Segment | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | Three Months Ended March 31, | | Increase or (Decrease) | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | | Gross profit (loss) | | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 6.8% | | 4.5% | | | | 8.0% | | (11.6)% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| 12 |
| | 8 |
| | 4 |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | Other income, net | | 599 |
| | — |
| | 599 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | | Net income (loss) before income taxes | | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % | | Net income (loss) | | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | Fabrication | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | $ Change | | % | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | | | | Asset impairment | | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | Services | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | $ Change | | % | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Labor hours | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Labor hours | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Labor hours | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Labor hours | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Labor hours |
| ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage |
Backlog is expected to be recognized in revenue during: | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage | | | | ___________ | | 1. | Backlog as of March 31,September 30, 2016 includes commitments received through April 22,October 27, 2016. We exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC transaction on January 1, 2016. Included in our backlog at September 30, 2016, is $5.1 million of non-cash revenue related to purchase price fair value of contracts acquired in the LEEVAC transaction and included in deferred revenue in our consolidated Balance sheet at September 30, 2016. |
work and timing of revenue recognition for these projects are difficult to predict. Our backlog also includes the new build construction that was acquired in the LEEVAC acquisition on January 1, 2016, which includes our preliminary determination of adjustments from purchase price accounting. Finalization of our purchase price accounting could result in adjustments to market values of the backlog acquired. Included in our backlog at March 31, 2016, is $5.9 million of non-cash revenue related to the below market valuation of contracts acquired in the LEEVAC acquisition and included in deferred revenue on our Consolidated Balance sheet at March 31, 2016.
| | 2. | At March 31,September 30, 2016, projects for our three largest customers in terms of revenue backlog consisted of: |
| | (i) | tendon support buoys for a deepwater Gulf of Mexico projecttwo large petroleum supply vessels for one customer in our FabricationShipyards segment, which commenced in the fourthsecond quarter of 20152013 and will be completed during the fourthfirst and second quarter of 2016;2017; |
| | (ii) | two large multi-purpose service vessels for one customer in our Shipyards segment, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2017;2018; and |
(iii) two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarterfabrication of 2013 and will be completed during the first quarter of 2017.four modules associated with a U.S. ethane cracker project. | | 3. | The timing of recognition of the revenue represented in our backlog is based on management’s current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of the recognition of revenue from our backlog. |
Depending on the size of the project, the termination, postponement, or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue, net income and cash flow. As of March 31,September 30, 2016, we had approximately 1,5671,336 employees and approximately 170163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to approximately 1,255 employees and approximately 71 contract employees as of December 31, 2015.
Labor hours worked were 695,0002.3 million during the threenine months ended March 31,September 30, 2016, compared to 745,0002.1 million for the threenine months ended March 31,September 30, 2015. The overall decreaseincrease in labor hours worked for the three months ended March 31,September 30, 2016 was due to 636,000 labor hours worked from projects acquired in the result ofLEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas industry partially offset by 135,000 labor hours worked from the LEEVAC acquisition.industry.
Results of Operations Our results of operations are affected primarily by our ability to effectively manage contracts to a successful completion along with producing maximum efficiencies as it relates to manhours.
