter 2020. |
The loss for 2019 was primarily due to:
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Other (income) expense, net – Other (income) expense, net for 2020 was expense of $1.5 million, primarily due to charges of $1.3 million associated with damage caused by Hurricane Laura to our drydocks, warehouses, bulkheads and ninth harbor tug project at our Lake Charles Yard in the third quarter 2020. The charges relate to deductibles associated with our insurance coverages and our estimates of cost associated with uninsurable damage. See Note 2 of our Financial Statements in Item 8 for further discussion of the impacts of Hurricane Laura.
Fabrication & Services Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 66,654 |
|
| $ | 132,659 |
|
| $ | (66,005 | ) |
|
| (49.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 99,485 |
|
| $ | 137,169 |
|
| $ | (37,684 | ) |
|
| (27.5 | )% |
Gross profit (loss) |
|
| 1,523 |
|
|
| (657 | ) |
|
| 2,180 |
|
| nm |
| |
Gross profit (loss) percentage |
|
| 1.5 | % |
|
| (0.5 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 3,172 |
|
|
| 4,308 |
|
|
| 1,136 |
|
|
| 26.4 | % |
Impairments and (gain) loss on assets held for sale |
|
| 2,491 |
|
|
| 8,933 |
|
|
| 6,442 |
|
| nm |
| |
Other (income) expense, net |
|
| (10,033 | ) |
|
| (202 | ) |
|
| 9,831 |
|
| nm |
| |
Operating income (loss) |
|
| 5,893 |
|
|
| (13,696 | ) |
|
| 19,589 |
|
| nm |
| |
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 have been combined to conform to the presentation of our reportable segments for 2020. In addition, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2020 and 2019 were $66.7 million and $132.7 million, respectively. Significant new project awards for 2020 include:
• | A marine docking structures project in the second quarter 2020, and |
• | Additional scopes of work for our offshore jacket and deck project in the second quarter 2020. |
Significant new project awards for 2019 include:
• | An offshore jacket and deck project in the first quarter 2019, |
• | A subsea components project in the first quarter 2019, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019, and |
• | A material supply project and offshore modules project in the fourth quarter 2019. |
Revenue – Revenue for 2020 and 2019 was $99.5 million and $137.2 million, respectively, representing a decrease of $37.7 million. The decrease was primarily due to:
• | Lower revenue for our paddlewheel river boat and subsea components projects that were completed in the first quarter 2020, and |
• | Reduced offshore services activity and small fabrication project activity, offset partially by, |
• | Higher revenue for our offshore jacket and deck project, and |
• | Higher revenue for our marine docking structures project, material supply project and offshore modules project. |
Gross profit (loss) – Gross profit for 2020 was $1.5 million (1.5% of revenue) and gross loss for 2019 was $0.7 million (0.5% of revenue), respectively. Gross profit for 2020 was primarily impacted by:
• | Project improvements of $1.2 million related to cost decreases, earned project incentives and the favorable resolution of change orders on our offshore jacket and deck project, and |
• | Project improvements of $1.5 million related to cost decreases and the favorable resolution of change orders on our paddlewheel riverboat and subsea components projects, offset partially by, |
• | Low revenue due to low backlog levels, and |
• | The partial under-recovery of overhead costs primarily due to: |
− | The under-utilization of our facilities and resources due to low workhours, |
− | Higher overhead costs associated with retaining salaried overhead and hourly craft employees to perform process improvements, special projects and facility maintenance and repairs, and |
− | Lower utilization of our facilities and resources due to, and costs incurred to prepare for, Hurricane Laura, Hurricane Marco and Hurricane Sally. |
Our Fabrication & Services Division utilization for 2020 and 2019 benefited by $1.2 million and $0.9 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry project and two forty-vehicle ferry projects.
The gross profit for 2020 relative to the gross loss for 2019 was primarily due to:
• | The aforementioned project improvements of $2.7 million for 2020, |
• | A higher margin mix (excluding the aforementioned project improvements), and |
• | Project charges of $4.9 million for 2019 on our offshore jacket and deck project, subsea components project and paddlewheel riverboat project, offset partially by, |
• | Lower revenue and an increase in the under-recovery of overhead costs due to lower activity. |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2020 and 2019 was $3.2 million (3.2% of revenue) and $4.3 million (3.1% of revenue), respectively, representing a decrease of 26.4%. The decrease was primarily due to our cost reduction initiatives including combining our former Fabrication and Services Divisions.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2020 and 2019 was a loss of $2.5 million and $8.9 million, respectively. The loss for 2020 was primarily due to:
• | Impairments of $1.4 million associated with assets held for sale, |
• | Impairments of $0.9 million for certain fixed assets associated with the relocation and consolidation of such assets to improve operational efficiency, and |
• | A loss of $0.2 million on the sale of a barge and other assets held for sale. |
The loss for 2019 was primarily due:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Other (income) expense, net – Other (income) expense, net for 2020 and 2019 was income of $10.0 million and $0.2 million, respectively. Other income for 2020 was primarily due to a gain of $10.0 million associated with the settlement of a contract dispute for a project completed in 2015. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute. Other income for 2019 was primarily due to net gains on the sales of equipment.
Corporate Division
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
Revenue (eliminations) |
| $ | (2,224 | ) |
| $ | (2,327 | ) |
| $ | 103 |
|
|
| 4.4 | % |
Gross loss |
|
| — |
|
|
| (317 | ) |
|
| 317 |
|
| nm |
| |
Gross loss percentage |
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
General and administrative expense |
|
| 8,706 |
|
|
| 8,875 |
|
|
| 169 |
|
|
| 1.9 | % |
Impairments and (gain) loss on assets held for sale |
|
| — |
|
|
| 675 |
|
|
| 675 |
|
| nm |
| |
Other (income) expense, net |
|
| 3 |
|
|
| 30 |
|
|
| 27 |
|
| nm |
| |
Operating loss |
|
| (8,709 | ) |
|
| (9,897 | ) |
|
| 1,188 |
|
|
| 12.0 | % |
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, the effects of related eliminations on our Corporate Division for 2019 have been conformed to the presentation of our reportable segments for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
Gross loss –Gross loss for 2019 was $0.3 million and represents costs incurred by the Corporate Division to support our operating divisions. Such costs are reflected within the operating divisions in 2020.
General and administrative expense– General and administrative expense for 2020 and 2019 was $8.7 million (3.5% of consolidated revenue) and $8.9 million (2.9% of consolidated revenue), respectively, representing a decrease of 1.9%. The decrease was primarily due to:
• | Reduced professional fees associated with the evaluation of strategic alternatives, and |
• | Other cost savings including reductions in board size and the salaries of our executives, offset partially by, |
• | Higher incentive plan costs (due primarily to the 2019 period benefiting from the partial reversal of long-term incentives that were accrued in periods prior to 2019 but ultimately not earned), and |
• | Higher legal and advisory fees and insurance costs. |
General and administrative expense includes legal and advisory fees related to a contract dispute for a completed project that was settled during the first quarter 2020 and a contract dispute associated with our MPSV projects which are subject to purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes totaled $1.3 million and $1.4 million for 2020 and 2019, respectively. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute and Note 8 for further discussion of our MPSV dispute.
Comparison of 2019 and 2018 (in thousands, except for percentages):
In the comparative tables below, percentage changes that are not considered meaningful are shown below as “nm” (generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100%).
Consolidated
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 384,083 |
|
| $ | 355,090 |
|
| $ | 28,993 |
|
|
| 8.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 303,308 |
|
| $ | 221,247 |
|
| $ | 82,061 |
|
|
| 37.1 | % |
Cost of revenue |
|
| 320,307 |
|
|
| 228,443 |
|
|
| (91,864 | ) |
|
| (40.2 | )% |
Gross loss |
|
| (16,999 | ) |
|
| (7,196 | ) |
|
| (9,803 | ) |
|
| (136.2 | )% |
Gross loss percentage |
|
| (5.6 | )% |
|
| (3.3 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 15,628 |
|
|
| 19,015 |
|
|
| 3,387 |
|
|
| 17.8 | % |
Impairments and (gain) loss on assets held for sale |
|
| 17,528 |
|
|
| (6,850 | ) |
|
| (24,378 | ) |
| nm |
| |
Other (income) expense, net |
|
| (134 | ) |
|
| 304 |
|
|
| 438 |
|
| nm |
| |
Operating loss |
|
| (50,021 | ) |
|
| (19,665 | ) |
|
| (30,356 | ) |
|
| (154.4 | )% |
Interest (expense) income, net |
|
| 531 |
|
|
| (142 | ) |
|
| 673 |
|
| nm |
| |
Loss before income taxes |
|
| (49,490 | ) |
|
| (19,807 | ) |
|
| (29,683 | ) |
|
| (149.9 | )% |
Income tax (expense) benefit |
|
| 96 |
|
|
| (571 | ) |
|
| 667 |
|
| nm |
| |
Net loss |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
| $ | (29,016 | ) |
|
| (142.4 | )% |
New Project Awards – New project awards for 2019 and 2018 were $384.1 million and $355.1 million, respectively. Significant new project awards for 2019 include:
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019 within our Shipyard Division, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019 within our Shipyard Division, |
• | A seventy-vehicle ferry in the third quarter 2019 within our Shipyard Division, |
• | An offshore jacket and deck project and a subsea components project in the first quarter 2019 within our Fabrication & Services Division, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019 within our Fabrication & Services Division, and |
• | A material supply project and offshore modules project in the fourth quarter 2019 within our Fabrication & Services Division. |
Significant new project awards for 2018 include:
• | A towing, salvage and rescue ship for the U.S. Navy in the first quarter 2018 within our Shipyard Division, |
• | The exercise of an option by Oregon State University for a second research vessel in the second quarter 2018 within our Shipyard Division, |
• | The exercise of customer options for a ninth and tenth harbor tug in the second quarter 2018 within our Shipyard Division, |
• | A towboat in the second quarter 2018 and the exercise of a customer option for a second towboat in the third quarter 2018 within our Shipyard Division, |
• | Two forty-vehicle ferries in the fourth quarter 2018 within our Shipyard Division, |
• | A meteorological tower and platform for an offshore wind project in the first quarter 2018 within our Fabrication & Services Division, and |
• | The expansion of a paddlewheel riverboat in the third quarter 2018 within our Fabrication & Services Division. |
Revenue – Revenue for 2019 and 2018 was $303.3 million and $221.2 million, respectively, representing an increase of 37.1%. The increase was primarily due to:
Increased revenue for our Shipyard Division of $62.8 million, primarily attributable to:
• | Progress on our research vessel projects, towing, salvage and rescue ship projects and forty-vehicle ferry projects, offset partially by, |
• | Lower revenue for our harbor tug projects, and |
• | No revenue for our two MPSV contracts which were suspended during the first quarter 2018. |
Increased revenue for our Fabrication & Services Division of $29.6 million, primarily attributable to:
• | Progress on our paddle wheel riverboat project and jacket and deck project, offset partially by, |
• | No revenue for our petrochemical modules project which was completed in 2018. |
See Note 8 of our Financial Statements in Item 8 for further discussion of our MPSV dispute.
Gross loss – Gross loss for 2019 and 2018 was $17.0 million (5.6% of revenue) and $7.2 million (3.3% of revenue), respectively. The gross loss for 2019 was primarily due to:
• | Project charges of $12.3 million and $4.9 million within our Shipyard Division and Fabrication & Services Division, respectively, |
• | The partial under-recovery of overhead costs (primarily associated with the under-utilization of our facilities within our Fabrication & Services Division, and to a lesser extent within our Shipyard Division), and |
• | Holding costs of $1.2 million related to the two MPSV vessels which remain in our possession and are subject to dispute. |
The increase in gross loss relative to 2018 was primarily due to:
• | The aforementioned project charges of $17.2 million for 2019, |
• | A lower margin mix for our Shipyard Division (excluding the aforementioned project charges), offset partially by, |
• | Higher revenue and a reduction in the under-recovery of overhead costs due to higher activity, |
• | A higher margin mix for our Fabrication & Services Division (excluding the aforementioned project charges), and |
• | Project charges of $6.7 million and $2.4 million for 2018 within our Shipyard Division and Fabrication & Services Division, respectively. |
See “Operating Segments” below and Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense– General and administrative expense for 2019 and 2018 was $15.6 million (5.2% of revenue) and $19.0 million (8.6% of revenue), respectively, representing a decrease of 17.8%. The decrease was primarily due to:
• | Lower incentive plan costs and board of director compensation costs, and |
• | Lower legal and advisory fees related to customer disputes and shareholder matters, offset partially by, |
• | Higher professional fees and other costs associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business. |
General and administrative expense includes legal and advisory fees related to a contract dispute for a completed project that was settled during the first quarter 2020 and a contract dispute associated with our MPSV projects which are subject to purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes totaled $1.4 million and $1.7 million for 2019 and 2018, respectively, and were reflected within our Corporate Division in 2019 and our operating divisions in 2018. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute and Note 8 for further discussion of our MPSV dispute.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 and 2018 was a loss of $17.5 million and a gain of $6.9 million, respectively.
The loss for 2019 was primarily due to:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory within our Fabrication & Services Division, |
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard within our Shipyard Division, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard within our Shipyard Division, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold within our Shipyard Division, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale within our Fabrication & Services Division. |
The gain for 2018 was primarily due to:
• | A gain of $3.9 million from the sale of our Texas South Yard and a gain of $4.1 million from the sale of our Texas North Yard within our Fabrication & Services Division; and |
• | A gain of $3.6 million from the settlement of an insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017 within our Fabrication & Services Division; offset partially by, |
• | Impairments of $4.4 million and a loss of $0.3 million related to inventory and assets held for sale and/or sold within our Fabrication & Services Division and Shipyard Division. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Other (income) expense, net– Other (income) expense, net for 2019 and 2018 was income of $0.1 million and expense of $0.3 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items. The income for 2019 and expense for 2018 was primarily due to net gains and net losses, respectively, on the sales of equipment.
Interest (expense) income, net –Interest (expense) income, net for 2019 and 2018 was income of $0.5 million and expense of $0.1 million, respectively. The net interest income for 2019 was primarily due to interest earned on our cash and short-term investment balances, offset partially by interest amortization associated with our long-term lease liability. The net interest expense for 2018 was primarily due to borrowings under our LC Facility during 2018.
Income tax (expense) benefit –Income tax (expense) benefit for 2019 and 2018 was a benefit of $0.1 million and expense of $0.6 million, respectively. The tax benefit for 2019 and expense for 2018 represent state income taxes. No federal income tax benefit was recorded for losses during 2019 or 2018 as a full valuation allowance was recorded against our deferred tax assets generated during the periods. See Note 6 of our Financial Statements in Item 8 for further discussion of our NOLs, deferred tax assets and valuation allowance.
Operating Segments
Shipyard Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 251,424 |
|
| $ | 216,771 |
|
| $ | 34,653 |
|
|
| 16.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 168,466 |
|
| $ | 96,424 |
|
| $ | 72,042 |
|
|
| 74.7 | % |
Gross loss |
|
| (16,025 | ) |
|
| (10,472 | ) |
|
| (5,553 | ) |
|
| (53.0 | )% |
Gross loss percentage |
|
| (9.5 | )% |
|
| (10.9 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 2,445 |
|
|
| 2,801 |
|
|
| 356 |
|
|
| 12.7 | % |
Impairments and (gain) loss on assets held for sale |
|
| 7,920 |
|
|
| 964 |
|
|
| (6,956 | ) |
| nm |
| |
Other (income) expense, net |
|
| 38 |
|
|
| 159 |
|
|
| 121 |
|
| nm |
| |
Operating loss |
|
| (26,428 | ) |
|
| (14,396 | ) |
|
| (12,032 | ) |
|
| (83.6 | )% |
(1) | In the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2019 and 2018 were $251.4 million and $216.8 million, respectively. Significant new project awards for 2019 include.
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019, and |
• | A seventy-vehicle ferry in the third quarter 2019. |
Significant new project awards for 2018 include:
• | A towing, salvage and rescue ship for the U.S. Navy in the first quarter 2018, |
• | The exercise of an option by Oregon State University for a second research vessel in the second quarter 2018, |
• | The exercise of customer options for a ninth and tenth harbor tug in the second quarter 2018, |
• | A towboat in the second quarter 2018 and the exercise of a customer option for a second towboat in the third quarter 2018, and |
• | Two forty-vehicle ferries in the fourth quarter 2018. |
Revenue – Revenue for 2019 and 2018 was $168.5 million and $96.4 million, respectively, representing an increase of 74.7%. The increase was primarily due to:
• | Progress on our research vessel projects, towing, salvage and rescue ship projects and forty-vehicle ferry projects, offset partially by, |
• | Lower revenue for our harbor tug projects, and |
• | No revenue for our two MPSV contracts which were suspended during the first quarter 2018. |
See Note 8 of our Financial Statements in Item 8 for further discussion of our MPSV dispute.
Gross loss– Gross loss for 2019 and 2018 was $16.0 million (9.5% of revenue) and $10.5 million (10.9% of revenue), respectively. The gross loss for 2019 was primarily due to:
• | Project charges of $4.9 million related to forecast cost increases and liquidated damages on our harbor tug projects, |
• | Project charges of $5.1 million related to forecast cost increases and liquidated damages on our forty-vehicle ferry projects, |
• | Project charges of $1.5 million related to forecast cost increases on our ice-breaker tug project, |
• | Project charges of $0.8 million related to the reversal of gross profit recognized prior to 2019 on our research vessel projects, |
• | Holding costs of $1.2 million related to the two MPSV vessels which remain in our possession and are subject to dispute, and |
• | The partial under-recovery of overhead costs. |
The increase in gross loss for 2019 relative to 2018 was primarily due to:
• | The aforementioned project charges of $12.3 million for 2019, and |
• | A lower margin mix (excluding the aforementioned project charges) as project gross profit on our research vessel projects and towing, salvage and rescue ship projects was not material because the projects were approximately break-even, offset partially by, |
• | Higher revenue and a reduction in the under-recovery of overhead costs due to higher activity, and |
• | Project charges of $6.7 million for 2018 on our harbor tug projects. |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense– General and administrative expense for 2019 and 2018 was $2.4 million (1.5% of revenue) and $2.8 million (2.9% of revenue), respectively, representing a decrease of 12.7%. The decrease was primarily due to lower legal and advisory fees related to a customer dispute as the costs are reflected within the Corporate Division in 2019.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 and 2018 was a loss of $7.9 million and $1.0 million, respectively. The loss for 2019 was primarily due to:
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold. |
The loss for 2018 was primarily due to impairments of assets held for sale and/or sold.