Three Months ended March 31,Ended September 30, 2016 Compared to Three Months ended March 31,Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 83,979 |
| | $ | 99,233 |
| | $ | (15,254 | ) | (15.4 | )% | Cost of revenue | 78,278 |
| | 94,785 |
| | (16,507 | ) | (17.4 | )% | Gross profit | 5,701 |
| | 4,448 |
| | 1,253 |
| 28.2 | % | Gross profit percentage | 6.8% | | 4.5% | | | | General and administrative expenses | 4,485 |
| | 4,293 |
| | 192 |
| 4.5 | % | Operating income | 1,216 |
| | 155 |
| | 1,061 |
| 684.5 | % | Other income (expense): | | | | | | | Interest expense | (50 | ) | | (37 | ) | | (13 | ) |
|
| Interest income | 6 |
| | 6 |
| | — |
|
|
| Other income (expense) | 398 |
| | 3 |
| | 395 |
|
|
| | 354 |
| | (28 | ) | | 382 |
| 1,364.3 | % | Net income before income taxes | 1,570 |
| | 127 |
| | 1,443 |
| 1,136.2 | % | Income taxes | 581 |
| | 44 |
| | 537 |
| 1,220.5 | % | Net income | $ | 989 |
| | $ | 83 |
| | $ | 906 |
| 1,091.6 | % |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 65,384 |
| | $ | 67,531 |
| | $ | (2,147 | ) | (3.2 | )% | Cost of revenue | 60,125 |
| | 75,368 |
| | (15,243 | ) | (20.2 | )% | Gross profit (loss) | 5,259 |
| | (7,837 | ) | | 13,096 |
| 167.1 | % | Gross profit percentage | 8.0% | | (11.6)% | | | | General and administrative expenses | 5,086 |
| | 3,798 |
| | 1,288 |
| 33.9 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income | 173 |
| | (18,235 | ) | | 18,408 |
| 100.9 | % | Other income (expense): | | | | | | | Interest expense | (110 | ) | | (39 | ) | | (71 | ) |
|
| Interest income | 12 |
| | 8 |
| | 4 |
|
|
| Other income, net | 599 |
| | — |
| | 599 |
|
|
| | 501 |
| | (31 | ) | | 532 |
| 1,716.1 | % | Net income (loss) before income taxes | 674 |
| | (18,266 | ) | | 18,940 |
| 103.7 | % | Income taxes | 133 |
| | (6,129 | ) | | 6,262 |
| 102.2 | % | Net income (loss) | $ | 541 |
| | $ | (12,137 | ) | | $ | 12,678 |
| 104.5 | % |
RevenuesRevenue - Our revenuesrevenue for the three months ended March 31,September 30, 2016 and 2015 were $84.0was $65.4 million and $99.2$67.5 million, respectively, representing a decrease of 15.4%3.2%. The decrease is 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 activitycustomer demand for offshore projects in the Gulf of Mexico. Weour Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Our decrease in revenuesrevenue earned from offshore fabrication work werewas partially offset by the results of the assets and operations acquired in the LEEVAC acquisitiontransaction (see LEEVAC Transaction above), which added $21.8contributed $16.8 million in revenue for the three months ended March 31,September 30, 2016. Pass-through costs as a percentage of revenue were 40.0%33.8% and 44.7%45.3% for the three-months ended March 31,September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 43 of 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.
Gross profit (loss)- Our gross profit (loss) for the three months ended September 30, 2016 and 2015 was $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015 primarily due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures. This was partially offset by tighter margins within all of our segments due to a decrease in work as a result of the downturn in the oil and gas industry.
General and administrative expenses - Our general and administrative expenses were $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015. The increase in general
and administrative expenses for the three months ended September 30, 2016 was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting efforts implemented during 2016.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $98,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015. The increase was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement. Other income, net - Other income increased $599,000 for the three months ended September 30, 2016. The increase was primarily due to gains on sales of assets from our Fabrication division. Income taxes - Our effective income tax rate for the three months ended September 30, 2016 was 19.7%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The change in our effective rate is due to the decrease in our effective rate for the year-to-date period. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 22,311 |
| | $ | 32,133 |
| | $ | (9,822 | ) | | (30.6 | )% | Gross profit (loss) | | $ | 532 |
| | $ | (14,009 | ) | | $ | 14,541 |
| | 103.8 | % | Gross profit percentage | | 2.4 | % | | (43.6 | )% | | | | 46.0 | % | General and administrative expenses | | $ | 1,481 |
| | $ | 2,138 |
| | $ | (657 | ) | | (30.7 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (949 | ) | | $ | (22,747 | ) | | | | |
Revenue decreased $9.8 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The decrease is 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 customer demand for offshore fabrication projects.
Gross profit increased $14.5 million to $532,000 for the three months ended September 30, 2016 compared to a gross loss of $14.0 million for the three months ended September 30, 2015 due to contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $657,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to cost cutting measures implemented during 2016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the three months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 23,060 |
| | $ | 12,936 |
| | $ | 10,124 |
| | 78.3 | % | Gross profit (1) | | $ | 1,877 |
| | $ | 1,937 |
| | $ | (60 | ) | | (3.1 | )% | Gross profit percentage | | 8.1 | % | | 15.0 | % | | | | (6.9 | )% | General and administrative expenses | | $ | 2,065 |
| | $ | 392 |
| | $ | 1,673 |
| | 426.8 | % | Operating income (loss) (1) | | $ | (188 | ) | | $ | 1,545 |
| | | | |
___________ | | (1) | Revenue for the three months ended September 30, 2016, includes $1.5 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $10.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue for the three months ended September 30, 2016.
Gross profit decreased $60,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to tighter margins on new work and inefficiencies incurred on the contracts acquired in the LEEVAC transaction partially offset by savings realized from cost cutting measures implemented during 2016.
General and administrative expenses increased $1.7 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 primarily due to the expenses associated with the operations acquired in the LEEVAC transaction and bonus expense. | | | | | | | | | | | | | | | | | Services | | Three Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 20,928 |
| | $ | 23,487 |
| | $ | (2,559 | ) | | (10.9 | )% | Gross profit | | $ | 2,850 |
| | $ | 4,235 |
| | $ | (1,385 | ) | | (32.7 | )% | Gross profit percentage | | 13.6 | % | | 18.0 | % | | | | (4.4 | )% | General and administrative expenses | | $ | 1,540 |
| | $ | 994 |
| | $ | 546 |
| | 54.9 | % | Operating income | | $ | 1,310 |
| | $ | 3,241 |
| | | | | | | | | | | | | |
Revenue decreased $2.6 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the winding down of two large offshore service projects from the first half of 2016 and the downturn in the oil and gas industry.
Gross profit decreased $1.4 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to decreases in revenues and tighter margins on new work.
General and administrative expenses increased $546,000 for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to bonuses and additional administrative support added during the first half of 2016.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015 (in thousands, except for percentages): Consolidated | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Increase or (Decrease) | | 2016 | | 2015 | | Amount | Percent | Revenue | $ | 230,864 |
| | $ | 251,102 |
| | $ | (20,238 | ) | (8.1 | )% | Cost of revenue | 205,839 |
| | 248,686 |
| | (42,847 | ) | (17.2 | )% | Gross profit | 25,025 |
| | 2,416 |
| | 22,609 |
| 935.8 | % | Gross profit percentage | 10.8% | | 1.0% | | | | General and administrative expenses | 14,633 |
| | 11,817 |
| | 2,816 |
| 23.8 | % | Asset impairment | — |
| | 6,600 |
| | (6,600 | ) | n/a |
| Operating income (loss) | 10,392 |
| | (16,001 | ) | | 26,393 |
| 164.9 | % | Other income (expense): | | | | | | | Interest expense | (248 | ) | | (126 | ) | | (122 | ) |
|
| Interest income | 20 |
| | 21 |
| | (1 | ) |
|
| Other income, net | 1,039 |
| | 20 |
| | 1,019 |
|
|
| | 811 |
| | (85 | ) | | 896 |
| 1,054.1 | % | Net income (loss) before income taxes | 11,203 |
| | (16,086 | ) | | 27,289 |
| 169.6 | % | Income taxes | 4,134 |
| | (5,389 | ) | | 9,523 |
| 176.7 | % | Net income (loss) | $ | 7,069 |
| | $ | (10,697 | ) | | $ | 17,766 |
| 166.1 | % |
Revenue - Our revenue for the nine months ended September 30, 2016 and 2015 was $230.9 million and $251.1 million, respectively, representing a decrease of 8.1%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yards primarily as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore projects in our Fabrication segment. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016. Our decrease in revenue earned from offshore fabrication work was partially offset by the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% for the nine months ended September 30, 2016 and 2015, respectively. Pass-through costs, as described in Note 3 of 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. Gross profit - Our gross profit for the threenine months ended March 31,September 30, 2016 and 2015 was $5.7$25.0 million (6.8%(10.8% of revenue) and $4.4$2.4 million (4.5%(1.0% of revenue), respectively. Our gross profit improved compared to first quarter of 2015 primarily due to the LEEVAC transaction and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting efforts.measures in response to decreases in work at our fabrication facilities.