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Fabrication & Services Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 132,659 |
|
| $ | 138,319 |
|
| $ | (5,660 | ) |
|
| (4.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 137,169 |
|
| $ | 126,695 |
|
| $ | 10,474 |
|
|
| 8.3 | % |
Gross profit (loss) |
|
| (657 | ) |
|
| 4,607 |
|
|
| (5,264 | ) |
| nm |
| |
Gross profit (loss) percentage |
|
| (0.5 | )% |
|
| 3.6 | % |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 4,308 |
|
|
| 7,973 |
|
|
| 3,665 |
|
|
| 46.0 | % |
Impairments and (gain) loss on assets held for sale |
|
| 8,933 |
|
|
| (7,814 | ) |
|
| (16,747 | ) |
| nm |
| |
Other (income) expense, net |
|
| (202 | ) |
|
| (110 | ) |
|
| 92 |
|
| nm |
| |
Operating income (loss) |
|
| (13,696 | ) |
|
| 4,558 |
|
|
| (18,254 | ) |
| nm |
| |
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 have been combined to conform to the presentation of our reportable segments for 2020. In addition, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2019 and 2018 were $132.7 million and $138.3 million, respectively. Significant new project awards for 2019 include:
• | An offshore jacket and deck project in the first quarter 2019, |
• | A subsea components project in the first quarter 2019, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019, and |
• | A material supply project and offshore modules project in the fourth quarter 2019 within our Fabrication & Services Division. |
Significant new project awards for 2018 include:
• | A meteorological tower and platform for an offshore wind project in the first quarter 2018, and |
• | The expansion of a paddlewheel riverboat in the third quarter 2018. |
Revenue –Revenue for 2019 and 2018 was $137.2 million and $126.7 million, respectively, representing an increase of 8.3%. The increase was primarily due to:
• | Progress on our paddle wheel riverboat project and jacket and deck project, offset partially by, |
• | No revenue for our petrochemical modules project which was completed in 2018. |
Gross loss (profit)– Gross loss for 2019 was $0.7 million (3.1% of revenue) and gross profit for 2018 was $4.6 million (6.3% of revenue), respectively. The gross loss for 2019 was primarily due to:
• | Project charges of $2.0 million related to forecast cost increases on our jacket and deck project, |
• | Project charges of $1.3 million related to forecast cost increases on our paddle wheel riverboat project, |
• | Project charges of $1.6 million related to forecast cost increases and liquidated damages on our subsea components project, and |
• | The partial under-recovery of overhead costs. |
The gross loss for 2019 relative to the gross profit for 2018 was primarily due to:
• | The aforementioned project charges of $4.9 million for 2019 (with no gross profit recognized on these projects during 2019), and |
• | A lower margin mix (excluding the aforementioned project charges), offset partially by, |
• | Higher revenue and a reduction in the under-recovery of overhead costs due to higher activity, and |
• | Project charges of $2.4 million for 2018 on our petrochemical modules project. |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense– General and administrative expense for 2019 and 2018 was $4.3 million (3.1% of revenue) and $8.0 million (6.3% of revenue), respectively, representing a decrease of 46%. The decrease was primarily due to:
• | Lower costs associated with our former EPC Division (which was combined with our Fabrication & Services Division in 2019), |
• | Lower legal and advisory fees related to a customer dispute as the costs are reflected within the Corporate Division in 2019, and |
• | Lower incentive plan costs and other cost reductions. |
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 and 2018 was a loss of $8.9 million and a gain of $7.8 million, respectively. The loss for 2019 was primarily due:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale. |
The gain for 2018 was primarily due to:
• | A gain of $3.9 million from the sale of our Texas South Yard and a gain of $4.1 million from the sale of our Texas North Yard, and |
• | A gain of $3.6 million from the settlement of an insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017, offset partially by, |
• | Impairments of $3.5 million and a loss of $0.3 million related to inventory and assets held for sale and/or sold. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Corporate Division
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
Revenue (eliminations) |
| $ | (2,327 | ) |
| $ | (1,872 | ) |
| $ | (455 | ) |
|
| (24.3 | )% |
Gross loss |
|
| (317 | ) |
|
| (1,331 | ) |
|
| 1,014 |
|
|
| 76.2 | % |
Gross loss percentage |
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
General and administrative expense |
|
| 8,875 |
|
|
| 8,241 |
|
|
| (634 | ) |
|
| (7.7 | )% |
Impairments and (gain) loss on assets held for sale |
|
| 675 |
|
|
| - |
|
|
| (675 | ) |
| nm |
| |
Other (income) expense, net |
|
| 30 |
|
|
| 255 |
|
|
| 225 |
|
| nm |
| |
Operating loss |
|
| (9,897 | ) |
|
| (9,827 | ) |
|
| (70 | ) |
|
| (0.7 | )% |
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, the effects of related eliminations on our Corporate Division for 2019 and 2018 have been conformed to the presentation of our reportable segments for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
Gross loss– Gross loss for 2019 and 2018 was $0.3 million and $1.3 million, respectively. The decrease in gross loss relative to the contract price2018 period was primarily due to final weight re-measurementslower costs associated with supporting our former EPC Division (which was combined with our Fabrication & Services Division in 2019).
General and administrative expense – General and administrative expense for 2019 and 2018 was $8.9 million (2.9% of consolidated revenue) and $8.2 million (3.7% of consolidated revenue), respectively, representing an increase of 7.7%. The increase was primarily due to:
• | Increased legal and advisory fees related to customer disputes as the costs were reflected within the operating divisions in 2018, and |
• | Higher professional fees and other cost associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business, offset partially by, |
• | Lower incentive plan costs and board of director compensation costs. |
General and administrative expense for 2019 includes legal and advisory fees related to a contract dispute for a completed project that was settled during the first quarter 2020 and a contract dispute associated with our MPSV projects which are subject to purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes were reflected within our Corporate Division in 2019 and our inability to recover certain costsoperating divisions in 2018. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute and Note 8 for further discussion of our MPSV dispute.
Impairments and (gain) loss on disputed change ordersassets held for sale – Impairments and (gain) loss on assets held for sale for 2019 was a loss of $0.7 million, primarily related to a large deepwater project delivered in 2015 as referred to above;
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2016 | 2015 | Amount | Percent | ||||||||||
| Revenue | $ | 88,683 | $ | 151,576 | $ | (62,893 | ) | (41.5 | )% | ||||
| Gross (loss) profit | 5,276 | (36,990 | ) | 42,266 | 114.3 | % | |||||||
| Gross profit percentage | 5.9 | % | (24.4 | )% | |||||||||
| General and administrative expenses | 3,776 | 5,103 | (1,327 | ) | (26.0 | )% | |||||||
| Asset impairment | — | 7,202 | (7,202 | ) | (100.0 | )% | |||||||
| Operating (loss) income | $ | 1,500 | $ | (49,295 | ) | $ | 50,795 | 103.0 | % | ||||
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2016 | 2015 | Amount | Percent | ||||||||||
| Revenue | $ | 109,502 | $ | 59,601 | $ | 49,901 | 83.7 | % | |||||
| Gross profit | 7,801 | 8,750 | (949 | ) | (10.8 | )% | |||||||
| Gross profit percentage | 7.1 | % | 14.7 | % | |||||||||
| General and administrative expenses | 5,426 | 1,055 | 4,371 | 414.3 | % | ||||||||
| Operating (loss) income | $ | 2,375 | $ | 7,695 | $ | (5,320 | ) | (69.1 | )% | ||||
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2016 | 2015 | Amount | Percent | ||||||||||
| Revenue | $ | 91,414 | $ | 100,431 | $ | (9,017 | ) | (9.0 | )% | ||||
| Gross profit | 12,420 | 13,937 | (1,517 | ) | (10.9 | )% | |||||||
| Gross profit percentage | 13.6 | % | 13.9 | % | |||||||||
| General and administrative expenses | 3,314 | 2,584 | 730 | 28.3 | % | ||||||||
| Operating (loss) income | $ | 9,106 | $ | 11,353 | $ | (2,247 | ) | (19.8 | )% | ||||
| Twelve Months Ended December 31, | Increase or (Decrease) | ||||||||||||
| 2016 | 2015 | Amount | Percent | ||||||||||
| Revenue | $ | — | $ | — | $ | — | n/a | ||||||
| Gross profit | (644 | ) | (853 | ) | 209 | 24.5 | % | ||||||
| Gross profit percentage | n/a | n/a | |||||||||||
| General and administrative expenses | 7,154 | 7,514 | (360 | ) | (4.8 | )% | |||||||
| Operating (loss) income | $ | (7,798 | ) | $ | (8,367 | ) | $ | 569 | 6.8 | % | |||
Liquidity and Capital Resources
Available Liquidity
Our immediateprimary sources of liquidity remainsare our cash, on hand, availability of future drawings from our credit agreement and collections of accounts receivable. In the first quarter of 2018, we drew $10 million under our credit agreement, and as of March 9, 2018, we had approximately $10 million in cash with approximately $27.5 million in availability under our credit agreement. We are implementing several strategies to diversify the business, increase backlog, reduce operating expenses and monetize assets. See also Note 1 of the Notes to Consolidated Financial Statements for more information on our business outlook.
|
| December 31, |
|
| Change During the Period(3) |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Contract assets |
| $ | 67,521 |
|
| $ | 52,128 |
|
| $ | (15,393 | ) |
| $ | (22,146 | ) |
Contract liabilities(1) |
|
| (15,129 | ) |
|
| (26,271 | ) |
|
| (11,142 | ) |
|
| 9,426 |
|
Contracts in progress, net(2) |
|
| 52,392 |
|
|
| 25,857 |
|
|
| (26,535 | ) |
|
| (12,720 | ) |
Contract receivables and retainage, net |
|
| 15,393 |
|
|
| 26,095 |
|
|
| 10,702 |
|
|
| (3,590 | ) |
Inventory, prepaid expenses and other assets |
|
| 5,077 |
|
|
| 6,624 |
|
|
| 1,547 |
|
|
| 2,732 |
|
Accounts payable, accrued expenses and other liabilities |
|
| (77,784 | ) |
|
| (71,573 | ) |
|
| 6,211 |
|
|
| 32,317 |
|
Total |
| $ | (4,922 | ) |
| $ | (12,997 | ) |
| $ | (8,075 | ) |
| $ | 18,739 |
|
(1) | Contract liabilities at December 31, 2020 and 2019, include accrued contract losses of $8.6 million and $6.4 million, respectively. |
(2) | Represents our cash position relative to revenue recognized on projects, with contract assets representing unbilled amounts that reflect future cash inflows on projects, and contract liabilities representing (i) advance payments that reflect future cash expenditures and non-cash earnings on projects and (ii) accrued contract losses that represent future cash expenditures on projects. |
(3) | Changes referenced in the cash flow activity section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures. |
(4) | Accounts payable includes progress accruals associated with engineered equipment manufactured by vendors, and services provided by subcontractors, that are not contractually billable or have not been billed by the vendors and subcontractors. Such accruals totaled $48.5 million and $34.7 million at December 31, 2020 and December 31, 2019, respectively, and result in an increase in percentage of completion on our projects and an increase in our contract assets. |
Fluctuations in our working capital, and its components, are not unusual in our business and are impacted by the collectionsize of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or project progress on backlog. Working capital is also impacted at period-end by the timing of contract receivables collections and accounts receivable under various customer contracts.payable payments on our projects.
Cash Flow Activity (in thousands):
|
| Years Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net cash used in operating activities |
| $ | (19,008 | ) |
| $ | (7,140 | ) |
Net cash provided by (used in) investing activities |
| $ | 2,609 |
|
| $ | (12,771 | ) |
Net cash provided by (used in) financing activities |
| $ | 9,855 |
|
| $ | (843 | ) |
Operating Activities – Cash used in operating activities for 2020 and 2019 was $19.0 million and $7.1 million, respectively, and was primarily due to the net impacts of the following:
2020 Activity
• | Operating loss excluding depreciation and amortization of $8.7 million, non-cash asset impairments of $3.3 million, net losses from asset sales of $0.2 million, and stock-based compensation expense of $1.1 million; |
• | Increase in contract assets of $15.4 million related to the timing of billings on projects, primarily due to increased unbilled positions on our second and third towing, salvage and rescue ship projects and seventy-vehicle ferry project within our Shipyard Division, offset partially by decreased unbilled positions on our harbor tug projects within our Shipyard Division and paddlewheel riverboat project within our Fabrication & Services Division; |
• | Decrease in contract liabilities of $11.1 million, primarily due to the unwind of advance payments on our third towing, salvage and rescue ship project and forty-vehicle ferry projects within our Shipyard Division and our offshore jacket and deck project and material supply project within our Fabrication & Services Division, offset partially by advance payments on our fifth towing, salvage and rescue ship project within our Shipyard Division; |
• | Decrease in contract receivables and retainage of $10.7 million related to the timing of billings and collections on projects, primarily due to collections on our two forty-vehicle ferry projects within our Shipyard Division and our material supply project within our Fabrication & Services Division, offset partially by increased receivable positions on various other projects within our Fabrication & Services Division; |
• | Decrease in prepaid expenses, inventory and other assets of $1.6 million, primarily due to prepaid expenses and the associated timing of certain prepayments; |
• | Increase in accounts payable, accrued expenses and other current liabilities of $7.6 million, primarily due to increased procurement activity and progress accruals for engineered equipment manufactured by vendors for our three research vessel projects, fourth and fifth towing, salvage and rescue ship projects, and seventy-vehicle ferry project within our Shipyard Division, offset partially by decreased accounts payable positions for our two forty-vehicle ferry projects within our Shipyard Division and various other projects within our Fabrication & Services Division; and |
• | Change in noncurrent assets and liabilities, net of $1.6 million, primarily due to the collection of long-term retention that was billed and collected during 2020. |
2019 Activity
• | Operating loss excluding depreciation and amortization expense of $9.6 million, bad debt expense of $0.1 million, non-cash asset impairments of $17.2 million, net gains from asset sales of $1.0 million, and stock-based compensation expense of $1.8 million; |
• | Increase in contract assets of $22.1 million related to the timing of billings on projects, primarily due to increased unbilled positions on our three research vessel projects and first towing, salvage and rescue ship project within our Shipyard Division, offset partially by decreased unbilled positions on our harbor tug projects within our Shipyard Division; |
• | Increase in contract liabilities of $9.4 million, primarily due to advance payments on our third towing, salvage and rescue ship project and advance payments and an increase in accrued contract losses on our forty-vehicle ferry projects within our Shipyard Division, and advance payments on two projects within our Fabrication & Services Division, offset partially by the unwind of advance payments on a project within our Fabrication & Services Division; |
• | Increase in contract receivables and retainage of $3.7 million related to the timing of billings and collections on projects, primarily due to an increase in billings on two projects within our Fabrication & Services Division; |
• | Decrease in prepaid expenses, inventory and other assets of $2.6 million, primarily due to lower inventory for our Fabrication & Services Division; |
• | Increase in accounts payable, accrued expenses and other current liabilities of $29.9 million, primarily due to the timing of payments and increased procurement activities and progress accruals for engineered equipment manufactured by vendors, for our three research vessel projects and three towing, salvage and rescue ship projects within our Shipyard Division; and |
• | Change in noncurrent assets and liabilities, net of $1.5 million. |
Investing Activities – Cash provided by investing activities for 2020 was $2.6 million, and cash used in investing activities for 2019 was $12.8 million. Cash provided by investing activities for 2020 was primarily due to the net maturities of short-term investments of $11.8 million and proceeds from the sale of fixed assets and assets held for sale of $2.0 million, offset partially by capital expenditures of $11.2 million. Cash used in investing activities for 2019 was primarily due to the net purchase of short-term investments of $11.2 million and capital expenditures of $3.8 million, offset partially by proceeds from the sale of fixed assets and assets held for sale of $2.2 million.
Financing Activities – Cash provided by financing activities for 2020 was $9.9 million, and cash used in financing activities for 2019 was $0.8 million. Cash provided by financing activities for 2020 was due to our PPP Loan discussed further below. Cash used in financing activities for 2019 was primarily due to tax payments made on behalf of employees from vested stock withholdings.
Credit Facilities
LC Facility – On March 26, 2021, we amended our revolving credit facility with Hancock Whitney Bank (“Whitney Bank”). The facility previously provided for up to $40.0 million of borrowings or letters of credit and included certain quarterly financial covenants and restrictions on our ability to take certain actions. In connection with the amendment, the facility was modified to provide for up to $20.0 million of letters of credit, subject to our cash securitization of existing and future letters of credit, and the maturity date was extended to June 30, 2023. The amended letter of credit facility (“LC Facility”) removed all financial covenants and other restrictions. Commitment fees on the unused portion of the LC Facility are 0.4% per annum and interest on outstanding letters of credit is 2.0% per annum. At December 31, 2017, our contracts receivable balance was $28.5 million. We have subsequently collected $20.72020, we had $10.7 million of outstanding letters of credit under the contracts receivable balance through March 2, 2018.
Loan Agreement–On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with a combined net book value of $102.7 million, are held for sale. We expectWhitney Bank pursuant to sell equipment throughout the year and the South Yard,Paycheck Protection Program (“PPP”), which is currentlysponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. The most significant of the conditions are:
• | Only amounts expended for Permissible Expenses during the eight-week or 24-week period, as elected by us, following April 17, 2020 (the “Covered Period”) are eligible for loan forgiveness. We have elected an eight-week Covered Period; |
• | Of the total amount of Permissible Expenses for which forgiveness can be granted, at least 60% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and |
• | If employee headcount is reduced, or employee compensation is reduced by more than 25%, during the Covered Period, a further reduction of the maximum loan forgiveness amount will occur, subject to certain safe harbors added by the Flexibility Act. |
The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is payable in monthly installments commencing on the earlier of the date on which the amount of loan forgiveness is determined or March 17, 2021. During the Covered Period the PPP Loan proceeds were used only for Permissible Expenses, of which approximately 93% was related to payroll costs. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the SBA for review. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made no loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of the PPP Loan that is not forgiven, together with accrued interest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP as amended by the Flexibility Act, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a purchase option agreement duringqualifying business and have met the first half of 2018. The North Yard is also currently heldeligibility requirements for sale. Wethe PPP Loan, and believe we have used the loan proceeds only for Permissible Expenses, we can provide no assurances that we will be successfuleligible for forgiveness of the PPP Loan, in selling these assets. Ifwhole or in part. Accordingly, we are unsuccessfulhave recorded the full amount of the PPP Loan as debt, which is included in selling these assets, we could be forced to relylong-term debt, current and long-term debt, noncurrent on our lineBalance Sheet at December 31, 2020. The current and noncurrent debt classification is based on the terms and conditions of credit as our primary source of liquidity, or make significant cuts in operating expenses.
Surety Bonds – We issue surety bonds in the ordinary course of business to support our projects. At December 31, 2020, we had $291.2 million of outstanding surety bonds, of which $50.0 million relates to our MPSV projects which are subject to normalpurported termination and customary conditions,for which construction has been suspended. It has been increasingly difficult to obtain additional bonding capacity and identify potential financing sources, due to, among other things, losses from our operations in recent years, including the third party's right to conduct inspections of the property related to confirmation of title, surveys, environmental conditions, easementsrecent project charges, and access rights. In consideration for the option to purchase the South Yard, the third party deposited $750,000 of earnest money on January 3, 2018, which is nonrefundable in the event the third party cancels the agreement.
Registration Statement
We must complyhave a shelf registration statement that is effective with the following financial covenants each quarter during the term of the facility:
Liquidity Outlook
As discussed in our Overview, we continue to focus on securing profitable new project awards and backlog in the near-term and generating operating income and cash flows in the longer-term. We have made significant progress in our efforts to preserve and improve our liquidity, including cost reductions (including reducing the size of our board and reducing the compensation of our directors and executive officers), the sale of under-utilized assets and facilities and an improved overall cashflow position on our projects in backlog. In addition, at December 31, 2020, we continue to have $8.2 million of assets held for sale; however, we can provide no assurances that we will allowsuccessfully sell these assets or that we will recover their carrying value. Further, as discussed above, we received the PPP Loan in the second quarter 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19. It also provided us important additional liquidity as a strong balance sheet is required to execute our backlog and compete for new projects awards, and we experience significant monthly fluctuations in our working capital. The primary uses of our liquidity for 2021 and the flexibilityforeseeable future are to raisefund:
• | Overhead costs associated with the under-utilization of our facilities within our Fabrication & Services Division and Shipyard Division, until we secure and/or begin to execute sufficient backlog to fully recover our overhead costs; |
• | Capital expenditures (including enhancements to our Shipyard Division facilities to execute our backlog); |
• | Accrued contract losses recorded at December 31, 2020; |
• | Working capital requirements for our projects (including the unwind of advance payments on projects); |
• | Legal and other costs associated with our MPSV dispute; and |
• | Corporate administrative expenses and initiatives to diversify and enhance our business. |
A significant portion of our capital quickly to fund workingexpenditures of $11.2 million for 2020 represent capital requirementsinvestments required by our contract for upcoming projects such as the SeaOne Project discussed previously.