General and administrative expenses - Our general and administrative expenses were $4.5$14.6 million for the threenine months ended March 31,September 30, 2016, compared to $4.3$11.8 million for the threenine months ended March 31,September 30, 2015. The increase in general and administrative expenses for the threenine months ended March 31,September 30, 2016 was primarily attributable to:
an increase of stock-based compensation expense of $292,000,$589,000, bonuses, and acquisition related expenses of $79,000;the LEEVAC transaction; partially offset by
cost cutting efforts implemented as a result of the downturn in the oil and gas industry. Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively
market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016. Interest expense, net - The Company had net interest expense of $44,000$228,000 for the threenine months ended March 31,September 30, 2016 compared to net interest expense of $31,000$105,000 for the threenine months ended March 31,September 30, 2015. The increase in net interest expense for the threenine months ended March 31,September 30, 2016 was primarily driven by an increase in the interest rate and an increase to the amountscost of letters ofunused credit issued compared to the first quarter of 2015.facility fees under our credit agreement. Other income, (expense)net - Our increase in otherOther income of $395,000increased $1.0 million for the threenine months ended March 31, 2016 relatesSeptember 30, 2016. The increase was primarily due to gains onof $924,000 related to the sale of twothree cranes at our Texas facility with no such gains during 2015.as well as sales of smaller assets by our Shipyards division.
Income taxes - Our effective income tax rate for the threenine months ended March 31,September 30, 2016 was 37.0%36.9%, compared to an effective tax rate of 34.6%34.0% for the comparable period during 2015. The increase in our effective rate is due to the effect of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas. Operating Segments | | | | | | | | | | | | | | | | | Fabrication | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 23,829 |
| | $ | 56,933 |
| | $ | (33,104 | ) | | (58.1 | )% | Gross profit (loss) | | 41 |
| | (256 | ) | | 297 |
| | (116.0 | )% | Gross profit (loss) percentage | | 0.2 | % | | (0.4 | )% | | | | 0.6 | % | | | | | | | | | | General and administrative expenses | | 1,323 |
| | 2,694 |
| | (1,371 | ) | | (50.9 | )% | Operating loss | | (1,282 | ) | | (2,950 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Fabrication | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 70,436 |
| | $ | 137,431 |
| | $ | (66,995 | ) | | (48.7 | )% | Gross profit (loss) | | $ | 4,418 |
| | $ | (14,055 | ) | | $ | 18,473 |
| | 131.4 | % | Gross profit (loss) percentage | | 6.3 | % | | (10.2 | )% | | | | 16.5 | % | General and administrative expenses | | $ | 4,479 |
| | $ | 7,026 |
| | $ | (2,547 | ) | | (36.3 | )% | Asset impairment | | $ | — |
| | $ | 6,600 |
| | $ | (6,600 | ) | | n/a |
| Operating income (loss) | | $ | (61 | ) | | $ | (27,681 | ) | |
| |
|
Revenue decreased $33.1$67.0 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period.nine months ended September 30, 2015. The decrease is 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 Gulf of Mexico. Wecustomer demand for offshore fabrication projects. During 2015, we completed the fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside during 2015 with no similar project in 2016. Gross profit increased $0.3$18.5 million to $4.4 million for the threenine months ended March 31,September 30, 2016 compared to a gross loss of $0.3$14.1 million for the threenine months ended March 31,September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during the third quarter of 2015 primarilyresulting from our inability to recover certain costs related to a deck and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures in response to decreases in work at our fabrication facilities.