We believe that theour cash, we expect to generate from future operating activities, funds available under our credit agreement, anticipated insurance recoveries, anticipated proceeds from the sales of our South Texas Propertiescash equivalents and our ability to raise additional capital through debt or equity offeringsshort-term investments at December 31, 2020, will be sufficient to enable us to fund our capital expenditures, issue future letters of credit andoperating expenses, meet our working capital needs through the next year to continue our operations, successfully execute our strategyand capital expenditure requirements, and satisfy our contractual obligations.
| 2017 | 2016 | 2015 | ||||||||
| Operating activities | $ | (39,385 | ) | $ | 14,568 | $ | 10,694 | |||
| Investing activities | (1,135 | ) | 2,698 | (6,007 | ) | |||||
| Financing activities | $ | (1,664 | ) | $ | (927 | ) | $ | (5,944 | ) | |
| Total | Payments Due by Period | ||||||||||||||||||
Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | Thereafter | ||||||||||||||||
Purchase commitment – equipment (1) | $ | 9 | $ | 9 | $ | — | $ | — | $ | — | |||||||||
Purchase commitment – material and services (2) | 85,445 | 59,560 | 25,885 | — | — | ||||||||||||||
Operating leases (3) | 3,009 | 572 | 1,163 | 1,266 | 8 | ||||||||||||||
| Total | $ | 88,463 | $ | 60,141 | $ | 27,048 | $ | 1,266 | $ | 8 | |||||||||
Off-Balance Sheet Arrangements
We are not a party to any contract or other obligation not included on our balance sheetBalance Sheet that has, or is reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
In this reportReport our consolidated financial statements ofFinancial Statements and the accompanying notes appear on pages F-1 through F-21F-30 and are incorporated herein by reference. See Index to Consolidated Financial Statements on Page 46
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it fileswe file or submitssubmit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is communicated to the Company’s management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management,Management, with the participation of the Company’sour Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting as of December 31, 2017, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report dated March 9, 2018, which is included herein.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics for the Chief Executive Officer, the Chief Financial Officer, (the principal financial officer), and the Chief Accounting Officer (the principal accounting officer) and persons performing similar functions (the “Code of Ethics”) and a Code of Business Conduct and Ethics, which applies to all employees and directors, including the Chief Executive Officer, the Chief Financial Officer, (the principal financial officer), the Chief Accounting Officer (the principal accounting officer) and persons performing similar functions. These codes are available to the public on our Internet website at www.gulfisland.com. Any substantive amendments to the Code of Ethics or any waivers granted under the Code of Ethics will be disclosed within four business days of such event on our website. Such information will remain available on our website for at least 12twelve months.
The remaining information called for by this item may be found in our definitive Proxy Statementproxy statement prepared in connection with the 2018 Annual Meetingour 2021 annual meeting of Shareholdersshareholders and is incorporated herein by reference.
Item 11. Executive Compensation
Information called for by this item may be found in our definitive Proxy Statementproxy statement prepared in connection with the 2018 Annual Meetingour 2021 annual meeting of Shareholdersshareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Information regarding security ownership of certain beneficial owners and management called for by this item may be found in our definitive Proxy Statementproxy statement prepared in connection with the 2018 Annual Meetingour 2021 annual meeting of Shareholdersshareholders and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about our shares of common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2017.2020.
Plan Category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted- average exercise price of outstanding options, warrants and rights |
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1) |
|
| ||
Equity compensation plans approved by security holders |
|
| 615,644 |
|
| N/A |
|
| 1,611,928 |
|
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
|
|
| — |
|
|
Total |
|
| 615,644 |
| (1) |
|
|
| 1,611,928 |
| (2) |
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1) | ||||||
| Equity compensation plans approved by security holders | 445,126 | N/A | 833,443 | ||||||
| Equity compensation plans not approved by security holders | — | — | |||||||
| Total | 445,126 | (1) | 833,443 | (2) | |||||
(1) | Represents shares issuable pursuant to the terms of outstanding restricted stock awards. These awards are not reflected in the next column as they do not have an exercise price. |
(2) | Represents aggregate shares |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information called for by this item may be found in our definitive Proxy Statementproxy statement prepared in connection with the 2018 Annual Meetingour 2021 annual meeting of Shareholdersshareholders and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information called for by this item may be found in our definitive Proxy Statementproxy statement prepared in connection with the 2018 Annual Meetingour 2021 annual meeting of Shareholdersshareholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
Our required financial statements,statement schedules and exhibits are filed as part of this Report:
(i) Financial Statements
Page | |
F-1 | |
Consolidated Balance Sheets at December 31, | F-3 |
F-4 | |
F-5 | |
F-6 | |
F-7 | |
(ii) Schedules
Other schedules have not been included because they are not required, not applicable, immaterial, or the information required has been included elsewhere herein.
(iii) Exhibits
See Exhibit Index on page E-1. The CompanyWe will furnish to any eligible shareholder, upon written request, a copy of any exhibit listed upon payment of a reasonable fee equal to the Company’s expenses in furnishing such exhibit. Such requests should be addressed to:
Investor Relations
Gulf Island Fabrication, Inc.
16225 Park Ten Place, Suite 280
Houston, Texas 77084
Item 16. Form 10-K Summary
None.
Report of Independent Registered Public Accounting Firm
To Thethe Shareholders and Board of Directors of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gulf Island Fabrication, Inc. (the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company‘sCompany’s management. Our responsibility is to express an opinion on the Company‘sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the USU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition for fixed-price and unit-rate contracts | ||
Description of the Matter | As described in Note 1 to the consolidated financial statements, the Company recognizes revenue for fixed-price and unit-rate contracts over time using the percentage-of-completion method based on contract costs incurred to date compared to total estimated contract costs (an input method). Under this approach, the determination of the progress towards completion requires management to prepare estimates of the costs to complete the contracts. Significant estimates impacting the costs to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Auditing management’s estimate of the progress towards completion of fixed-price and unit-rate contracts was complex and subjective because of the judgment required to evaluate management’s determination of the estimated costs to complete such contracts.Further, the evaluation of significant estimates impacting the costs to complete a contract discussed above involved significant auditor judgment. |
How We Addressed the Matter in Our Audit | To test the Company’s estimated costs to complete fixed-price and unit-rate contracts, our audit procedures included, among others, evaluating the significant estimates discussed above used to develop the estimated costs to complete and testing the completeness and accuracy of the underlying data. To evaluate the significant estimates, we performed audit procedures that included, among others, comparing amounts to supporting documentation, conducting interviews with project personnel, analyzing trends of labor productivity, inspecting support for estimates of project contingencies, and performing lookback analyses by comparing historical actual costs to previous estimates. We also involved our specialists in evaluating the estimated costs to complete certain contracts. |
/s/ Ernst & Young LLP
We have served as the Company‘sCompany's auditor since 1997.
New Orleans, Louisiana
March 9, 2018
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 43,159 |
|
| $ | 49,703 |
|
Short-term investments |
|
| 7,998 |
|
|
| 19,918 |
|
Contract receivables and retainage, net |
|
| 15,393 |
|
|
| 26,095 |
|
Contract assets |
|
| 67,521 |
|
|
| 52,128 |
|
Prepaid expenses and other assets |
|
| 2,815 |
|
|
| 3,948 |
|
Inventory |
|
| 2,262 |
|
|
| 2,676 |
|
Assets held for sale |
|
| 8,214 |
|
|
| 9,006 |
|
Total current assets |
|
| 147,362 |
|
|
| 163,474 |
|
Property, plant and equipment, net |
|
| 67,458 |
|
|
| 70,484 |
|
Other noncurrent assets |
|
| 16,523 |
|
|
| 18,819 |
|
Total assets |
| $ | 231,343 |
|
| $ | 252,777 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 70,114 |
|
| $ | 61,542 |
|
Contract liabilities |
|
| 15,129 |
|
|
| 26,271 |
|
Accrued expenses and other liabilities |
|
| 7,670 |
|
|
| 10,031 |
|
Long-term debt, current |
|
| 5,499 |
|
|
| — |
|
Total current liabilities |
|
| 98,412 |
|
|
| 97,844 |
|
Long-term debt, noncurrent |
|
| 4,501 |
|
|
| — |
|
Other noncurrent liabilities |
|
| 2,068 |
|
|
| 2,248 |
|
Total liabilities |
|
| 104,981 |
|
|
| 100,092 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value, 5,000 shares authorized, 0 shares issued and outstanding |
|
| — |
|
|
| — |
|
Common stock, no par value, 30,000 shares authorized, 15,359 issued and outstanding at December 31, 2020 and 15,263 at December 31, 2019 |
|
| 11,223 |
|
|
| 11,119 |
|
Additional paid-in capital |
|
| 104,072 |
|
|
| 103,124 |
|
Retained earnings |
|
| 11,067 |
|
|
| 38,442 |
|
Total shareholders’ equity |
|
| 126,362 |
|
|
| 152,685 |
|
Total liabilities and shareholders’ equity |
| $ | 231,343 |
|
| $ | 252,777 |
|
| December 31, 2017 | December 31, 2016 | ||||||
| (in thousands) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 8,983 | $ | 51,167 | |||
| Contracts receivable, net | 28,466 | 20,169 | |||||
| Contracts in progress | 28,373 | 26,829 | |||||
| Prepaid expenses and other | 3,833 | 3,222 | |||||
| Inventory | 4,933 | 11,973 | |||||
| Assets held for sale | 104,576 | — | |||||
| Total current assets | 179,164 | 113,360 | |||||
| Property, plant and equipment, net | 88,899 | 206,222 | |||||
| Other assets | 2,777 | 2,826 | |||||
| Total assets | $ | 270,840 | $ | 322,408 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 18,375 | $ | 9,021 | |||
| Advance billings on contracts | 5,136 | 3,977 | |||||
| Deferred revenue, current | 4,676 | 11,881 | |||||
| Accrued contract losses | 7,618 | 387 | |||||
| Accrued expenses and other liabilities | 12,741 | 10,032 | |||||
| Income taxes payable | 119 | 50 | |||||
| Total current liabilities | 48,665 | 35,348 | |||||
| Net deferred tax liabilities | — | 23,234 | |||||
| Deferred revenue, noncurrent | 769 | 489 | |||||
| Other liabilities | 1,913 | 305 | |||||
| Total liabilities | 51,347 | 59,376 | |||||
| Shareholders’ equity: | |||||||
| Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding | |||||||
| Common stock, no par value, 20,000,000 shares authorized, 14,910,498 issued and outstanding at December 31, 2017 and 14,695,020 at December 31, 2016, respectively | 10,823 | 10,641 | |||||
| Additional paid-in capital | 100,456 | 98,813 | |||||
| Retained earnings | 108,214 | 153,578 | |||||
| Total shareholders’ equity | 219,493 | 263,032 | |||||
| Total liabilities and shareholders’ equity | $ | 270,840 | $ | 322,408 | |||
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Revenue |
| $ | 250,959 |
|
| $ | 303,308 |
|
| $ | 221,247 |
|
Cost of revenue |
|
| 268,710 |
|
|
| 320,307 |
|
|
| 228,443 |
|
Gross loss |
|
| (17,751 | ) |
|
| (16,999 | ) |
|
| (7,196 | ) |
General and administrative expense |
|
| 13,858 |
|
|
| 15,628 |
|
|
| 19,015 |
|
Impairments and (gain) loss on assets held for sale |
|
| 4,130 |
|
|
| 17,528 |
|
|
| (6,850 | ) |
Other (income) expense, net |
|
| (8,580 | ) |
|
| (134 | ) |
|
| 304 |
|
Operating loss |
|
| (27,159 | ) |
|
| (50,021 | ) |
|
| (19,665 | ) |
Interest (expense) income, net |
|
| (268 | ) |
|
| 531 |
|
|
| (142 | ) |
Loss before income taxes |
|
| (27,427 | ) |
|
| (49,490 | ) |
|
| (19,807 | ) |
Income tax (expense) benefit |
|
| 52 |
|
|
| 96 |
|
|
| (571 | ) |
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
| $ | (1.79 | ) |
| $ | (3.24 | ) |
| $ | (1.36 | ) |
| Years Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Revenue | $ | 171,022 | $ | 286,326 | $ | 306,120 | |||||
| Cost of revenue: | |||||||||||
| Contract costs | 213,947 | 261,473 | 321,276 | ||||||||
| Gross profit (loss) | (42,925 | ) | 24,853 | (15,156 | ) | ||||||
| General and administrative expenses | 17,800 | 19,670 | 16,256 | ||||||||
| Asset impairment | 7,672 | — | 7,202 | ||||||||
| Operating income (loss) | (68,397 | ) | 5,183 | (38,614 | ) | ||||||
| Other income (expense): | |||||||||||
| Interest expense | (349 | ) | (332 | ) | (165 | ) | |||||
| Interest income | — | 24 | 26 | ||||||||
| Other income (expense), net | (213 | ) | 681 | 20 | |||||||
| Total Other income (expense) | (562 | ) | 373 | (119 | ) | ||||||
| Net income (loss) before income taxes | (68,959 | ) | 5,556 | (38,733 | ) | ||||||
| Income tax expense (benefit) | (24,193 | ) | 2,041 | (13,369 | ) | ||||||
| Net income (loss) | $ | (44,766 | ) | $ | 3,515 | $ | (25,364 | ) | |||
| Per share data: | |||||||||||
| Basic and fully diluted earnings (loss) per share—common shareholders | $ | (3.02 | ) | $ | 0.24 | $ | (1.75 | ) | |||
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except share data)thousands)
|
| Common Stock |
|
| Additional Paid-In |
|
| Retained |
|
| Total Shareholders' |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Equity |
| |||||
Balance at January 1, 2018 |
|
| 14,910 |
|
| $ | 10,823 |
|
| $ | 100,456 |
|
| $ | 108,214 |
|
| $ | 219,493 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,378 | ) |
|
| (20,378 | ) |
Vesting of restricted stock |
|
| 180 |
|
|
| (81 | ) |
|
| (729 | ) |
|
| — |
|
|
| (810 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 279 |
|
|
| 2,516 |
|
|
| — |
|
|
| 2,795 |
|
Balance at December 31, 2018 |
|
| 15,090 |
|
| $ | 11,021 |
|
| $ | 102,243 |
|
| $ | 87,836 |
|
| $ | 201,100 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (49,394 | ) |
|
| (49,394 | ) |
Vesting of restricted stock |
|
| 173 |
|
|
| (79 | ) |
|
| (716 | ) |
|
| — |
|
|
| (795 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 177 |
|
|
| 1,597 |
|
|
| — |
|
|
| 1,774 |
|
Balance at December 31, 2019 |
|
| 15,263 |
|
| $ | 11,119 |
|
| $ | 103,124 |
|
| $ | 38,442 |
|
| $ | 152,685 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,375 | ) |
|
| (27,375 | ) |
Vesting of restricted stock |
|
| 96 |
|
|
| (8 | ) |
|
| (66 | ) |
|
| — |
|
|
| (74 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 112 |
|
|
| 1,014 |
|
|
| — |
|
|
| 1,126 |
|
Balance at December 31, 2020 |
|
| 15,359 |
|
| $ | 11,223 |
|
| $ | 104,072 |
|
| $ | 11,067 |
|
| $ | 126,362 |
|
| Common Stock | Additional Paid-In Capital | Retained Earnings | Total Shareholders’ Equity | |||||||||||||||
| Shares | Amount | |||||||||||||||||
| Balance at January 1, 2015 | 14,539,104 | $ | 10,090 | $ | 93,828 | $ | 181,880 | $ | 285,798 | |||||||||
| Net loss | — | — | — | (25,364 | ) | (25,364 | ) | |||||||||||
| Vesting of restricted stock | 41,112 | (9 | ) | (70 | ) | — | (79 | ) | ||||||||||
| Compensation expense restricted stock | — | 271 | 2,436 | — | 2,707 | |||||||||||||
| Dividends on common stock | — | — | — | (5,865 | ) | (5,865 | ) | |||||||||||
| Balance at December 31, 2015 | 14,580,216 | $ | 10,352 | $ | 96,194 | $ | 150,651 | $ | 257,197 | |||||||||
| Net income | — | — | — | 3,515 | 3,515 | |||||||||||||
| Vesting of restricted stock | 114,804 | (23 | ) | (194 | ) | — | (217 | ) | ||||||||||
| Compensation expense restricted stock | — | 312 | 2,813 | — | 3,125 | |||||||||||||
| Dividends on common stock | — | — | — | (588 | ) | (588 | ) | |||||||||||
| Balance at December 31, 2016 | 14,695,020 | $ | 10,641 | $ | 98,813 | $ | 153,578 | $ | 263,032 | |||||||||
| Net loss | — | — | — | (44,766 | ) | (44,766 | ) | |||||||||||
| Vesting of restricted stock | 215,478 | (92 | ) | (824 | ) | — | (916 | ) | ||||||||||
| Compensation expense restricted stock | — | 274 | 2,467 | — | 2,741 | |||||||||||||
| Dividends on common stock | — | — | — | (598 | ) | (598 | ) | |||||||||||
| Balance at December 31, 2017 | 14,910,498 | $ | 10,823 | $ | 100,456 | $ | 108,214 | $ | 219,493 | |||||||||
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and lease asset amortization |
|
| 8,617 |
|
|
| 9,564 |
|
|
| 10,350 |
|
Other amortization, net |
|
| 63 |
|
|
| 50 |
|
|
| 80 |
|
Bad debt expense |
|
| — |
|
|
| 59 |
|
|
| 30 |
|
Asset impairments |
|
| 3,310 |
|
|
| 17,223 |
|
|
| 4,445 |
|
(Gain) loss on assets held for sale, net |
|
| 228 |
|
|
| (369 | ) |
|
| (7,724 | ) |
Gain on insurance recoveries |
|
| — |
|
|
| — |
|
|
| (3,571 | ) |
(Gain) loss on sale of fixed assets and other assets, net |
|
| (2 | ) |
|
| (584 | ) |
|
| 268 |
|
Stock-based compensation expense |
|
| 1,126 |
|
|
| 1,774 |
|
|
| 2,795 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Contract receivables and retainage, net |
|
| 10,702 |
|
|
| (3,650 | ) |
|
| 2,962 |
|
Contract assets |
|
| (15,393 | ) |
|
| (22,145 | ) |
|
| (26,932 | ) |
Prepaid expenses, inventory and other current assets |
|
| 1,644 |
|
|
| 2,556 |
|
|
| (3,162 | ) |
Accounts payable |
|
| 10,042 |
|
|
| 30,950 |
|
|
| 10,515 |
|
Contract liabilities |
|
| (11,142 | ) |
|
| 9,425 |
|
|
| 12,371 |
|
Accrued expenses and other current liabilities |
|
| (2,427 | ) |
|
| (1,099 | ) |
|
| (3,352 | ) |
Noncurrent assets and liabilities, net (including long-term retainage) |
|
| 1,599 |
|
|
| (1,500 | ) |
|
| 911 |
|
Net cash used in operating activities |
|
| (19,008 | ) |
|
| (7,140 | ) |
|
| (20,392 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (11,212 | ) |
|
| (3,790 | ) |
|
| (3,481 | ) |
Proceeds from sale of property, plant and equipment |
|
| 2,020 |
|
|
| 2,217 |
|
|
| 85,247 |
|
Purchases of short-term investments |
|
| (58,751 | ) |
|
| (65,284 | ) |
|
| (9,610 | ) |
Maturities of short-term investments |
|
| 70,552 |
|
|
| 54,086 |
|
|
| 1,200 |
|
Recoveries from insurance claims |
|
| — |
|
|
| — |
|
|
| 9,362 |
|
Net cash provided by (used in) investing activities |
|
| 2,609 |
|
|
| (12,771 | ) |
|
| 82,718 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
| 10,000 |
|
|
| — |
|
|
| 15,000 |
|
Repayment of borrowings |
|
| — |
|
|
| — |
|
|
| (15,000 | ) |
Payment of financing cost |
|
| (71 | ) |
|
| (48 | ) |
|
| (42 | ) |
Tax payments for vested stock withholdings |
|
| (74 | ) |
|
| (795 | ) |
|
| (810 | ) |
Net cash provided by (used in) financing activities |
|
| 9,855 |
|
|
| (843 | ) |
|
| (852 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| (6,544 | ) |
|
| (20,754 | ) |
|
| 61,474 |
|
Cash and cash equivalents, beginning of period |
|
| 49,703 |
|
|
| 70,457 |
|
|
| 8,983 |
|
Cash and cash equivalents, end of period |
| $ | 43,159 |
|
| $ | 49,703 |
|
| $ | 70,457 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 376 |
|
| $ | 470 |
|
| $ | 352 |
|
Income taxes paid (refunds received), net |
| $ | (971 | ) |
| $ | 63 |
|
| $ | 6 |
|
Reclassification of property, plant and equipment to assets held for sale |
| $ | 2,115 |
|
| $ | 294 |
|
| $ | — |
|
Reclassification of assets held for sale to property, plant and equipment |
| $ | — |
|
| $ | 1,162 |
|
| $ | 866 |
|
Accounts payable included in capital expenditures |
| $ | 153 |
|
| $ | 1,623 |
|
| $ | — |
|
Reclassification of accrued expenses to assets held for sale |
| $ | — |
|
| $ | — |
|
| $ | 3,245 |
|
| Years Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Operating activities: | |||||||||||
| Net income (loss) | $ | (44,766 | ) | $ | 3,515 | $ | (25,364 | ) | |||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation | 12,909 | 25,448 | 26,204 | ||||||||
| Amortization of deferred revenue | (2,008 | ) | (5,223 | ) | — | ||||||
| Asset impairment | 7,672 | — | 7,202 | ||||||||
| Provision for bad debts | 21 | 493 | 448 | ||||||||
| Loss (gain) on the sale of assets | 224 | (757 | ) | (10 | ) | ||||||
| Deferred income taxes | (23,234 | ) | 1,409 | (14,061 | ) | ||||||
| Stock-based compensation expense | 2,741 | 3,125 | 2,707 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Contracts receivable, net | (8,319 | ) | 28,067 | 31,740 | |||||||
| Contracts in progress | (1,544 | ) | (13,984 | ) | 14,167 | ||||||
| Advance billings on contracts | 1,159 | (3,197 | ) | (11,685 | ) | ||||||
| Accounts payable | 9,354 | (12,757 | ) | (26,668 | ) | ||||||
| Prepaid expenses and other assets | 388 | 230 | 1,092 | ||||||||
| Inventory | 356 | 6,501 | 931 | ||||||||
| Accrued contract losses | 7,231 | (9,108 | ) | 8,678 | |||||||
| Deferred revenue | (4,917 | ) | (11,656 | ) | — | ||||||
| Deferred compensation | 1,608 | 305 | — | ||||||||
| Accrued expenses | 2,709 | 2,220 | (5,302 | ) | |||||||
| Current income taxes | (969 | ) | (63 | ) | 615 | ||||||
| Net cash provided by (used in) operating activities | (39,385 | ) | 14,568 | 10,694 | |||||||
| Cash flows from investing activities: | |||||||||||
| Cash received in acquisition | — | 3,035 | — | ||||||||
| Capital expenditures, net | (4,834 | ) | (6,795 | ) | (6,018 | ) | |||||
| Proceeds from the sale of equipment | 2,155 | 6,458 | 11 | ||||||||
| Proceeds from insurance recoveries | 1,544 | — | — | ||||||||
| Net cash provided by (used in) investing activities | (1,135 | ) | 2,698 | (6,007 | ) | ||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings against credit agreement | 2,000 | — | — | ||||||||
| Payments on credit agreement | (2,000 | ) | — | — | |||||||
| Payment of financing costs | (150 | ) | (122 | ) | — | ||||||
| Tax payments made on behalf of employees from withheld, vested shares of common stock | (916 | ) | (217 | ) | (79 | ) | |||||
| Payments of dividends on common stock | (598 | ) | (588 | ) | (5,865 | ) | |||||
| Net cash used in financing activities | (1,664 | ) | (927 | ) | (5,944 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (42,184 | ) | 16,339 | (1,257 | ) | ||||||
| Cash and cash equivalents at beginning of period | 51,167 | 34,828 | 36,085 | ||||||||
| Cash and cash equivalents at end of period | $ | 8,983 | $ | 51,167 | $ | 34,828 | |||||
| Supplemental cash flow information: | |||||||||||
| Interest paid | $ | 349 | $ | 332 | $ | 165 | |||||
| Income taxes paid (refunds received), net | $ | 189 | $ | 377 | $ | (152 | ) | ||||
| Schedule of noncash financing activities | |||||||||||
| Reclassification of property, plant and equipment to assets held for sale | $ | 109,488 | $ | — | $ | 4,805 | |||||
| Reclassification of assets held for sale to inventory | $ | — | $ | — | $ | 3,727 | |||||
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Presentation
Gulf Island Fabrication, Inc. ("Gulf Island"), and together(together with its subsidiaries, ("the“Gulf Island,” “the Company," "we" or "our"” “we,” “us” and “our”), is a leading fabricator of complex steel structures, modules and marine vessels, used in energy extraction and production, petrochemical and industrial facilities, power generation and alternative energy projects and shipping and marine transportation operations. We also provide related installation,a provider of project management, hookup, commissioning, repair, maintenance and maintenance services with specialized crewscivil construction services. Our customers include U.S. and, integrated project management capabilities.to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power and marine operators; EPC companies; and certain agencies of the U.S. government. We operate and manage our business through 2 operating divisions (“Shipyard” and “Fabrication & Services”) and 1 non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston, Texas and our operating facilities are currently fabricating complexlocated in Houma, Louisiana. See Note 3 for discussion of our closures of the Jennings Yard and Lake Charles Yard.
Significant projects in our backlog include the fabrication of modules for thean offshore facility and marine docking structures; material supply for an offshore jacket and deck; and construction of 3 regional class research vessels, 3 vehicle ferries, and 5 towing, salvage and rescue ships. Projects completed in recent years include the expansion of a newpaddlewheel riverboat; fabrication of an offshore jacket and deck, modules for a petrochemical plant, completing newbuildfacility, and a meteorological tower and platform for an offshore wind project, and construction of one technologically-advanced offshore support10 harbor tugs, an ice-breaker tug and two multi-purpose service vessels. During 2015, we fabricated2 towboats. Other completed projects include the fabrication of wind turbine pedestalsfoundations for the first offshore wind power project in the United States. We have also constructed oneU.S.; and construction of 2 technologically advanced OSVs, two of the largest liftboats servicing the Gulf of Mexico ("GOM"(“GOM”), one of the deepest production jackets in the GOM, and the first SPARsingle point anchor reservoir hull fabricated in the United States. Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power and marine operators. Our corporate headquarters is located in Houston, Texas, with fabrication facilities located in Houma, Jennings and Lake Charles, Louisiana, and formerly in Aransas Pass and Ingleside, Texas, each
Basis of which are marketed for sale.
The consolidated financial statements include the accounts of Gulf Island and its majorityaccompanying Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries. All significant intercompanyIntercompany balances and transactions have been eliminated in consolidation.
Liquidity Outlook
In recent years our operating results and natural gas prices ledcash flows have been impacted by lower margins due to competitive pricing, a significant decline inunder-utilization of our facilities and losses on certain projects. As a result, we implemented initiatives to improve and maintain our liquidity (including further reducing the compensation of our executive officers and directors and reducing the size of our board), reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas industry drilling activitiessector, improve our resource utilization and centralize key project resources (including the closures of our Jennings Yard and Lake Charles Yard and combination of our former Fabrication and Services Divisions), and improve our competitiveness and project execution. See Note 10 for discussion of our realigned reportable segments and Note 3 for discussion of our closures of the Jennings Yard and Lake Charles Yard. These initiatives are ongoing, and while our ability to achieve our goals has been negatively impacted by the ongoing global coronavirus pandemic (“COVID-19”) and volatile oil prices (discussed further below) and while we can provide no assurances that the initiatives will achieve our desired results, we believe our cash, cash equivalents and short-term investments will be sufficient to enable us to fund our operating expenses, meet our working capital and capital spending from our traditional customer base. In 2015expenditure requirements, and through 2017, the Company implemented a number of initiatives to strategically reposition the Company to attract new customers, participate in the buildup of petrochemical facilities, pursue offshore wind markets and diversify our customers within our shipyard business. Additionally, the Company initiated efforts to preserve cash and lower costs including: reducing our workforce in certain divisions, developing a plan to sell certain underutilized assets, and diversifying our service offerings and fabrication capabilities.
Operating Cycle
The lengthsdurations of our contracts vary, but are typically longer than one year in duration.extend beyond twelve months from the date of contract award. Consistent with industry practice, assets and liabilities have been classified as current under the operating cycle concept whereby all contract-related items
F-7
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Use of Estimates
General – The preparation of financial statementsour Financial Statements in conformity with accounting principles generally accepted in the United States ("GAAP")GAAP requires managementus to make estimates and assumptionsjudgments that affect the reported amounts of assets, liabilities, revenue and liabilitiesexpenses and disclosurerelated disclosures of contingent liabilities at the date of the financial statementsassets and the reported amounts of revenue and expense during the reporting period. Areas requiringliabilities. We believe our most significant estimates byand judgments are associated with revenue recognition for our management include asset impairments, value of assets held for sale, provisions for contract losses, contract revenues, costs and profits, thecontracts, including application of the percentage-of-completion method, of accounting, income taxesestimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims and liquidated damages; fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale; determination of deferred income tax assets, liabilities and related valuation allowances; reserves for bad debts; liabilities related to self-insurance programs; and the allowanceimpacts of doubtful accounts. Actual results couldCOVID-19 and volatile oil prices on our business, estimates and judgments as discussed further below. If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ materially from those estimates.
COVID-19 and Volatile Oil Prices – COVID-19 is a widespread public health crisis that continues to adversely affect global economies and financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and the U.S. President announced a national emergency relating to COVID-19. National, state and local authorities recommended physical distancing and many authorities imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. Authorities in some areas of the U.S. began to relax these restrictions in the second quarter 2020. However, the country, including areas where we have our headquarters and operating facilities, experienced multiple periods of resurgence in the numbers of cases of the virus in both the third and fourth quarters of 2020. Authorities have reacted to these resurgences by deferring the phasing out of these restrictions and, in some instances, re-imposing quarantine and isolation measures during the fourth quarter 2020. The measures taken, while intended to protect human life, have had and are expected to continue to have a serious adverse impact on domestic and foreign economies of uncertain severity and duration. Moreover, governmental and commercial responses to COVID-19 have exacerbated the already weakened condition of the energy industry, further reducing the demand for oil, and further depressing and creating volatility in oil prices. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. Any prolonged period of economic slowdown or recession could have a significant adverse effect on our financial condition and financial condition of our customers, subcontractors and other counterparties. The longer-term effectiveness of economic stabilization efforts, including government payments to impacted citizens and industries, is uncertain. Although the U.S. Food and Drug Administration has authorized three COVID-19 vaccines for emergency use, the overall supply of these vaccines may be limited or otherwise hampered by delivery issues, and distribution may therefore be delayed. Even with widespread distribution and acceptance of these vaccines, their long-term efficacy is unknown. The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and reduction and volatility in crude oil prices cannot be reasonably estimated at this time, but have included, or may include, among other things, reduced bidding activity, suspension or termination of backlog, deterioration of customer financial condition, potential supply disruptions and unanticipated project costs due to project disruptions and schedule delays, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, lack of performance by subcontractors and suppliers, and contract disputes. Events and changes in circumstances arising after this Report resulting from the impacts of COVID-19 and volatile oil prices, if any, will be reflected in management’s estimates for future periods.
Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the assumed conversion of dilutive securities. See Note 9 for calculations of our basic and diluted income (loss) per share.
Cash Equivalents
Cash Equivalents – We consider investments with original maturities of three months or less when purchased to be cash equivalents.
Short-term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. At December 31, 2020, our short-term investments include U.S. Treasuries with original maturities of less than six months. We intend to hold these investments until maturity, and it is not more likely than not that we would be required to sell the investments prior to their maturity. The investments are stated at amortized costs, which approximates fair value due to their near-term maturities. All short-term investments are traded on active markets with quoted prices and represent level 1 fair value measurements.
F-8
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Inventory
Inventory is recorded at the lower of cost or net realizable value determined using the first-in-first-out basis. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is our estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. An allowance for excess or inactive inventory is recorded based on an analysis that considers current inventory levels, historical usage patterns, estimates of future sales and salvage value. See Note 3 for further discussion of our inventory impairments.
Allowance for Doubtful Accounts
In the normal course of business, we extend credit to our customers on a short-term basis.basis and contract receivables are generally not collateralized; however, we typically have the right to place liens on our projects in the event of nonpayment by our customers. We routinely review individual contract receivable balances for collectability and make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, underlying disputes with the customer, the age and value of the receivable balance, and economic conditions in general. See Note 3 - "Contracts Receivable and Retainage"2 for a detailfurther discussion of our allowance for doubtful accounts.
Stock-Based Compensation
Awards under the Company’sour stock-based compensation plans are calculated using a fair value basedvalue-based measurement method. Share-based compensation expense for share based awards is recognized only for those awards that are expected to vest. We use the straight-line method to recognize share-based compensation expense over the requisite service period of the award.
Tax payments made on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations from the lowervesting of cost or net realizable value determinedshares under our stock-based compensation plans are classified as a financing activity on the first-in, first-out basis.
Assets Held for Sale
Assets held for sale are required to be measured at the lower of their carrying amount or fair value less cost to sell. See Note 4 - “Assets Held For Sale”3 for additional information regardingfurther discussion of our assets held for sale.
Depreciation Expense
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computedare depreciated on thea straight-line basis over the estimated useful lives of the assets, which rangeranging from three to 25 years. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the plant or equipment, are charged to expense as incurred.
Long-Lived Assets
Long-lived assets, which include property, plant and equipment and our lease assets included within other noncurrent assets, are reviewed for impairment losses on long-lived assets or asset groups used in operations when events andor changes in circumstances indicate that the assets or asset groups mightcarrying amount may not be recoverable. If events and circumstance indicate thata recoverability assessment is required, we compare the assets or asset groups might not be recoverable, the expectedestimated future undiscounted cash flows fromflow associated with the assetsasset or asset groups are estimated and compared with thegroup to its carrying amount to determine if an impairment exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets or asset groups, an impairment loss is recorded.
Leases
We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our lease payments for leases with an original term of longer than twelve months. We do not record an asset or liability for leases with an original term of twelve months or less and we do not separate lease and non-lease components for our leases. Our lease assets are reflected within other noncurrent assets, and the current and noncurrent portions of our lease liabilities are reflected within accrued expenses and other liabilities, and other noncurrent liabilities, respectively, on our Balance Sheet. For leases with escalations over the life of the lease, we recognize expense on a straight-line basis. See Note 4 for further discussion of our lease assets and liabilities.
F-9
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair Value Measurements
Fair value determinations of the carrying value of otherfor financial assets and liabilities are based on an evaluation of theirthe particular facts and circumstances andcircumstances. Financial instruments are required to be categorized within a valuation techniques that require judgments and estimates. We base our fair value determinations by applying the following hierarchy which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchybased upon the lowest level of input that is available and significant to the fair value measurement:measurement. The three levels of the valuation hierarchy are as follows:
• | Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets. |
• | Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market. |
• | Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques. |
The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values. We determined that our impairments of inventory, long-lived assets and assets held for sale are non-recurring fair value measurements that fall within Level 1-inputs are based upon quoted prices for identical instruments traded in active markets.
Revenue Recognition
General – Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We userecognize revenue from our contracts in accordance with Accounting Standards Update (“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” (“Topic 606”).
Topic 606 requires entities to recognize revenue in a way that depicts the percentage-of-completion accounting methodtransfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for fabrication contracts.those goods or services. Additionally, provisions of Topic 606 specify which goods and services are distinct and represent separate performance obligations (representing the unit of account in Topic 606) within a contract and which goods and services (which could include multiple contracts or agreements) should be aggregated. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue fromfor performance obligations satisfied over time are recognized as the work progresses. Revenue for performance obligations that do not meet the criteria for over time recognition are recognized at a point-in-time when a performance obligation is complete and the customer has obtained control of a promised asset.
Fixed-Price and Unit-Rate Contracts – Revenue for our fixed-price or unit rateand unit-rate contracts is recognized onusing the percentage-of-completion method computed by the efforts-expended method which measures the percentage of labor hoursbased on contract costs incurred to date as compared to total estimated totalcontract costs (an input method). Contract costs include direct costs, such as materials and labor, hoursand indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for each contract. This progress percentagesuch materials is appliedonly recognized to our estimatethe extent of total anticipatedcosts incurred. Revenue and gross profit for eachcontracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to determine gross profit earnedchange, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. Revenue recognizedThe cumulative impact of revisions in a period for a contract is the amount of gross profit earned for that period plus the costs incurred on the contracttotal cost estimates during the period. Under a unit rate contract, material items or labor tasks are assigned unit rates of measure. The unit rates of measure will generally be an amount of dollars per ton, per foot, per square foot or per item installed. A typical unit rate contract can contain hundreds to thousands of unit rates of measure. Profit margins are built into the unit rates.
T&M Contracts – Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and Percentage-of-Completion Method”collection is reasonably assured. Our T&M contracts provide for additional information regardinglabor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our percentage-of-completion accounting and revenue recognition.
F-10
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Variable Consideration – Revenue and gross profit for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims, incentives and liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed. We estimate variable consideration based on the amount we expect to be entitled and include estimated amounts in transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. See Note 2 for further discussion of our unapproved change orders, claims, incentives and liquidated damages.
Additional Disclosures – Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.
Pre-Contract Costs
Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At December 31, 2020 and 2019, we had 0 deferred pre-contract costs.
Other (Income) Expense, Net
Other (income) expense, net, generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items. For 2020, other (income) expense also includes a gain of $10.0 million associated with the settlement of a contract dispute for a project completed in 2015 and charges of $1.3 million associated with damage caused by Hurricane Laura. See Note 2 for further discussion of the impacts of Hurricane Laura.
Income Taxes
Income taxes have been provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the basis differences are expected to reverse. Due to changing tax laws, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future.
A valuation allowance is provided to reserve for deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assetsDTAs will not be realized. During 2017, we recorded a valuation allowance againstThe realization of our deferred tax assetsDTAs depends on our ability to generate sufficient taxable income of $0.4 million. See Note 9 - "Income Taxes."
Reserves for uncertain tax positions are recognized when the positions arewe consider it more likely than not tothat additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not be sustained upon audit.we have received tax assessments. Interest and penalties on uncertain tax positions are recorded inwithin income tax expense. Our federal tax returns have been examined and settled through the 2012 tax year. There were no material uncertain tax positions recordedSee Note 6 for the years presented in these statements.
New Accounting Standards
Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in FASB Accounting Standard Codification ("ASC") Topic 605, “Revenue Recognition.” ASU No. 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted. We use the percentage-of-completion accounting method to account for our fixed-price or unit rate contracts, computed by the efforts-expended method which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. We have concluded that this method will still be allowed under this ASU. We intend to use the modified retrospective model in adopting this
Income taxes – In December 2019, the FASB issued ASU 2019-12, “Income Taxes,” to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for us in the first quarter 2021. We do not believe the new standard will have a material effect on our financial position, results of operations or related disclosures.
F-11
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS
As discussed in Note 1, we recognize revenue for our contracts in accordance with Topic 606. Summarized below are required disclosures under Topic 606 and other relevant guidance.