General and administrative expenses decreased $2.5 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to cost cutting measures implemented during 20152016 in response to decreases in work at our fabrication facilities.
Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment charge of $6.6 million related to a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract in 2012. Due to the sustained downturn in the energy sector, our ability to effectively market these assets was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the nine months ended September 30, 2016.
| | | | | | | | | | | | | | | | | Shipyards | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue (1) | | $ | 86,553 |
| | $ | 47,177 |
| | $ | 39,376 |
| | 83.5 | % | Gross profit (1) | | $ | 9,595 |
| | $ | 6,022 |
| | $ | 3,573 |
| | 59.3 | % | Gross profit percentage | | 11.1 | % | | 12.8 | % | | | | (1.7 | )% | General and administrative expenses | | $ | 5,875 |
| | $ | 1,243 |
| | $ | 4,632 |
| | 372.6 | % | Operating income (1) | | $ | 3,720 |
| | $ | 4,779 |
| | | | |
____________ | | (1) | Revenue for the nine months ended September 30, 2016, includes $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction. |
Revenue increased $39.4 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the assets and operations acquired in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million in revenue for the nine months ended September 30, 2016. The increase was partially offset by decreases in work due to the downturn in the oil and gas industry.
General and administrative expenses decreased $1.4Gross profit increased $3.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to the LEEVAC transaction as well as increases in profitability estimates for other jobs in progress due to cost cutting measures implemented during 2015 in response to the downturn in the oil and gas industry.
| | | | | | | | | | | | | | | | | Shipyards | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 34,120 |
| | $ | 19,481 |
| | $ | 14,639 |
| | 75.1 | % | Gross profit | | 2,329 |
| | 2,441 |
| | (112 | ) | | (4.6 | )% | Gross profit percentage | | 6.8 | % | | 12.5 | % | | | | (5.7 | )% | | | | | | | | | | General and administrative expenses | | 1,806 |
| | 431 |
| | 1,375 |
| | 319.0 | % | Operating income | | 523 |
| | 2,010 |
| | | | | | | | | | | | | |
Revenue increased $14.6 million for the three months ended March 31, 2016 compared to the prior year period due to the LEEVAC acquisition which added $21.8 million in revenue for the three months ended March 31, 2016.
Gross profit decreased $0.1 million for the three months ended March 31, 2016 compared to the prior year period due to lower margins related to recent bid work and lower utilization levels at our facilities.measures.
General and administrative expenses increased $1.4$4.6 million for the threenine months ended March 31,September 30, 2016 compared to the prior year period primarilynine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC acquisition.
transaction and bonuses.
| | | | | | | | | | | | | | | | | Services | | | | | | | | | | | 2016 | | 2015 | | $ Change | | % | Revenue | | $ | 26,559 |
| | $ | 24,788 |
| | $ | 1,771 |
| | 7.1 | % | Gross profit | | 3,331 |
| | 2,263 |
| | 1,068 |
| | 47.2 | % | Gross profit percentage | | 12.5 | % | | 9.1 | % | | | | 3.4 | % | | | | | | | | | | General and administrative expenses | | 1,236 |
| | 985 |
| | 251 |
| | 25.5 | % | Operating income | | 2,095 |
| | 1,278 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Services | | Nine Months Ended September 30, | | Increase or (Decrease) | | | 2016 | | 2015 | | Amount | | Percent | Revenue | | $ | 76,179 |
| | $ | 70,987 |
| | $ | 5,192 |
| | 7.3 | % | Gross profit | | $ | 11,012 |
| | $ | 10,449 |
| | $ | 563 |
| | 5.4 | % | Gross profit percentage | | 14.5 | % | | 14.7 | % | | | | (0.2 | )% | General and administrative expenses | | $ | 4,119 |
| | $ | 3,008 |
| | $ | 1,111 |
| | 36.9 | % | Operating income | | $ | 6,893 |
| | $ | 7,441 |
| | | | | | | | | | | | | |
Revenue increased $1.8$5.2 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in the scope of two large offshore service projects.projects during the first half of 2016.