Disaggregation of Revenue
The following tables summarize revenue for each of our operating segments, disaggregated by contract type, for 2020, 2019 and 2018 (in thousands):
|
| Year Ended December 31, 2020 |
| |||||||||||||
Contract Type |
| Shipyard |
|
| F&S |
|
| Eliminations |
|
| Total |
| ||||
Fixed-price and unit-rate (1) |
| $ | 151,508 |
|
| $ | 66,790 |
|
| $ | (148 | ) |
| $ | 218,150 |
|
T&M (2) |
|
| 2,190 |
|
|
| 25,294 |
|
|
| (388 | ) |
|
| 27,096 |
|
Other |
|
| — |
|
|
| 7,401 |
|
|
| (1,688 | ) |
|
| 5,713 |
|
Total |
| $ | 153,698 |
|
| $ | 99,485 |
|
| $ | (2,224 | ) |
| $ | 250,959 |
|
|
| Year Ended December 31, 2019 (3) |
| |||||||||||||
Contract Type |
| Shipyard |
|
| F&S |
|
| Eliminations |
|
| Total |
| ||||
Fixed-price and unit-rate (1) |
| $ | 161,839 |
|
| $ | 86,211 |
|
| $ | (430 | ) |
| $ | 247,620 |
|
T&M (2) |
|
| 6,627 |
|
|
| 41,014 |
|
|
| — |
|
|
| 47,641 |
|
Other |
|
| — |
|
|
| 9,944 |
|
|
| (1,897 | ) |
|
| 8,047 |
|
Total |
| $ | 168,466 |
|
| $ | 137,169 |
|
| $ | (2,327 | ) |
| $ | 303,308 |
|
|
| Year Ended December 31, 2018 (3) |
| |||||||||||||
Contract Type |
| Shipyard |
|
| F&S |
|
| Eliminations |
|
| Total |
| ||||
Fixed-price and unit-rate (1) |
| $ | 88,887 |
|
| $ | 77,318 |
|
| $ | (700 | ) |
| $ | 165,505 |
|
T&M (2) |
|
| 7,537 |
|
|
| 43,481 |
|
|
| — |
|
|
| 51,018 |
|
Other |
|
| — |
|
|
| 5,896 |
|
|
| (1,172 | ) |
|
| 4,724 |
|
Total |
| $ | 96,424 |
|
| $ | 126,695 |
|
| $ | (1,872 | ) |
| $ | 221,247 |
|
(1) | Revenue is recognized as the contract is progressed over time. |
(2) | Revenue is recognized at contracted rates when the work is performed and costs are incurred. |
(3) | See Note 10 for discussion of our realigned operating divisions. |
Future Performance Obligations Required Under Contracts
The following table summarizes our remaining performance obligations by operating segment at December 31, 2020 (in thousands).
Segment |
| Performance Obligations |
| |
Shipyard |
| $ | 352,181 |
|
F&S |
|
| 19,381 |
|
Total |
| $ | 371,562 |
|
We expect to recognize revenue for our remaining performance obligations at December 31, 2020, in the following periods (in thousands):
Year |
| Total |
| |
2021 |
| $ | 161,370 |
|
2022 |
|
| 140,018 |
|
2022 and beyond |
|
| 70,174 |
|
Total |
| $ | 371,562 |
|
F-12
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Contracts Assets and Liabilities
Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, customer invoicing is generally dependent upon predetermined billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to uncompleted contracts as ofat December 31, 2020 and 2019 is as follows (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Costs incurred on uncompleted contracts |
| $ | 328,229 |
|
| $ | 386,932 |
|
Estimated loss incurred to date |
|
| (19,617 | ) |
|
| (48,895 | ) |
Sub-total |
|
| 308,612 |
|
|
| 338,037 |
|
Billings to date |
|
| (256,220 | ) |
|
| (295,136 | ) |
Deferred revenue (1) |
|
| — |
|
|
| (4,592 | ) |
Total |
| $ | 52,392 |
|
| $ | 38,309 |
|
| 2017 | 2016 | ||||||
| Costs incurred on uncompleted contracts | $ | 266,902 | $ | 246,424 | |||
| Estimated profit (loss) earned to date | (19,336 | ) | 21,363 | ||||
| Sub-total | 247,566 | 267,787 | |||||
| Less billings to date | 224,329 | 244,935 | |||||
| Total | $ | 23,237 | $ | 22,852 | |||
The above amounts are included inwithin the accompanying consolidated balance sheetsfollowing captions on our Balance Sheet at December 31, under the following captions2020 and 2019 (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Contract assets (2) |
| $ | 67,521 |
|
| $ | 52,128 |
|
Contract liabilities (2), (3), (4) |
|
| (15,129 | ) |
|
| (26,271 | ) |
Sub-total |
|
| 52,392 |
|
|
| 25,857 |
|
Contract assets, noncurrent (1) |
|
| — |
|
|
| 12,452 |
|
Total |
| $ | 52,392 |
|
| $ | 38,309 |
|
(1) | We have contracts for the construction of 2 MPSVs that are subject to purported termination by our customer. Our net contract asset, accrued contract losses and deferred revenue balances at the time of the customer’s purported terminations of the contracts totaled $12.5 million and such amount has been reflected within other noncurrent assets on our Balance Sheet at December 31, 2020 and 2019. Although the net contract asset of $12.5 million was included within other noncurrent assets on our Balance Sheet at December 31, 2020, the information with respect to such contracts is not presented in the tables above at December 31, 2020 given the prolonged nature of the dispute. See Note 8 for further discussion of our MPSV contracts. |
(2) | The increase in contract assets compared to December 31, 2019, was primarily due to increased unbilled positions on three projects in our Shipyard Division, offset partially by decreased unbilled positions on four projects in our Shipyard Division and a project in our Fabrication & Services Division. The decrease in contract liabilities compared to December 31, 2019, was primarily due to the unwind of advance payments on two projects in our Shipyard Division and two projects in our Fabrication & Services Division, offset partially by advance payments on a project in our Shipyard Division. |
| 2017 | 2016 | ||||||
| Contracts in progress | $ | 28,373 | $ | 26,829 | |||
| Advance billings on contracts | (5,136 | ) | (3,977 | ) | |||
| Total | $ | 23,237 | $ | 22,852 | |||
(3) | Revenue recognized during 2020, 2019 and 2018 related to amounts included in our contract liabilities balance at December 31, 2019, 2018 and 2017, was $18.2 million, $14.3 million and $5.1 million, respectively. |
(4) |
F-13
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Contract liabilities at December 31, 2020 and 2019, includes accrued contract losses of $8.6 million and $6.4 million, respectively. See “Changes in Project Estimates” below for further discussion of our accrued contract losses. |
Significant Customers
We recognized contract losses of $36.5 million, $1.8 million and $33.9 million in the years ended December 31, 2017, 2016, and 2015, respectively.
|
| Years Ended December, 31 |
| |||||||||
Customer |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
A |
| $ | 37,986 |
|
| $ | 52,310 |
|
| * |
| |
B |
|
| 77,342 |
|
|
| 39,897 |
|
| * |
| |
C |
| * |
|
|
| 36,175 |
|
|
| 49,123 |
| |
D |
| * |
|
|
| 34,448 |
|
| * |
| ||
E |
| * |
|
| * |
|
|
| 25,873 |
| ||
F |
| * |
|
| * |
|
|
| 23,279 |
| ||
G |
| * |
|
| * |
|
| * |
| |||
* | The customer revenue was less than 10% of consolidated revenue for the year. |
Allowance for Doubtful Accounts
Our provision for bad debts is included in other (income) expense, net on our Statement of Operations. Our provision for bad debts for 2020, 2019 and 2018, and our allowance for doubtful accounts at December 31, 2020 and 2019, were not significant.
Variable Consideration
For 2019, 2018 and 2017, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at December 31, 2020 and 2019, certain uncompleted projects reflected a reduction in contract price for liquidated damages of $0.6 million and $12.9 million, respectively, of which $11.2 million of the liquidated damages at December 31, 2019 relate to purported liquidated damages on our contracts for the construction of 2 MPSVs that are subject to purported notices of termination by our customer. As discussed under “Contract Assets and Liabilities” above, we had a net contract asset at December 31, 2020 and 2019, of $12.5 million (inclusive of the impact of the purported liquidated damages previously recorded) related to these contracts; however, the liquidated damages with respect to these contracts is not presented in our variable consideration disclosure at December 31, 2020. See Note 8 for further discussion of our MPSV contracts.
Changes in Project Estimates
Changes in Estimates for 2020 – For 2020, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $16.6 million and positively impacted operating results for our Fabrication & Services Division by $2.7 million. The changes in estimates were associated with the following:
Shipyard Division
• | Towing, Salvage and Rescue Ship Projects – Negative impact for 2020 of $7.3 million resulting from increased forecast costs for our 5 towing, salvage and rescue ship projects, primarily associated with increased craft labor and subcontracted services costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects and higher cost estimates for subcontracted services resulting from the current and forecasted impacts of COVID-19 associated primarily with engineering delays, increased employee and contractor absenteeism and turnover, challenges recruiting and hiring craft labor, physical distancing measures, and disruption and inefficiencies related to the aforementioned and the need to re-sequence construction activities. The impacts were also due to additional anticipated craft labor associated with more complex piping and other construction activities identified as we achieved further completion of production engineering. We have submitted a request for equitable adjustment to our customer, the U.S. Navy, to extend our project schedules and recover the increased forecast costs associated with the impacts of COVID-19; however, we can provide no assurances that we will be successful recovering these costs. Our forecasts at December 31, 2020 do not reflect potential future benefits, if any, from the favorable resolution of the request for equitable adjustment. Our forecasts reflect minimal craft labor productivity improvements from the first vessel to each follow-on vessel. At December 31, 2020, the projects were at varying stages of completion ranging from approximately 10% to 60% and are forecast to be completed at varying dates from 2022 through 2024, subject to the potential schedule impacts referenced above. The first three vessels were in a loss position at December 31, 2020 and our reserve for estimated losses was $3.2 million. The last two vessels were approximately break-even. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates or our schedules are further extended, the projects would experience further losses. See “Other Project Matters” below for further discussion of our towing, salvage and rescue ship projects. |
F-14
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Harbor Tug Projects – Negative impact for 2020 of $1.0 million resulting from increased forecast costs for our final 2 (ninth and tenth) harbor tug projects in our Jennings Yard, primarily associated with increased craft labor and subcontracted services costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the wind down of the Jennings Yard in connection with its closure in the fourth quarter 2020 and the impacts of COVID-19 associated primarily with physical distancing measures. The ninth vessel was completed in the fourth quarter 2020 and the tenth vessel was completed in January 2021. |
• | Forty-Vehicle Ferry Projects – Negative impact for 2020 of $7.2 million resulting from increased forecast costs and forecast liquidated damages for our 2 forty-vehicle ferry projects ($6.2 million for the first vessel and $1.0 million for the second vessel), primarily associated with increased craft labor and material costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the current and forecasted impacts of COVID-19 and additional factors specific to each vessel as described further below: |
- | Second Forty-Vehicle Ferry Project (see discussion of first vessel below) –The impacts for the second vessel were also due to construction rework and disruptions caused by structural design deficiencies for the vessel, which resulted in deflection issues within the plating of the vessel. We believe the impacts of the design deficiencies should be the responsibility of the customer. Accordingly, we will be submitting a claim to our customer to extend our project schedules and recover the increased forecast costs associated with the impacts of the design deficiencies; however, we can provide no assurances that we will be successful recovering these costs. Our forecast at December 31, 2020 does not reflect potential future benefits, if any, from the favorable resolution of the claim. At December 31, 2020, the second vessel was approximately 80% complete and is forecast to be completed in the second quarter 2021. |
| Customer | 2017 | 2016 | 2015 | ||||||||
| A | $ | 44,724 | * | * | |||||||
| B | $ | 21,781 | * | * | |||||||
| C | * | $ | 65,981 | * | |||||||
| D | * | * | $ | 55,775 | |||||||
| E | * | * | $ | 36,320 | |||||||
- | First Forty-Vehicle Ferry Project –The impacts for the first vessel were also due to construction rework, including reconstruction of previously completed portions of the vessel, resulting from the determination that portions of the vessel structure were outside of acceptable tolerance levels. The previous construction activities were performed by our former Fabrication Division prior to transferring management and project execution responsibility of the vessels to our Shipyard Division in the first quarter 2020 as discussed further in Note 10. The impacts were also due to the determination that construction of a new hull for the vessel is the most appropriate course of action as further discussed below. |
During the third quarter 2020, the first vessel was less than 10%damaged by an overhead crane, which disengaged from its tracks, and landed on the hull that was under construction. As a result of this damage to the hull, coupled with prior rework on the vessel, and associated concerns regarding the acceptable tolerance levels of the total revenuehull, in October 2020 our customer issued a rejection letter indicating that they would not accept a reconstructed hull, and requested the fabrication of a new hull. Accordingly, we ceased construction activities on the vessel as we evaluated our options, including remediation actions that could potentially be taken in lieu of fabricating a new hull. We also began discussions with our insurer regarding the impacts of the crane incident and the coverage that would apply to any cost increases for remediation actions or the fabrication of a new hull. Based on our preliminary estimates, we believed the incremental forecast costs resulting from the aforementioned could range from $1.0 million to $4.0 million (before consideration of insurance coverage), with such range of cost being highly dependent on the course of action ultimately taken with respect to the hull, which ranged from remediation actions to repair the hull to the fabrication of a new hull. Further, the ultimate cost to us was dependent upon any insurance proceeds received in connection with the crane incident. Due to the uncertainty with respect to the corrective actions that potentially could be taken regarding the hull and any insurance coverage that would apply, we were unable to estimate the amount we would likely incur from the crane incident. Accordingly, at September 30, 2020, we accrued our deductible of $0.1 million associated with our insurance coverage, representing the minimum amount we would incur for the year.
We have also determined that the structural design deficiencies identified for the second vessel are applicable to the first vessel, which contributed to the aforementioned rework and construction challenges experienced on the first vessel. We will be required effective January 1, 2018. Topic 606 requires entitiessubmitting a claim to recognize revenue in a way that depictsour customer to extend our project schedules and recover the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As part of our implementation of this standard, we established an implementation team as well as employed the help of outside consultants to assistincreased costs associated with the implementation.impacts of the design deficiencies; however, we can provide no assurances that we will be successful recovering these costs. Our evaluation concluded revenueforecast at December 31, 2020 does not reflect potential future benefits, if any, from our fixed-price and unit-rate contracts using the percentage-of-completion method, computed by measuringfavorable resolution of the percentageclaim. The completion date of labor hours incurredthe first vessel is uncertain due to date as compared to estimated total labor hours for each contract is still appropriate. Revenue from contracts that are based upon time worked and materials incurred at the contracted rates will still be recognized as the work is performed and the costs are incurred. Our implementation included a detailed review of all or our significant contracts. In doing so, we determined that certain contracts will need to include contract labor amounts within the calculation of percentage complete in order to complyongoing discussions with the additional criteria included within Topic 606. Additionally,customer; however, we concluded that significant costs from outside services will need to be included within our measure of progress and and include a measure of profit and not treated solely as "pass-through costs." While these additional criteria impact the timing of revenue recognition, theycurrently do not change the timing for the recognition of costs.
| 2017 | 2016 | 2015 | |||||||||
| Location: | |||||||||||
| United States | $ | 171,022 | $ | 245,039 | $ | 287,892 | |||||
| International | — | 41,287 | 18,228 | ||||||||
| Total | $ | 171,022 | $ | 286,326 | $ | 306,120 | |||||
F-15
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The projects were in a loss position at December 31, 2020 and our reserve for estimated losses was $4.8 million. If future craft labor productivity and subcontractor costs differ from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or the projects incur additional schedule liquidated damages, the projects would experience further losses. We would also experience further losses if we were to incur further unanticipated costs associated with the design deficiencies, including fabrication of the new hull for the first vessel.
• | Seventy-Vehicle Ferry Project – Negative impact for 2020 of $1.1 million resulting from increased forecast costs for our seventy-vehicle ferry project, primarily associated with increased craft labor and subcontracted services costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the current and forecasted impacts of COVID-19 and our inability to achieve previously anticipated improvements in productivity. The impacts were also due to additional anticipated craft labor associated with more complex piping and other construction activities identified as we achieved further completion of production engineering. At December 31, 2020, the vessel was approximately 55% complete and is forecast to be completed in the fourth quarter 2021. The project was in a loss position at December 31, 2020 and our reserve for estimated losses was $0.5 million. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates, our schedules are further extended or the project incurs schedule liquidated damages, the project would experience further losses. |
• | Research Vessel Projects – As discussed further below, we agreed to a change order with our customer for our research vessel projects that, among other things, provided for the customer’s assumption of responsibility for production engineering for the project. Further, we made a collective decision with our customer to delay construction activities on the projects until production engineering achieves a satisfactory level of completion to limit the impacts on construction, including disruption and rework. These construction delays are expected to continue in the near term due to production engineering delays experienced by our customer’s engineering subcontractor as a result of COVID-19. We are currently working collaboratively with the customer to identify opportunities to commence construction activities in advance of full completion of production engineering to minimize the schedule impacts to the projects. Based on our current forecast cost to complete the projects, the change order and collaborative nature of our discussions with the customer, we are not forecasting losses on the projects. However, as discussed further below, we are continuing to recognize revenue equal to costs on the projects until we are able to reasonably estimate the amount of gross profit, if any, expected to be realized on the projects. We anticipate being able to make such an estimate upon substantial completion of production engineering. If the projects experience further delays associated with production engineering or other matters, we are unable to achieve our progress estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, our schedules are further extended or the projects incur schedule liquidated damages, future craft labor productivity and subcontractor costs differ from our current estimates, or we are unable to recover the costs of any of the aforementioned from our customer, the projects would experience losses. |
Fabrication & Services Division
• | Jacket and Deck Project – Positive impact for 2020 of $1.2 million resulting from reduced forecast costs and increased contract price for our jacket and deck project, primarily associated with reduced subcontracted services costs, approved change orders and incentives. The impacts were primarily due to favorable resolution of customer and subcontractor change orders and realization of project incentives. At December 31, 2020, the project was complete. |
• | Paddlewheel Riverboat and Subsea Components Projects – Positive impact for 2020 of $1.5 million resulting from reduced forecast costs and increased contract price for our paddlewheel riverboat and subsea components projects, primarily associated with reduced craft labor and subcontracted services costs and approved change orders. The impacts were primarily due to better than anticipated labor productivity and favorable resolution of customer and subcontractor change orders. At December 31, 2020, both projects were complete. |
Changes in Estimates for 2019 – For 2019, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $12.3 million and negatively impacted operating results for our Fabrication & Services Division by $4.9 million. The changes in estimates were associated with the following:
Shipyard Division
• | Harbor Tug Projects – Negative impact for 2019 of $4.9 million resulting from increased forecast costs and forecast liquidated damages for our harbor tug projects, primarily associated with increased craft labor, subcontracted services costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity and progress resulting from limitations in craft labor availability and the required use of contract labor in lieu of direct hire labor, the need to supplement and re-perform work for an under-performing paint subcontractor, higher than anticipated costs for paint scopes that were assumed by us from our paint subcontractor, higher cost estimates from our electrical and instrumentation subcontractor, our inability to achieve previously anticipated labor productivity improvements, and expectations of future labor productivity. The projects were in a loss position at December 31, 2019 and our reserve for estimated losses was $1.6 million. See “Changes in Estimates for 2020” above for further discussion of the status of these projects. |
F-16
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Forty-Vehicle Ferry Projects – Negative impact for 2019 of $5.1 million resulting from increased forecast costs and forecast liquidated damages for our 2 forty-vehicle ferry projects, primarily associated with increased craft labor and subcontracted services and materials costs. The impacts were primarily due to greater than anticipated rework, lower than anticipated productivity experienced primarily during the fourth quarter 2019, and our expectations of future labor productivity. The projects were in a loss position at December 31, 2019 and our reserve for estimated losses was $3.0 million. See “Changes in Estimates for 2020” above for further discussion of the status of these projects. |
• | Ice-Breaker Tug Project – Negative impact for 2019 of $1.5 million resulting from increased forecast costs for our ice-breaker tug project, primarily associated with increased craft labor, subcontracted services costs and extension of schedule. The impacts were primarily due to construction rework and disruption and lower than anticipated craft labor productivity and progress on the project resulting from incomplete and deficient subcontracted production engineering, higher cost estimates from our various subcontractors, difficulties encountered to launch the vessel, and anticipated higher costs to deliver the vessel. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.1 million. At December 31, 2020, the project was complete. |
• | Research Vessel Projects – Negative impact for 2019 of $0.8 million resulting from the reversal of gross profit recognized prior to 2019 for our 3 research vessel projects. The projects experienced difficulties with subcontracted production engineering, due in part to vessel size constraints and complexities associated with vessel functionality, which resulted in incomplete and deficient production engineering and construction delays, disruption and rework. As a result, we made a collective decision with our customer to delay construction activities on the projects until production engineering achieves a satisfactory level of completion to limit further impacts on construction, including disruption and rework. In addition, we agreed to a change order with the customer that included the following: |
- | The replacement of the current subcontracted production engineering firm with a different engineering subcontractor that was contracted directly by the customer; |
- | Extensions of the schedule liquidated damages dates for the projects; and |
- | Increases in project price for the contracts to account for the estimated cost impacts of the production engineering and construction delays. |
Based on our forecast cost to complete the projects, the change order and collaborative nature of our discussions with the customer, we are not forecasting losses on the projects. However, due to uncertainties with respect to the timing of completion of production engineering and the potential impacts on our construction schedules and costs, includeas well as ongoing discussions with the customer, we are unable to reasonably estimate the amount of gross profit, if any, that will ultimately be realized on the projects. Accordingly, during the fourth quarter 2019 we reversed all direct material, laborpreviously recognized gross profit on the projects (including the reversal of $2.5 million of gross profit that was recognized prior to the fourth quarter 2019) and subcontractare recognizing revenue equal to costs on the projects until we are able to reasonably estimate the amount of gross profit, if any, expected to be realized on the projects. See “Changes in Estimates for 2020” above for further discussion of the status of these projects.
Fabrication & Services Division
• | Paddle Wheel River Boat Project – Negative impact for 2019 of $1.3 million resulting from increased forecast costs for our paddle wheel river boat project, primarily associated with increased craft labor costs. The impacts were primarily due to difficulties encountered in commissioning the vessel and the need to accelerate our schedule, including performing out of sequence work scopes, to enable subcontracted works scopes to commence and mitigate the schedule and cost impacts of delaying the subcontracted work scopes. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.2 million. At December 31, 2020, the project was complete. |
• | Jacket and Deck Project – Negative impact for 2019 of $2.0 million resulting from increased forecast costs and forecast liquidated damages for our jacket and deck project, primarily associated with increased subcontracted services costs and extensions of schedule. The impacts were primarily due to higher than anticipated cost estimates from our commissioning subcontractors and delays associated with customer related directives. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $1.1 million. At December 31, 2020, the project was complete. |
• | Subsea Components Project – Negative impact for 2019 of $1.6 million resulting from increased forecast costs and liquidated damages for our subsea components project, primarily associated with increased craft labor, subcontracted services and materials costs and extensions of schedule. The impacts were primarily due to additional craft labor, materials costs and subcontracted services costs and support resulting from stringent welding procedure requirements and customer specifications. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.2 million. At December 31, 2020, the project was complete. |
F-17
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Changes in estimates for 2018 – For 2018, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $2.4 million and those indirectnegatively impacted operating results of our Fabrication & Services Division by $6.7 million. The changes in estimates were associated with the following:
Shipyard Division
• | Harbor Tug Projects – Negative impact for 2018 of $6.7 million resulting from increased forecast costs and liquidated damages for our harbor tug projects, primarily associated with craft labor costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity related to pipe installation and testing. See “Changes in Estimates for 2020” above for further discussion of the status of these projects. |
Fabrication & Services Division
• | Petrochemical Modules Project – Negative impact for 2018 of $2.4 million resulting from increased forecast costs for our petrochemical modules project, primarily associated with increased subcontracted services costs. The impacts were primarily due to higher cost estimates from our insulation and other subcontractors. At December 31, 2020, the project was complete. |
Other Project Matters
Hurricane Laura – In August 2020, Hurricane Laura made landfall as a high-end Category 4 hurricane in Lake Charles, Louisiana, where its high winds and flooding caused significant damage throughout the region. At our Lake Charles Yard, Hurricane Laura primarily damaged drydocks, warehouses, bulkheads and our ninth harbor tug project which was nearing completion and subsequently completed in the fourth quarter 2020. As a result, during 2020, we recorded charges of $1.3 million related to contract performance, such as indirect labor, suppliesdeductibles associated with our builder’s risk, equipment, property and tools. Alsomarine liability insurance coverages, and our preliminary estimates of cost associated with uninsurable damage, primarily for bulkheads. The charges are included in other (income) expense, net on our Statement of Operations.
Project Tariffs –Certain imported materials used, or forecast to be used, for our projects are currently subject to existing, new or increased tariffs or duties. We believe such amounts, if incurred, are recoverable from our customers under the contractual provisions of our contracts; however, we can provide no assurances that we will successfully recover such amounts.
Towing, Salvage and Rescue Ship Project Change Order– Our contract costs arefor the construction of our 5 towing, salvage and rescue ships contains options which grant our customer, the U.S. Navy, the right, if exercised, for the construction of 3 additional vessels at contracted prices. During the first quarter 2021, the U.S. Navy determined it would not exercise the 3 remaining options under our contract. In connection therewith, we agreed to a portionchange order of those indirect$13.1 million with the U.S. Navy to facilitate the transfer of technology, plans and know-how to the customer to enable it to contract costs related to plant capacity, suchwith other contractors for the construction of additional vessels. The majority of the change order will be included within contract price for our existing vessel projects and recognized as depreciation, insurancerevenue on a percentage-of-completion basis as the projects progress and repairsthe remainder will be recognized as revenue as we facilitate the transfer of the technology, plans and maintenance. These indirect costs are allocated to jobs basedknow-how during 2021.
3. IMPAIRMENTS AND (GAIN) LOSS ON ASSETS HELD FOR SALE
Impairments and (gain) loss on actual direct labor hours incurred.assets held for sale – Impairments and (gain) loss on assets held for sale (“AHFS”) generally represents asset impairments, gains or losses on the sale of assets held for sale and certain nonrecurring items. A summary of our impairments and (gain) loss on assets held for sale for 2020, 2019 and 2018, is as follows:
|
| Year Ended December 31, 2020 |
| |||||||||||||
Impairments and (gain) loss on assets held for sale |
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Impairments of AHFS |
| $ | — |
|
| $ | 1,400 |
|
| $ | — |
|
| $ | 1,400 |
|
Impairments of Jennings Yard assets |
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Impairments of Lake Charles Yard assets |
|
| 1,006 |
|
|
| — |
|
|
| — |
|
|
| 1,006 |
|
Impairments of other assets |
|
| 6 |
|
|
| 868 |
|
|
| — |
|
|
| 874 |
|
Loss on AHFS and other |
|
| 598 |
|
|
| 223 |
|
|
| — |
|
|
| 821 |
|
Total |
| $ | 1,639 |
|
| $ | 2,491 |
|
| $ | — |
|
| $ | 4,130 |
|
• | Impairments of AHFS – At December 31, 2020, our assets held for sale totaled $8.2 million and primarily consisted of 3 660-ton crawler cranes and 2 drydocks (which were classified as held for sale for sale in the fourth quarter 2020). As discussed below, during 2019 we recorded partial impairments of the crawler cranes. During 2020, we recorded additional impairments of $1.4 million associated with the partial impairment of the cranes. Our estimates of fair value for the cranes were based on broker opinions of value, which were lower than our previous estimates due to changes in market conditions (including the impacts of COVID-19), the limited interest received in the cranes during the period, the specific use nature and |
F-18
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
size of the cranes, and our expectation of a shorter marketing period due to concerns regarding future deterioration of the cranes. See “Impairments of Lake Charles Yard assets” below for discussion of the partial impairments of our drydocks in connection with their classification as held for sale. |
• | Impairments of Jennings Yard assets – During the fourth quarter 2020, we closed our Jennings Yard, which is subject to a long-term lease. As discussed below, during 2019 we recorded full impairments of our lease asset and non-moveable facility improvements and partial impairments of our moveable equipment. In connection with the facility’s fourth quarter 2020 closure, we had no material additional impairments of moveable equipment, which was relocated to our Houma Yards. See below for further discussion of the impairments recorded in 2019 and Note 4 for discussion of our Jennings Yard lease. We do not believe the closure of the Jennings Yard will impact our ability to operate our Shipyard Division, and it does not qualify for discontinued operations presentation as we will continue to operate our Shipyard Division from our Houma Yards. |
• | Impairment of Lake Charles Yard assets – During the fourth quarter 2020, we closed our Lake Charles Yard, which is subject to a long-term lease. As discussed below, during 2019 we recorded a full impairment of our non-moveable facility improvements and partial impairments of the lease asset, three drydocks and moveable equipment. In connection with the facility’s fourth quarter 2020 closure, we recorded additional impairments of $1.0 million associated with the full impairment of the lease asset and partial impairment of our moveable equipment and drydocks. The moveable equipment and one of the drydocks were relocated to our Houma Yards to be used in our Shipyard Division operations. The remaining two drydocks were relocated to our Houma Yards and are held for sale at December 31, 2020. Our estimates of fair value for the drydocks were based on appraisals for such assets. See below for further discussion of impairments recorded in 2019 and discussion of our assets held for sale and Note 4 for discussion of our Lake Charles Yard lease. We do not believe the closure of the Lake Charles Yard will impact our ability to operate our Shipyard Division, and it does not qualify for discontinued operations presentation as we will continue to operate our Shipyard Division from our Houma Yards. |
• | Impairments of other assets – During the fourth quarter 2020, we relocated and consolidated certain assets (including our pipe mill) between our Shipyard Division and F&S Division, and abandoned certain other assets, within our Houma Yards to improve operational efficiency. As a result, during 2020 we recorded impairments of $0.9 million associated with the partial or full impairment of such assets. We determined our impairments of the assets based on scrap value estimates of fair value. |
• | Loss on AHFS and other – During 2020, we incurred costs of $0.6 million, primarily associated with the closures of our Jennings Yard and Lake Charles Yard, as discussed above. We also sold a deck barge, 2 plate roll machines and certain other assets which were classified as held for sale for total proceeds of $1.7 million, resulting in a loss of $0.2 million. |
|
| Year Ended December 31, 2019 |
| |||||||||||||
Impairments and (gain) loss on assets held for sale |
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Impairments of AHFS |
| $ | 324 |
|
| $ | 7,842 |
|
| $ | — |
|
| $ | 8,166 |
|
Impairments of assets removed from AHFS |
|
| — |
|
|
| 1,060 |
|
|
| — |
|
|
| 1,060 |
|
Impairments of Jennings Yard assets |
|
| 4,578 |
|
|
| — |
|
|
| — |
|
|
| 4,578 |
|
Impairments of Lake Charles Yard assets |
|
| 2,998 |
|
|
| — |
|
|
| — |
|
|
| 2,998 |
|
Impairments of inventory and other assets |
|
| — |
|
|
| 400 |
|
|
| 21 |
|
|
| 421 |
|
(Gain) loss on AHFS and other |
|
| 20 |
|
|
| (369 | ) |
|
| 654 |
|
|
| 305 |
|
Total |
| $ | 7,920 |
|
| $ | 8,933 |
|
| $ | 675 |
|
| $ | 17,528 |
|
• | Impairments of AHFS – At December 31, 2019, our assets held for sale totaled $9.0 million and primarily consisted of 3 660-ton crawler cranes, 2 plate bending roll machines and a deck barge. During 2019, we revised our estimates of fair value for the crawler cranes based on updated broker opinions of value and revised our estimates of fair value for the plate bending roll machines based on third party indications of value. Our revised estimates of fair value for these assets were lower than our previous estimates due to changes in market conditions, the limited interest received in the assets during the period, the specific use nature of the assets (and the size of the assets in the case of the cranes), and our expectation of a shorter marketing period due to concerns regarding future deterioration of the assets. As a result of the aforementioned, during 2019 we recorded impairments of $7.8 million associated with the partial impairment of the crawler cranes and plate bending roll machines. During 2019, we also recorded an impairment of $0.3 million associated with the partial impairment of a drydock that was held-for-sale and sold during 2019 for proceeds of $0.6 million. |
• | Impairments of assets removed from AHFS – During 2019, we determined that we no longer intended to sell a deck barge (separate from the aforementioned deck barge) and panel line equipment that was previously classified as held for sale, and the assets were reclassified as property, plant and equipment. In connection therewith, the assets were recorded at the lower of their fair value or net book value as if they had been depreciated while being classified as held for sale, which resulted in impairments of $1.1 million during 2019. |
F-19
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Impairments of Jennings Yard assets – During 2019, we reassessed our previous estimates of the future cashflows expected to be generated by our leased Jennings Yard. Our revised forecast gave consideration to recent operating losses experienced on our harbor tug projects in the Jennings Yard and our intention to close the facility. Based on our revised forecast, we determined that the net book value of the Jennings Yard assets exceeded our estimates of future cashflows, which indicated that the assets were impaired. Our Jennings Yard assets primarily consisted of a lease asset, non-moveable facility improvements and certain moveable equipment. We based our impairments of the lease asset and non-moveable facility improvements on our expectation to close the facility, and we based our impairments of the moveable equipment on broker opinions of value for such assets. As a result of the aforementioned, during 2019 we recorded impairments of $4.6 million associated with the full impairment of the lease asset and non-moveable facility improvements and partial impairment of moveable equipment. See above for discussion of our closure of the Jennings Yard in the fourth quarter 2020 and Note 4 for further discussion of our Jennings Yard lease. |
• | Impairments of Lake Charles Yard assets – During 2019, we reassessed our previous estimates of the future cashflows expected to be generated by our leased Lake Charles Yard. Our revised forecast gave consideration to previous and then current under-utilization of the facility, our expectations of future work for the facility and the required future capital investment in the facility and its assets. Based on our revised forecast, we determined that the net book value of the Lake Charles Yard assets exceeded our estimates of future cashflows, which indicated that the assets were impaired. Our Lake Charles Yard assets primarily consisted of a lease asset, non-moveable facility improvements, three drydocks and certain moveable equipment. We based our impairments of the lease asset and non-moveable facility improvements on our anticipated cashflows from such assets, and we based our impairments of the drydocks and moveable equipment on appraisals and broker opinions of value for such assets. As a result of the aforementioned, during 2019 we recorded impairments of $3.0 million associated with the full impairment of the non-moveable facility improvements and partial impairment of the lease asset, drydocks and moveable equipment. See above for discussion of our closure of the Lake Charles Yard in the fourth quarter 2020 and Note 4 for further discussion of our Lake Charles Yard lease. |
• | Impairments of inventory and other assets – During 2019, we abandoned certain inventory and fixed assets and recorded impairments of $0.4 million associated with the partial impairment of the assets. We determined our impairments of the assets based on scrap value estimates of fair value. |
• | Loss on AHFS and other – During 2019, we recorded charges of $0.5 million associated with amounts payable to our former chief executive officer in connection with his retirement during the fourth quarter 2019. Such amounts were paid during 2020 and did not require any future service. We also recorded a gain of $0.4 million associated with the sale of assets held for sale. |
|
| Year Ended December 31, 2018 |
| |||||||||||||
Impairments and (gain) loss on assets held for sale |
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Gain on sale of South Texas Properties, net |
| $ | — |
|
| $ | (7,724 | ) |
| $ | — |
|
| $ | (7,724 | ) |
Impairments of AHFS |
|
| 964 |
|
|
| 1,387 |
|
|
| — |
|
|
| 2,351 |
|
Impairments of inventory and other assets |
|
| — |
|
|
| 2,094 |
|
|
| — |
|
|
| 2,094 |
|
Gain from insurance proceeds |
|
| — |
|
|
| (3,571 | ) |
|
| — |
|
|
| (3,571 | ) |
Total |
| $ | 964 |
|
| $ | (7,814 | ) |
| $ | — |
|
| $ | (6,850 | ) |
• | South Texas Properties and Gain on Sale of South Texas Properties, net – During 2017, we classified our fabrication yards and certain associated equipment in Ingleside, Texas (“Texas South Yard”) and Aransas Pass, Texas (“Texas North Yard”) (collectively, “South Texas Properties”) as held for sale. During 2018, we completed the sale of portions of the South Texas Properties, which consisted of the following: |
- | The sale of certain equipment prior to the sale of the South Texas Properties for proceeds of $1.3 million, and a loss of $0.3 million; |
- | The sale of our Texas South Yard for $55.0 million, less selling costs of $1.2 million, for total net proceeds received during 2018 of $53.8 million and a gain of $3.9 million; and |
- | The sale of our Texas North Yard for $28.0 million, less selling costs of $0.6 million, for total net proceeds of $27.4 million during 2018 and a gain of $4.1 million. |
Remaining equipment rental, and sub-contractor servicesfrom the Texas North Yard totaling $18.8 million was not included in the direct costs of revenue associated with projects. Pass-through costs have no impact in the determination of gross margin recognized for the related project for a particular period. Pass-through costs as a percentage of revenue were 53.1%, 36.5% and 44.4% for the years ended December 31, 2017, 2016 and 2015, respectively.
| 2017 | 2016 | ||||||
| Completed contracts | |||||||
| Current receivables | $ | 10,246 | $ | 6,812 | |||
| Contracts in progress: | |||||||
| Current receivables | 15,513 | 14,248 | |||||
| Retainage | 4,455 | 113 | |||||
| Total contracts receivable | 30,214 | 21,173 | |||||
| Less allowance for doubtful accounts | 1,748 | 1,004 | |||||
| Net contracts receivable | $ | 28,466 | $ | 20,169 | |||
F-20
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Impairments of AHFS –During 2018, we recorded impairments of $1.4 million for certain equipment previously associated with the South Texas Properties prior to their sale, but not sold in connection with the Texas South Yard or Texas North Yard transactions. In addition, during 2018 we recorded an impairment of $1.0 million for a drydock that was held for sale. Our impairments were based on our best estimate of the fair value of the assets. |
• | Impairments of inventory and other assets – During 2018, we abandoned certain inventory and other assets and recorded impairments of $2.1 million. We determined our impairments of the assets based on scrap value estimates of fair value. |
• | Gain from insurance proceeds – During 2017, buildings and equipment located at our South Texas Properties were damaged by Hurricane Harvey. During 2018, we agreed to a global settlement with our insurance carriers for total insurance payments of $15.4 million, of which $6.0 million had been received in 2017 and $9.4 million was received during 2018. We allocated the insurance recoveries as follows: |
- | $1.3 million, recorded during 2017, which offset clean-up and repair related costs incurred directly related to the damage as a result of Hurricane Harvey, resulting in 0 net gain or loss, |
- | $1.5 million recorded during 2017, which offset impairments of 2 buildings which were determined to be a total loss as a result of Hurricane Harvey, resulting in 0 net gain or loss; |
- | $9.0 million, recorded during 2018, which offset impairments of property and equipment, primarily at our Texas North Yard, resulting in 0 net gain or loss. The impairments were based upon our best estimate of the decline in fair value of the asset group as a result of Hurricane Harvey; and |
- | $3.6 million gain recorded during 2018. |
Assets held for sale – As discussed above, at December 31, 2017. We measure2020, our assets held for sale primarily consisted of 3 660-ton crawler cranes within our Fabrication & Services Division and record2 drydocks within our Shipyard Division, which were classified as held for sale during 2020. A summary of our assets held for sale at the lower of their carrying amount or fair value less cost to sell.