Gross profit increased $1.1 million$563,000 for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs.costs resulting from an increase in labor hours worked.
General and administrative expenses increased $0.3$1.1 million for the threenine months ended March 31,September 30, 2016 compared to the prior year periodnine months ended September 30, 2015 due to additional administrative support costs related to increases in activity.activity and bonuses. Liquidity and Capital Resources Historically, we have funded our business activities through cash generated from operations. At March 31,September 30, 2016 we had no amounts outstanding under our credit facility, $20.5$4.5 million in outstanding letters of credit, and cash and cash equivalents totaling $39.2$55.6 million, compared to $34.8 million at December 31, 2015. Working capital was $67.1$79.8 million and our ratio of current assets to current liabilities was 2.292.83 to 1 at March 31,September 30, 2016. Our primary source of cash for the threenine months ended March 31,September 30, 2016, was related to the collection of accounts receivable under various customer contracts and sales of twothree cranes at our Texas facility for $5.4$5.8 million. At March 31,September 30, 2016, our contracts receivable balance was $45.3$26.6 million of which we have subsequently collected $18.3$12.1 million through April 25,October 31, 2016. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollar-for-
dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition.transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing and added approximately $112.0closing. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of incremental contract backlog primarily for four new build construction projects to be delivered in 2016 and 2017.the facilities representing substantially all of the former LEEVAC employees. Strategically, the acquisitiontransaction expands our marine fabrication and repair and maintenance presence in the Gulf South marketmarket. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and further diversifies our fabrication capabilities.2018 for two customers.
We haveAs of September 30, 2016, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80$80.0 million revolving credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and up to $20.0 million for general corporate purposes. Our obligations under the credit agreement are secured by substantially all of our assets, other than real property located in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendedextends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increasedincreases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increasedincreases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitedlimits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:
| | (i) | minimum net worth requirement of not less than $250.0 million plus |
| | a) | 50% of net income earned in each quarter beginning March 31, 2016 and |
| | b) | 100% of proceeds from any issuance of common stock; |
| | (ii) | debt to EBITDA ratio not greater than 3.0 to 1.0; and |
| | (iii) | interest coverage ratio not less than 2.0 to 1.0. |
At March 31,September 30, 2016, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $20.5$4.5 million, reducing the unused portion of our credit facility for additional letters of credit and general corporate purposes to $59.5 million and $20.0 million, respectively.$75.5 million. As of March 31,September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amended credit facility will allow us to use the full $40.0 million borrowing base for both letters of credit and general corporate purposes. Given the historically low levels of borrowings under our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.
Our primary liquidity requirements are for the costs associated with fabricationservicing projects and capital expenditures.expenditures in our Fabrication and Shipyards segments. In particular, as further discussed in Note 2 in our Notes to Consolidated Financial Statements, in connection with the LEEVAC transaction, we received at closing a net cash amount that included consideration for billings in excess of costs and estimated earnings on uncompleted contracts and other payments from sureties representing pre-payment on the partially constructed vessels totaling $21.9 million as adjusted for the working capital true-up. Consequently, there will be required cash outflows for costs associated with the prepaid amounts without corresponding milestone billings. We anticipate capital expenditures for the remainder of 2016 to be approximately $7.5$1.8 million primarily for the following: computer system upgrades,
improvementextension of bulkhead atone of our Houma facility,dry docks, and
improvements to our newly acquired facilitiesfacilities.
On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.
In February 2016, our Board of Directors approved a decrease in our quarterly dividend to $0.01 in an effort to conserve cash. On April 28,October 27, 2016, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable May 26,November 23, 2016 to shareholders of record on May 12,November 10, 2016.
We believe our cash and cash equivalents generated by operating activities and funds available under our credit facility will be sufficient to fund our capital expenditures, issue future letters of credit and meet our working capital needs for both the near and longer term to continue our operations, satisfy our contractual operations and pay dividends to our shareholders. Cash Flow Activities For the threenine months ended March 31,September 30, 2016 net cash used in operating activities was $1.7 million, compared to $16.5 million in net cash provided by operating activities was $19.3 million, compared to $18.7 million for the threenine months ended March 31,September 30, 2015. The increase in cash used inprovided by operations for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily due to decreasedincreased gross profit and collections of contract receivables during 2016 somewhat offset by payments required for trade payables during the first quarter ofnine months ended September 30, 2016 as compared to 2015 and the amortization of deferred revenue of $1.2 million during the first quarter of 2016 related to contracts acquired in the LEEVAC acquisition.2015. Net cash provided by investing activities for the threenine months ended March 31,September 30, 2016 was $6.2$2.0 million, compared to cash used in investing activities of $1.0$5.0 million for the threenine months ended March 31,September 30, 2015. The increase in cash provided by investing activities is primarily due to cash received from the sale of twothree cranes at our Texas facility for $5.4$5.8 million and $1.6 million of cash acquired in the LEEVAC acquisition.transaction. Net cash used in financing activities for the threenine months ended March 31,September 30, 2016 and 2015 was $0.1 million$440,000 and $1.5$4.4 million, respectively. The decrease is due to the reduction in the cash dividend in 2016 approved by our Board of Directors in order to conserve cash.2016. Contractual Obligations There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. For more information on our contractual obligations, refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. Off-Balance Sheet Arrangements There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2015. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company’s market risks during the quarter ended March 31,September 30, 2016. For more information on market risk, refer to Part II, Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2015. Item 4. Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim 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 Interim Chief Financial Officer havehas 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.
There have been no changes during the fiscal quarter ended March 31,September 30, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal proceedings in the normal conduct of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United
States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. Item 1A. Risk Factors. There have been no material changes from the information included in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015. | | | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015. | 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO CertificationsCertification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016. | 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | GULF ISLAND FABRICATION, INC. | | BY: | /s/ Jeffrey M. FavretKirk J. Meche | | Jeffrey M. Favret | Kirk J. Meche | | President, Chief Executive Vice President,Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary | | ( (Principal Executive Officer and Interim Principal Financial and Accounting Officer) |
Date: May 5,November 2, 2016
GULF ISLAND FABRICATION, INC. EXHIBIT INDEX | | | | | Exhibit Number | | Description of Exhibit | | | 2.1 | | Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference to Exhibit 2.1 of the Company's Form 8-K filed on December 23, 2015.
| 3.1 | | Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009. | 3.2 | | Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 30, 2012. | 4.1 | | Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863). | 10.1 | | Fifteenth Amendment to Ninth Amended and and Restated Credit Facility, incorporated by reference to Exhibit 10.1Form of the Company's Form 8-K filed February 29, 2016.
Long-Term Performance-Based Cash Award Agreement. | 31.131 | | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 31.2 | | and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | 32 | | Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. | 99.1 | | Press release issued by the Company on April 28,October 27, 2016, announcing the scheduled time for the release of its 2016 first quarter earnings and its quarterly conference call, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on April 28,October 27, 2016.
| 101 | | Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language): | | | | | | (i) | Consolidated Balance Sheets, | | | (ii) | Consolidated Statements of Income,Operations, | | | (iii) | Consolidated Statement of Changes in Shareholders’ Equity, | | | (iv) | Consolidated Statements of Cash Flows and | | | (v) | Notes to Consolidated Financial Statements. |
s | Percentage | | | | | | |