|
| December 31, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
Assets |
| Shipyard |
|
| F&S |
|
| Total |
|
| Shipyard |
|
| F&S |
|
| Total |
| ||||||
Machinery and equipment |
| $ | 3,619 |
|
| $ | 12,780 |
|
| $ | 16,399 |
|
| $ | — |
|
| $ | 17,618 |
|
| $ | 17,618 |
|
Accumulated depreciation |
|
| (1,605 | ) |
|
| (6,580 | ) |
|
| (8,185 | ) |
|
| — |
|
|
| (8,612 | ) |
| $ | (8,612 | ) |
Total assets held for sale |
| $ | 2,014 |
|
| $ | 6,200 |
|
| $ | 8,214 |
|
| $ | — |
|
| $ | 9,006 |
|
| $ | 9,006 |
|
| Assets | South Yard | North Yard | Prospect Shipyard | Consolidated | ||||||||||||
| Land | $ | 3,335 | $ | 2,157 | $ | — | $ | 5,492 | ||||||||
| Buildings and improvements | 84,282 | 39,548 | — | 123,830 | ||||||||||||
| Machinery and equipment | — | 69,818 | 2,201 | 72,019 | ||||||||||||
| Less: accumulated depreciation | (40,838 | ) | (55,629 | ) | (298 | ) | (96,765 | ) | ||||||||
| Total assets held for sale | $ | 46,779 | $ | 55,894 | $ | 1,903 | $ | 104,576 | ||||||||
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment
Property, plant and equipment consisted of the following at December 31, 2020 and 2019 (in thousands):
|
| Estimated |
|
| December 31, |
| ||||||
|
| Useful Life |
|
| 2020 |
|
| 2019 |
| |||
|
| (in Years) |
|
|
|
|
|
|
|
|
| |
Land |
|
| — |
|
| $ | 4,972 |
|
| $ | 4,972 |
|
Buildings |
|
| 25 |
|
|
| 36,581 |
|
|
| 35,580 |
|
Machinery and equipment |
| 3 to 25 |
|
|
| 99,621 |
|
|
| 126,622 |
| |
Furniture and fixtures |
| 3 to 5 |
|
|
| 1,375 |
|
|
| 2,288 |
| |
Transportation equipment |
| 3 to 5 |
|
|
| 2,195 |
|
|
| 2,521 |
| |
Improvements |
|
| 15 |
|
|
| 38,934 |
|
|
| 40,377 |
|
Construction in progress |
|
| — |
|
|
| 8,120 |
|
|
| 2,636 |
|
Total property, plant and equipment |
|
|
|
|
|
| 191,798 |
|
|
| 214,996 |
|
Accumulated depreciation |
|
|
|
|
|
| (124,340 | ) |
|
| (144,512 | ) |
Property, plant and equipment, net |
|
|
|
|
| $ | 67,458 |
|
| $ | 70,484 |
|
Estimated Useful Life | 2017 | 2016 | |||||||
| (in Years) | |||||||||
| Land | - | $ | 4,972 | $ | 10,463 | ||||
| Buildings | 25 | 34,653 | 65,894 | ||||||
| Machinery and equipment | 3 to 25 | 141,704 | 238,029 | ||||||
| Furniture and fixtures | 3 to 5 | 4,450 | 5,570 | ||||||
| Transportation equipment | 3 to 5 | 2,667 | 3,814 | ||||||
| Improvements | 15 | 42,975 | 128,437 | ||||||
| Construction in progress | - | 96 | 5,303 | ||||||
| Total cost | 231,517 | 457,510 | |||||||
| Less accumulated depreciation | 142,618 | 251,288 | |||||||
| Net book value | $ | 88,899 | $ | 206,222 | |||||
Depreciation expense for 2020, 2019 and 2018 was $8.6 million, $9.6 million and $10.4 million, respectively. The decrease in depreciation expense for 2020 compared to 2019 was due to assets becoming fully depreciated and assets being impaired in the normal course under month-to-month lease agreements cancelable only by us. During 2017, 2016, and 2015, we expensed $1.0 million, $2.5 million, and $5.9 million, respectively, relatedfourth quarter 2019. The decrease in depreciation expense for 2019 compared to these leases.
| Minimum Payments | |||
| 2018 | $ | 572 | |
| 2019 | 379 | ||
| 2020 | 388 | ||
| 2021 | 396 | ||
| 2022 | 405 | ||
| Thereafter | 869 | ||
| Total | $ | 3,009 | |
F-21
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Leased Facilities and financial instruments
At December 31, 2017, 2016 and 2015.
• | Corporate office in Houston, Texas consisting of approximately 17,000 square feet of office space. The lease expires in May 2025. |
• | Jennings Yard located near Jennings, Louisiana, consisting of a 180-acre yard on the west bank of the Mermentau River approximately 25 miles north of the U.S. Intracoastal Waterway. The lease expires in January 2025 with 2 ten-year renewal options that would extend the lease through January 2045. During the fourth quarter 2020, we closed our Jennings Yard and do not intend to exercise our renewal options. See Note 3 for discussion of our closure of the Jennings Yard. |
• | Lake Charles Yard located near Lake Charles, Louisiana, consisting of a 10-acre yard on the Calcasieu River approximately 17 miles from the GOM, that we sublease from a third party. The sublease expires in July 2023 with 3, five-year renewal options (subject to sublessor renewals) that would extend the lease through July 2038. During the fourth quarter 2020, we closed our Lake Charles Yard and do not intend to exercise our renewal options. See Note 3 for discussion of our closure of the Lake Charles Yard. |
• | Engineering office in Metairie, Louisiana, consisting of approximately 7,600 square feet of office space. The lease expires in December 2025. |
At December 31, 2017, we had assets held for sale with a book value of $104.62020, our lease asset, current lease liability and long-term lease liability were $1.7 million, related to our South Texas Properties$0.6 million and our Prospect Shipyard.
Future minimum payments under leases having initial terms of more than twelve months are as follows (in thousands):
|
| Minimum Payments |
| |
2021 |
| $ | 726 |
|
2022 |
|
| 737 |
|
2023 |
|
| 653 |
|
2024 |
|
| 564 |
|
2025 |
|
| 219 |
|
Total lease payments |
|
| 2,899 |
|
Less: interest |
|
| (278 | ) |
Present value of lease liabilities |
| $ | 2,621 |
|
Total lease expense for a purchase price of $55our leased facilities and equipment, which includes lease asset amortization expense and expense for leases with original terms that are twelve months or less, for 2020, 2019 and 2018, was $1.5 million, through April 25, 2018. We compared our carrying value of the South Yard to the purchase price less costs to sell$1.8 million and determined that there$1.9 million, respectively. Cash paid for interest and lease expense for 2020 and 2019 was no impairment. For our North Yard we have obtained third party appraisals$1.8 million and $2.0 million, respectively.
The discount rate used to determine the fairpresent value of our lease liabilities was based on the asset group dueinterest rate on our LC Facility adjusted for terms similar to the uncertainty with respect to the future cash flows and compared them to the carrying value which did not result in impairment.
5. CREDIT FACILITIES
LC Facility
On March 26, 2021, we amended our revolving credit facility with Hancock Whitney Bank (“Whitney Bank”), which previously provided for saleup to $40.0 million of borrowings or use within potential fabrication projects that are bidding; however, management has concluded that there most likely is not a near term opportunity to either sell this inventory as a lump sum or use them in our fabrication process. We recorded an impairment of $3.7 million based upon the estimated net realizable value of the high grade inventory in good condition and the estimated scrap proceeds for the lower grade carbon steel items.
| 2017 | 2016 | 2015 | |||||||||
| Numerator: | |||||||||||
| Net income (loss) | $ | (44,766 | ) | $ | 3,515 | $ | (25,364 | ) | |||
| Less: distributed loss / distributed and undistributed income (unvested restricted stock) | 3 | 30 | 84 | ||||||||
| Net income (loss) attributable to common shareholders | $ | (44,769 | ) | $ | 3,485 | $ | (25,448 | ) | |||
| Denominator (basic and fully diluted): | |||||||||||
| Denominator for basic earnings per share-weighted-average shares | 14,838 | 14,631 | 14,546 | ||||||||
| Basic and fully diluted earnings (loss) per share—common shareholders | $ | (3.02 | ) | $ | 0.24 | $ | (1.75 | ) | |||
F-22
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Loan Agreement
On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to the Paycheck Protection Program (“PPP”), which is sponsored by the Tax CutsSmall Business Administration (“SBA”), and Jobsis part of the Coronavirus Aid, Relief, and Economic Security Act enactment(“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan may be prepaid at any time prior to maturity with 0 prepayment penalties. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. The most significant of the conditions are:
• | Only amounts expended for Permissible Expenses during the eight-week or 24-week period, as elected by us, following April 17, 2020 (the “Covered Period”) are eligible for loan forgiveness. We have elected an eight-week Covered Period; |
• | Of the total amount of Permissible Expenses for which forgiveness can be granted, at least 60% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and |
• | If employee headcount is reduced, or employee compensation is reduced by more than 25%, during the Covered Period, a further reduction of the maximum loan forgiveness amount will occur, subject to certain safe harbors added by the Flexibility Act. |
The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is payable in monthly installments commencing on the earlier of the date on which the amount of loan forgiveness is determined or March 17, 2021. During the Covered Period the PPP Loan proceeds were used only for Permissible Expenses, of which approximately 93% was related to payroll costs. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 201714, 2020, and our adoption of Accounting Standards Update (ASU) 2016-09,
Surety Bonds
We issue surety bonds in the ordinary course of business to support our projects. At December 31, 2020, we had $291.2 million of outstanding surety bonds.
F-23
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. INCOME TAXES
Income Tax Cuts and Jobs Act. Changes to these estimates or new guidance issued by regulators may materially impact our provision for income taxes and effective(Expense) Benefit
A reconciliation of the U.S. federal statutory tax rate in the period in which the adjustments are made.
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
U.S. statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences |
|
| 0.0 | % |
|
| (0.2 | )% |
|
| (1.0 | )% |
State income taxes |
|
| 9.0 | % |
|
| 0.4 | % |
|
| (2.9 | )% |
Other |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 1.9 | % |
Discrete items |
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of common stock |
|
| (0.7 | )% |
|
| 0 |
|
|
| (0.1 | )% |
Change in valuation allowance |
|
| (29.1 | )% |
|
| (21.0 | )% |
|
| (21.7 | )% |
Income tax (expense) benefit |
|
| 0.2 | % |
|
| 0.2 | % |
|
| (2.8 | )% |
Significant components of the Company’sour income tax (expense) benefit for 2020, 2019 and 2018, were as follows (in thousands):
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
State |
|
| (20 | ) |
|
| 86 |
|
|
| (317 | ) |
Total current |
|
| (20 | ) |
|
| 86 |
|
|
| (317 | ) |
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 5,553 |
|
|
| 10,308 |
|
|
| 3,410 |
|
State |
|
| 2,487 |
|
|
| 87 |
|
|
| 644 |
|
Valuation allowance |
|
| (7,968 | ) |
|
| (10,385 | ) |
|
| (4,308 | ) |
Total deferred |
|
| 72 |
|
|
| 10 |
|
|
| (254 | ) |
Income tax (expense) benefit |
| $ | 52 |
|
| $ | 96 |
|
| $ | (571 | ) |
Deferred Taxes
Significant components of our deferred tax assets and liabilities as ofat December 31, 20172020 and 20162019, were as follows (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Deferred tax assets |
|
|
|
|
|
|
|
|
Impairments of lease assets and inventory |
| $ | 184 |
|
| $ | 644 |
|
Employee benefits |
|
| 751 |
|
|
| 724 |
|
Accrued losses on uncompleted contracts |
|
| 3,716 |
|
|
| 3,335 |
|
Stock based compensation expense |
|
| 225 |
|
|
| 312 |
|
Federal net operating losses |
|
| 19,345 |
|
|
| 14,885 |
|
State net operating losses |
|
| 3,620 |
|
|
| 1,678 |
|
R&D and other tax credits |
|
| 806 |
|
|
| 806 |
|
Other |
|
| 631 |
|
|
| 437 |
|
Total deferred tax assets |
|
| 29,278 |
|
|
| 22,821 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment and AHFS |
|
| (5,825 | ) |
|
| (7,523 | ) |
Prepaid insurance |
|
| (512 | ) |
|
| (402 | ) |
Total deferred tax liabilities |
|
| (6,337 | ) |
|
| (7,925 | ) |
Net deferred tax assets |
|
| 22,941 |
|
|
| 14,896 |
|
Valuation allowance |
|
| (23,054 | ) |
|
| (15,086 | ) |
Net deferred taxes (1) |
| $ | (113 | ) |
| $ | (190 | ) |
(1) | Amounts are included in other noncurrent liabilities on our Balance Sheet. |
| 2017 | 2016 | ||||||
| Deferred tax liabilities: | |||||||
| Property, plant and equipment | $ | 17,605 | $ | 27,468 | |||
| Prepaid insurance | 453 | 766 | |||||
| Total deferred tax liabilities: | 18,058 | 28,234 | |||||
| Deferred tax assets: | |||||||
| Employee benefits | 962 | 1,303 | |||||
| Uncompleted contracts | 2,664 | 106 | |||||
| Stock based compensation expense | 350 | 1,488 | |||||
| Allowance for uncollectible accounts | 99 | 192 | |||||
| Long term incentive awards | 280 | 264 | |||||
| Federal net operating losses | 13,190 | 617 | |||||
| State net operating losses | 511 | — | |||||
| AMT credit carryforwards | — | 1,030 | |||||
| Other | 394 | — | |||||
| Less valuation allowance | (392 | ) | — | ||||
| Total deferred tax assets: | 18,058 | 5,000 | |||||
| Net deferred tax liabilities: | $ | — | $ | 23,234 | |||
F-24
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At December 31, were as follows (in thousands):
| 2017 | 2016 | 2015 | |||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | 302 | $ | 219 | |||||
| State | 83 | 361 | 473 | ||||||||
| Total current | 83 | 663 | 692 | ||||||||
| Deferred: | |||||||||||
| Federal | (23,827 | ) | 1,549 | (13,614 | ) | ||||||
| State | (449 | ) | (171 | ) | (447 | ) | |||||
| Total deferred | (24,276 | ) | 1,378 | (14,061 | ) | ||||||
| Income taxes | $ | (24,193 | ) | $ | 2,041 | $ | (13,369 | ) | |||
| 2017 | % | 2016 | % | 2015 | % | ||||||||||||
| U.S. statutory rate | $ | (24,136 | ) | 35.0% | $ | 1,945 | 35.0% | $ | (13,556 | ) | 35.0% | ||||||
| Increase (decrease) resulting from: | |||||||||||||||||
| Permanent differences | 330 | (0.5)% | 64 | 1.1% | 275 | (0.7)% | |||||||||||
| State income taxes | (366 | ) | 0.5% | 32 | 0.6% | — | —% | ||||||||||
| Vesting of common stock | 253 | (0.4)% | — | —% | — | —% | |||||||||||
| Other | (274 | ) | 0.5% | — | —% | (88 | ) | 0.2% | |||||||||
| Income tax (benefit) expense | $ | (24,193 | ) | 35.1% | $ | 2,041 | 36.7% | $ | (13,369 | ) | 34.5% | ||||||
At December 31, 2020, we had gross U.S. federal NOL carryforwards (excluding VAs) of $92.1 million, of which $42.3 million will expire in 2037 with the remaining U.S. federal NOL carryforwards eligible to be carried forward indefinitely, subject to an 80% limitation on taxable income in each year. We had gross state NOL carryforwards (excluding VAs) of $45.1 million, which will expire from 2035 through 2040.
Uncertain Tax Positions
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense. At December 31, 2020 and 2019, we had no material reserves for uncertain tax positions. Tax returns subject to examination by the U.S. Internal Revenue Service are open for years after 2014.
7. RETIREMENT AND LONG-TERM INCENTIVE PLANS
Defined Contribution Plan
We sponsor a defined contribution plan for alleligible employees that is qualified under Section 401(k) of the Internal Revenue Code. Contributions to the retirement plan by the Company are based on the participants’Code, which includes voluntary employee pre-tax contributions and Company-matching contributions, with anpotential additional year-end discretionary contributioncontributions determined by theour Board of Directors. Effective April 1, 2016, the CompanyOur matching contributions were temporarily suspended its matching contribution in responsethe second quarter 2016 and reinstated in the second quarter 2019. For 2020 and 2019, we contributed $0.7 million and $0.8 million, respectively to the downturn in the oil and gas industry. For the years ended December 31, 2017, 2016 and 2015, the Company contributed a total of $0, $670,000, and $2.3 million, respectively.
Long-Term Incentive Plans
Under our long-term incentive plans (“Incentive Plans”), the compensation committeeCompensation Committee of our Board of Directors may grant equitycash-based and equity-based awards related to the Company's common stock,eligible employees and non-employee directors, including awards of restricted stock restrictedawards, stock units, other stock-basedoption awards and options to eligible participantscash-based and stock-based performance awards. The Compensation Committee determines the value of each award, as well as the compensation committee determines.terms, conditions, performance measures, and other provisions of the award. A summary of our long-term incentive plansIncentive Plans, and the number of shares of our common stock that may be issued under each plan, is as follows:
• | Long-Term Incentive Plan (approved on February 13, 1997) –1,000,000 shares; |
• | 2002 Long-Term Incentive Plan (approved on April 24, 2002 and amended on April 26, 2006) –500,000 shares; |
• | 2011 Stock Incentive Plan (approved on April 28, 2011) –500,000 shares; and |
• | 2015Stock Incentive Plan (approved on April 23, 2015 and amended on May 22, 2020) – 2,500,000 shares. |
At December 31, 2017, there were approximately 833,4432020, we had 1,611,928 aggregate shares in the aggregate remaining available for future issuance under the Long-Termour Incentive Plan, the 2002 Long-Term Incentive Plan, the 2011 Stock Incentive Plan and the 2015 Stock Incentive Plan (together, the “Incentive Plans”). The Company issues new shares through its transfer agent in connection with issuances under the Incentive Plans.
Restricted Stock and Stock Option Awards
F-25
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A summary of activity for our restricted stock awards activity for the years ended2020, 2019 and 2018 is as follows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
|
| Number of Shares |
|
| Weighted- Average Grant-Date Fair Value Per Share |
|
| Number of Shares |
|
| Weighted- Average Grant-Date Fair Value Per Share |
|
| Number of Shares |
|
| Weighted- Average Grant-Date Fair Value Per Share |
| ||||||
Restricted shares, beginning of period |
|
| 286,148 |
|
| $ | 8.30 |
|
|
| 526,438 |
|
| $ | 11.56 |
|
|
| 445,126 |
|
| $ | 12.83 |
|
Granted |
|
| 470,004 |
|
|
| 3.80 |
|
|
| 170,936 |
|
|
| 6.09 |
|
|
| 440,185 |
|
|
| 11.16 |
|
Vested |
|
| (113,988 | ) |
|
| 8.89 |
|
|
| (255,449 | ) |
|
| 11.41 |
|
|
| (250,219 | ) |
|
| 10.93 |
|
Forfeited |
|
| (26,520 | ) |
|
| 12.14 |
|
|
| (155,777 | ) |
|
| 11.81 |
|
|
| (108,654 | ) |
|
| 12.01 |
|
Restricted shares, end of period |
|
| 615,644 |
|
|
| 4.61 |
|
|
| 286,148 |
|
|
| 8.30 |
|
|
| 526,438 |
|
|
| 11.56 |
|
Compensation expense for our restricted stock awards was $1.1 million, $1.8 million and $2.8 million for 2020, 2019 and 2018, respectively. At December 31, 2017, 2016 and 2015 is presented in the table below.
| 2017 | 2016 | 2015 | ||||||||||||||||||
Number of Shares | Weighted- Average Grant-Date Fair Value Per Share | Number of Shares | Weighted- Average Grant-Date Fair Value Per Share | Number of Shares | Weighted- Average Grant-Date Fair Value Per Share | |||||||||||||||
| Restricted shares at the beginning of period | 370,565 | $ | 12.99 | 262,964 | $ | 18.33 | 107,840 | $ | 24.27 | |||||||||||
| Granted | 383,121 | 13.02 | 259,699 | 8.55 | 215,034 | 16.33 | ||||||||||||||
| Vested | (215,478 | ) | 12.52 | (114,804 | ) | 14.37 | (41,112 | ) | 22.04 | |||||||||||
| Forfeited | (93,082 | ) | 12.53 | (37,294 | ) | 15.48 | (18,798 | ) | 21.39 | |||||||||||
| Restricted shares at the end of period | 445,126 | $ | 12.83 | 370,565 | $ | 12.99 | 262,964 | $ | 18.33 | |||||||||||
Stock-Based Performance awards
During 2020, we did 0t recognize any compensation expense related to our stock-based performance awards with its terms, and we are marketing the remaining assets located at such property for sale. See also Note 4.
Cash-Based Performance Awards – Cash-based performance awards represent awards payable in cash based on the achievement of annual income targets. The cash payment occurs in the period immediately following the completion of the assetsperformance period. During 2019, cash-based performance awards were granted with a three-year performance period ending December 31, 2021. One-third of the award is earned each year in the performance period, provided the applicable annual income target is achieved, or is forfeited if the applicable annual income target is not achieved. During 2020 and certain specified liabilities of LEEVAC on January 1, 2015 (in thousands):
| Year Ended December 31, 2015 | Pro forma adjustments | ||||||||||||||||
| Historical results | LEEVAC | Adjustments | Pro forma results | ||||||||||||||
| Revenue | $ | 306,120 | $ | 87,239 | $ | — | $ | 393,359 | |||||||||
| Net income (loss) | $ | (25,364 | ) | $ | (4,655 | ) | $ | 3,738 | (1) | $ | (26,281 | ) | |||||
8. COMMITMENTS AND CONTINGENCIES
We are as follows:
| Year Ended December 31, 2015 | ||||
| Effect of purchase price depreciation | $ | 1,217 | ||
| Elimination of interest expense | 2,038 | |||
| Income taxes | 483 | |||
| Total | $ | 3,738 | ||
MPSV Termination Letter
During the first quarter 2018, we received notices of termination from our customer of the Company.
F-26
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On October 2, 2018, we filed a lawsuit against the customer to completeenforce our rights and remedies under the contractapplicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported terminations of the construction contracts and seeks to recover damages associated with the customer’s actions. The customer filed its response to our lawsuit denying many of the allegations in the lawsuit and asserting a mannercounterclaim against us seeking, among other things, declaratory judgment as to the validity of the customer’s purported terminations of the construction contracts and other purported claims for which the customer is seeking damages in an unspecified amount. We filed a response to the counterclaim denying all of the customer’s claims. The customer subsequently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also filed a motion for partial summary judgment with the trial court seeking, among other things, to obtain possession of the vessels. A hearing on the motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels was denied by the trial court. The customer subsequently filed a second motion for partial summary judgment re-urging its previously denied request to obtain possession of the vessels. A hearing on the second motion was held on November 5, 2019, and the customer’s request to obtain possession of the vessels was again denied by the trial court. Thereafter, the customer requested that the appellate court exercise its discretion and review and reverse the trial court’s denial of the customer’s second motion. We opposed the discretionary appellate review request of the customer, and that review, as well as the pending lawsuit, were stayed during the pendency of the customer’s Chapter 11 bankruptcy case that is acceptablereferenced below. However, the customer’s Chapter 11 bankruptcy plan was confirmed, and accordingly, the appellate matter and the lawsuit are no longer stayed. The appellate court has since denied the customer’s appellate review request and the lawsuit will proceed in the ordinary course. Discovery in connection with that lawsuit is ongoing and no trial date or other deadlines have been scheduled in connection with that lawsuit.
On May 19, 2020, the customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to both parties;obtain possession of the vessels. In response, we filed a motion to dismiss the adversary proceeding and to allow the dispute regarding the vessels and the construction contracts to continue in state court where our lawsuit against the customer is currently pending. On September 1, 2020, a hearing was held in connection with the motion to dismiss; however, resolutionthe bankruptcy court’s decision was delayed to allow the parties an opportunity to mediate their dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the vessels. The mediation between the parties was not successful.
We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this customer could take several months.matter. We can provide no assurance that we will be successful in signing an amendment to the contract, or that in the event we are successful in negotiating an amendment, as to when such an amendment will be signed or if such amendment will result in recovery of any cost overruns or liquidated damages that we have recognized to date. We believe that our estimates to complete the vessels are reasonable; however, we cannot guaranteeassurances that we will not incur additional costs as we negotiatepursue our rights and remedies under the contracts and defend against the customer’s claims. At December 31, 2020 and December 31, 2019, other noncurrent assets on our Balance Sheet included a net contract asset of $12.5 million, which consisted of our contract asset, accrued contract losses, and deferred revenue balances at the time of the customer's purported terminations of the contracts. We continue to hold first priority security interests and liens against the vessels that secure the obligations owed to us by the customer.
Insurance
We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation claims. We expect liabilities in excess of any deductibles and self-insured retentions to be covered by insurance. To the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change. See Note 2 for discussion of insurance deductibles incurred during 2020 associated with damage caused by Hurricane Laura.
Letters of Credit and Surety Bonds
We obtain letters of credit under our customer.
Environmental Matters
Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as to not overly burden our operating divisions with coststhe laws of other countries, that do not directlyestablish health and environmental quality standards. These standards, among others, relate to their operations. Accordingly, a significant portionair and water pollutants and the management and disposal of our corporate administrative costshazardous substances and overhead expenseswastes. We are retained within the results of our corporate division.exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In addition, we have also allocated certain personnel previously included in the operating divisions to our Corporate Division. In doing so, management believes that it has created a fourth reportable segment with each of its three significant operating divisions and its Corporate Division each meeting the criteria of reportable segments under GAAP. Beginning in December 2017, we created a new operating division, which we have named our EPC Division to manage expected work we will perform for the SeaOne Project and other projects that may require EPC project management services. EPC's operating revenue and expenses for 2017 were immaterial and it held no assets.
F-27
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.
Leases
We maintain operating leases for our corporate office and certain operating facilities and equipment. See Note 4 for further discussion of our leases.
9. INCOME (LOSS) PER SHARE
The following table presents the computation of basic and diluted loss per share for 2020, 2019 and 2018 (in thousands, except per share data):
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
Weighted average shares (1) |
|
| 15,308 |
|
|
| 15,227 |
|
|
| 15,032 |
|
Basic and diluted loss per common share |
| $ | (1.79 | ) |
| $ | (3.24 | ) |
| $ | (1.36 | ) |
(1) We have 0 dilutive securities.
10. OPERATING SEGMENTS
During 2019, we operated and managed our business through 3 operating divisions (“Fabrication”, “Shipyard”, and “Services”) and 1 non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. The operational combination will enable us to capitalize on the best practices and execution experience of the former divisions and maximize the utilization of our resources. As a result, we currently operate and manage our business through 2 operating divisions (“Shipyard” and “Fabrication & Services”) and 1 non-operating division (“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our 2 forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. Our three significanttwo operating divisions and Corporate Division are discussed below.
Shipyard Division -
Fabrication & Services Division
F-28
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Corporate Division–Our Corporate Division includes costs that do not directly relate to our two operating divisions. Such costs include, but are not limited to, costs of maintaining our corporate office, executive management salaries and incentives, board of directors' fees, litigation related costs, and costs associated with overall corporate governance and being a publicly traded company. Costs incurred by our Corporate Division on behalf of our Houma Service Yard.
We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit (loss)or loss and operating income (loss).or loss. Segment assets are comprised of all assets attributable to each division. Corporate administrative costs and overhead are generally allocated to our segments except for those costs that are not directly related to the operations of our divisions. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information concerningfor our segments as of and for the three-year period ended December 31, 2017,2020, is as follows (in thousands):
|
| Year Ended December 31, 2020 |
| |||||||||||||
|
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ | 153,698 |
|
| $ | 99,485 |
|
| $ | (2,224 | ) |
| $ | 250,959 |
|
Gross profit (loss) (1) |
|
| (19,274 | ) |
|
| 1,523 |
|
|
| — |
|
|
| (17,751 | ) |
Operating income (loss) (1) |
|
| (24,343 | ) |
|
| 5,893 |
|
|
| (8,709 | ) |
|
| (27,159 | ) |
Depreciation and amortization expense |
|
| 3,254 |
|
|
| 5,061 |
|
|
| 302 |
|
|
| 8,617 |
|
Capital expenditures |
|
| 6,499 |
|
|
| 4,522 |
|
|
| 191 |
|
|
| 11,212 |
|
Total assets (4) |
|
| 121,992 |
|
|
| 54,966 |
|
|
| 54,385 |
|
|
| 231,343 |
|
|
| Year Ended December 31, 2019 |
| |||||||||||||
|
| Shipyard (5) |
|
| F&S (5) |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ | 168,466 |
|
| $ | 137,169 |
|
| $ | (2,327 | ) |
| $ | 303,308 |
|
Gross loss (2) |
|
| (16,025 | ) |
|
| (657 | ) |
|
| (317 | ) |
|
| (16,999 | ) |
Operating loss (2) |
|
| (26,428 | ) |
|
| (13,696 | ) |
|
| (9,897 | ) |
|
| (50,021 | ) |
Depreciation and amortization expense |
|
| 4,167 |
|
|
| 4,984 |
|
|
| 413 |
|
|
| 9,564 |
|
Capital expenditures |
|
| 1,827 |
|
|
| 1,963 |
|
|
| — |
|
|
| 3,790 |
|
Total assets (4) |
|
| 103,409 |
|
|
| 77,402 |
|
|
| 71,966 |
|
|
| 252,777 |
|
|
| Year Ended December 31, 2018 |
| |||||||||||||
|
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ | 96,424 |
|
| $ | 126,695 |
|
| $ | (1,872 | ) |
| $ | 221,247 |
|
Gross profit (loss) (3) |
|
| (10,472 | ) |
|
| 4,607 |
|
|
| (1,331 | ) |
|
| (7,196 | ) |
Operating income (loss) (3) |
|
| (14,396 | ) |
|
| 4,558 |
|
|
| (9,827 | ) |
|
| (19,665 | ) |
Depreciation and amortization expense |
|
| 4,229 |
|
|
| 5,826 |
|
|
| 295 |
|
|
| 10,350 |
|
Capital expenditures |
|
| 2,003 |
|
|
| 1,460 |
|
|
| 18 |
|
|
| 3,481 |
|
Total assets (4) |
|
| 97,197 |
|
|
| 102,719 |
|
|
| 58,374 |
|
|
| 258,290 |
|
(1) | Gross profit (loss) and operating income (loss) for 2020 includes project charges of $16.6 million for our Shipyard Division and project improvements of $2.7 million for our F&S Division. Operating income (loss) also includes impairment charges and net losses on the sales of assets held for sale of $1.6 million and $2.5 million for our Shipyard Division and F&S Division, respectively, charges of $1.3 million associated with damage caused by Hurricane Laura at our Lake Charles Yard for our Shipyard Division, and a gain of $10.0 million associated with the settlement of a contract dispute for our F&S Division. See Note 2 for further discussion of our project and hurricane impacts and Note 3 for further discussion of our facility closures and impairments. |
(2) | Gross loss and operating loss for 2019 includes project charges of $12.3 million and $4.9 million for our Shipyard Division and F&S Division, respectively. Operating loss also includes impairment charges and net gains on the sales of assets held for sale of $7.9 million and $8.9 million for our Shipyard Division and F&S Division, respectively, and restructuring costs of $0.7 million for our Corporate Division. See Note 2 for further discussion of our project impacts and Note 3 for further discussion of our impairments. |
| December 31, 2017 | |||||||||||||||
| Fabrication | Shipyard (1) | Services | Corp. & Eliminations | Consolidated | |||||||||||
| Revenue | $ | 57,880 | $ | 52,699 | $ | 65,445 | $ | (5,002 | ) | $ | 171,022 | ||||
| Gross profit (loss) | (1,941 | ) | (44,870 | ) | 4,575 | (689 | ) | (42,925 | ) | ||||||
| Operating income (loss) | (12,040 | ) | (49,785 | ) | 1,874 | (8,446 | ) | (68,397 | ) | ||||||
| Depreciation expense | 6,592 | 4,073 | 1,676 | 404 | 12,745 | ||||||||||
| Capital expenditures | 2,395 | 1,909 | 403 | 127 | 4,834 | ||||||||||
| Total Assets | $ | 195,187 | $ | 74,516 | $ | 105,291 | $ | (104,154 | ) | $ | 270,840 | ||||
(3) | Gross profit (loss) and operating income (loss) for 2018 includes project charges of $6.7 million and $2.4 million for our Shipyard Division and F&S Division, respectively. Operating income (loss) also includes impairment charges of $1.0 million for our Shipyard Division and a net benefit of $7.8 million for our F&S Division, primarily related to a gain on the sale of our South Texas Properties of $7.7 million and a gain on insurance recoveries of $3.6 million, offset partially by impairments of $3.5 million. See Note 2 for further discussion of our project impacts and Note 3 for further discussion of our asset impairments. |
(4) | Cash and short-term investments are reported within our Corporate Division. |
(5) | Revenue of $9.2 million and gross loss and operating loss of $5.1 million for 2019, and contract assets and contract receivables of $6.0 million as of December 31, 2019, associated with our 2 forty-vehicle ferry projects were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. |
F-29
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| December 31, 2016 | |||||||||||||||
| Fabrication | Shipyard | Services | Corp. & Eliminations | Consolidated | |||||||||||
| Revenue | $ | 88,683 | $ | 109,502 | $ | 91,414 | $ | (3,273 | ) | $ | 286,326 | ||||
| Gross profit (loss) | 5,276 | 7,801 | 12,420 | (644 | ) | 24,853 | |||||||||
| Operating income (loss) | 1,500 | 2,375 | 9,106 | (7,798 | ) | 5,183 | |||||||||
| Depreciation expense | 18,566 | 4,686 | 1,775 | 421 | 25,448 | ||||||||||
| Capital expenditures | 2,633 | 1,861 | 1,495 | 806 | 6,795 | ||||||||||
| Total Assets | $ | 272,292 | $ | 81,928 | $ | 96,404 | $ | (128,216 | ) | $ | 322,408 | ||||
| December 31, 2015 | |||||||||||||||
| Fabrication | Shipyard | Services | Corp. & Eliminations | Consolidated | |||||||||||
| Revenue | $ | 151,576 | $ | 59,601 | $ | 100,431 | $ | (5,488 | ) | $ | 306,120 | ||||
| Gross profit (loss) | (36,990 | ) | 8,750 | 13,937 | (853 | ) | (15,156 | ) | |||||||
| Operating income (loss) | (49,295 | ) | 7,695 | 11,353 | (8,367 | ) | (38,614 | ) | |||||||
| Depreciation expense | 22,045 | 1,921 | 1,733 | 505 | 26,204 | ||||||||||
| Capital expenditures | 3,360 | 1,206 | 1,379 | 73 | 6,018 | ||||||||||
| Total Assets | $ | 310,790 | $ | 54,543 | $ | 94,618 | $ | (143,028 | ) | $ | 316,923 | ||||
11. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents selected unaudited consolidated financial information on a quarterly results of operationsbasis for the years ended December 31, 20172020 and 2016 were as follows2019 (in thousands, except per share data):
|
| March 31, 2020 |
|
| June 30, 2020 |
|
| September 30, 2020 |
|
| December 31, 2020 (1) |
| ||||
Revenue |
| $ | 78,555 |
|
| $ | 59,974 |
|
| $ | 54,869 |
|
| $ | 57,561 |
|
Gross loss |
|
| (254 | ) |
|
| (1,703 | ) |
|
| (7,817 | ) |
|
| (7,977 | ) |
Net income (loss) |
| �� | 5,905 |
|
|
| (5,537 | ) |
|
| (12,337 | ) |
|
| (15,406 | ) |
Basic and diluted income (loss) per share |
|
| 0.39 |
|
|
| (0.36 | ) |
|
| (0.81 | ) |
|
| (1.01 | ) |
|
| March 31, 2019 |
|
| June 30, 2019 |
|
| September 30, 2019 |
|
| December 31, 2019 (2) |
| ||||
Revenue |
| $ | 67,605 |
|
| $ | 80,456 |
|
| $ | 75,802 |
|
| $ | 79,445 |
|
Gross profit (loss) |
|
| 553 |
|
|
| (1,598 | ) |
|
| (2,685 | ) |
|
| (13,269 | ) |
Net loss |
|
| (3,042 | ) |
|
| (5,248 | ) |
|
| (6,779 | ) |
|
| (34,325 | ) |
Basic and diluted loss per share |
|
| (0.20 | ) |
|
| (0.34 | ) |
|
| (0.44 | ) |
|
| (2.26 | ) |
March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 (1) | ||||||||||||
| Revenue | $ | 37,993 | $ | 45,868 | $ | 49,884 | $ | 37,277 | |||||||
| Gross profit (loss) | (4,897 | ) | (11,620 | ) | (494 | ) | (25,914 | ) | |||||||
| Net income (loss) | (6,454 | ) | (10,923 | ) | (3,110 | ) | (24,279 | ) | |||||||
| Basic and fully diluted EPS | $ | (0.44 | ) | $ | (0.73 | ) | $ | (0.21 | ) | $ | (1.63 | ) | |||
March 31, 2016 | June 30, 2016 | September 30, 2016 | December 31, 2016 | ||||||||||||
| Revenue | $ | 83,979 | $ | 81,502 | $ | 65,384 | $ | 55,461 | |||||||
| Gross profit (loss) | 5,701 | 14,066 | 5,259 | (173 | ) | ||||||||||
| Net income (loss) | 989 | 5,540 | 541 | (3,555 | ) | ||||||||||
| Basic and fully diluted EPS | $ | 0.07 | $ | 0.37 | $ | 0.04 | $ | (0.24 | ) | ||||||
(1) | Gross loss and net loss for the fourth quarter 2020 includes project charges of |
(2) | Gross loss and net loss for the fourth quarter 2019 includes project charges of $10.2 million and $3.8 million for our Shipyard Division and F&S Division, respectively. Net loss for the fourth quarter 2019 also includes impairment charges of $7.6 million, $9.0 million and $0.7 million for our Shipyard Division, F&S Division and Corporate Division, respectively. The fourth quarter 2019 was also impacted by the under-recovery of overhead costs for our F&S Division, and to |
12. SUBSEQUENT EVENTS
On March 26, 2021, we amended our revolving credit facility with Whitney Bank. See Note 5 for further discussion of our amendment.
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
EXHIBIT NUMBER | ||
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
10.15 | ||
10.16 | ||
10.17 | ||
EXHIBIT NUMBER | ||
10.18 | ||
10.19 | ||
10.20 | ||
10.21 | ||
10.22 | Waiver and Seventh Amendment to Credit Agreement dated March 26, 2021.* | |
10.23 | ||
10.24 | ||
10.25 | ||
21 | Subsidiaries of the Company - The Company’s significant subsidiaries, Gulf Island Works, L.L.C., Gulf Island, L.L.C., Gulf Island Shipyards, L.L.C. (with trade name Gulf Island Marine Fabricators), Gulf Island Services, L.L.C. (with trade names Gulf Island Steel Sales, Dolphin Services and Dolphin Steel Sales) (each organized under Louisiana law) and Gulf Island Marine Fabricators, L.P. (a Texas limited partnership) are wholly owned and are included in the | |
22 | Subsidiary guarantors and issuers of guaranteed securities – From time to time, the Company may issue debt securities under a registration statement on Form S-3 filed with the SEC that are fully and unconditionally guaranteed by Gulf Island, L.L.C., Gulf Island Shipyards, LLC and Gulf Island Services, L.L.C., each a wholly-owned subsidiary of the Company. | |
23.1 | ||
31.1 | ||
31.2 | ||
32 | ||
101 INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the | |
101.SCH | Inline XBRL Taxonomy Extension Schema Linkbase Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | The cover page for the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, has been formatted in Inline XBRL | |
† | |
Management Contract or Compensatory Plan. |
* | Filed herewith. |
^ | |
SEC File Number 000-22303. | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 9, 2018.
GULF ISLAND FABRICATION, INC. (Registrant) | |||
By: | /S/ | ||
Richard W. Heo | |||
President and Chief Executive Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 9, 2018.
Signature | Title | ||
/S/ | President, Chief Executive Officer and Director (Principal Executive Officer) | ||
Richard W. Heo | |||
/S/ | Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) | ||
Westley S. | |||
/S/ ROBERT A. WALLIS | Chief Accounting Officer (Principal Accounting Officer) | ||
Robert A. Wallis | |||
/S/ ROBERT M. AVERICK | Director | ||
Robert M. Averick | |||
/S/ MURRAY W. BURNS | Director | ||
Murray W. Burns | |||
/S/ WILLIAM E. CHILES | Director | ||
William E. Chiles | |||
/S/ MICHAEL A. FLICK | Chairman of the Board | ||
Michael A. Flick | |||
/S/ MICHAEL J. KEEFFE | Director | ||
Michael J. Keeffe | |||
/S/ | Director | ||
Cheryl D. Richard | |||
S-1