UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2016
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number 001-34279 
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GULF ISLAND FABRICATION, INC.
(Exact name of registrant as specified in its charter)
   
LOUISIANA 72-1147390
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
   
16225 PARK TEN PLACE, SUITE 280
HOUSTON, TEXAS
 77084
 
(Address of principal executive offices) (Zip Code)
(713) 714-6100
(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨  Accelerated filer x
    
Non-accelerated filer ¨  Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares of the registrant’s common stock, no par value per share, outstanding as of May 5,November 2, 2016 was 14,630,95214,644,507.
 

GULF ISLAND FABRICATION, INC.
I N D E X
 
      Page
   
PART I
  
FINANCIAL INFORMATION
   
Item 1.
  
Financial Statements
   
   
Consolidated Balance Sheets at March 31,September 30, 2016 (unaudited) and December 31, 2015
  
3
   
Consolidated Statements of Operations for the Three and Nine Months Ended March 31,September 30, 2016 and 2015 (unaudited)
  
4
   
Consolidated Statement of Changes in Shareholders’ Equity for the ThreeNine Months Ended March 31,September 30, 2016 (unaudited)
  
5
   
Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,September 30, 2016 and 2015 (unaudited)
  
6
   
Notes to Consolidated Financial Statements (unaudited)
  
7
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
1315
Item 3.
  
Quantitative and Qualitative Disclosures About Market Risk
  
2026
Item 4.
  
Controls and Procedures
  
2026
PART II
  
Other Information
  
2126
Item 1.
  
Legal Proceedings
  
2126
Item 1A.
  
Risk Factors
  
2127
Item 6.
  
Exhibits
  
2127
Signatures
  
2228
Exhibit Index
  
E-1

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) 
March 31,
2016		 December 31,
2015
(Unaudited) (Note 1)September 30,
2016		 December 31,
2015
(in thousands)(Unaudited) (Note 1)
ASSETS      
Current assets:      
Cash and cash equivalents$39,202
 $34,828
$55,642
 $34,828
Contracts receivable and retainage, net45,306
 47,060
26,619
 47,060
Costs and estimated earnings in excess of billings on uncompleted contracts13,891
 12,822
18,679
 12,822
Prepaid expenses and other2,768
 3,418
Prepaid expenses and other assets4,034
 3,418
Inventory17,823
 12,936
18,281
 12,936
Assets held for sale—
 4,805
—
 4,805
Total current assets118,990
 115,869
123,255
 115,869
Property, plant and equipment, net217,403
 200,384
211,215
 200,384
Intangible assets, net2,105
 —
2,069
 —
Other assets670
 670
673
 670
Total assets$339,168
 $316,923
$337,212
 $316,923
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable$8,922
 $13,604
$8,654
 $13,604
Billings in excess of costs and estimated earnings on uncompleted contracts7,685
 7,081
7,154
 7,081
Deferred revenue, current20,179
 —
14,178
 —
Accrued contract losses5,859
 9,495
1,494
 9,495
Accrued employee costs7,618
 6,831
8,493
 6,831
Accrued expenses and other liabilities1,629
 890
3,510
 890
Total current liabilities51,892
 37,901
43,483
 37,901
Deferred revenue, noncurrent6,284
 —
2,029
 —
Other long-term liabilities109
 —
Net deferred tax liabilities22,369
 21,825
25,476
 21,825
Total liabilities80,545
 59,726
71,097
 59,726
Shareholders’ equity:      
Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding—
 —
—
 —
Common stock, no par value, 20,000,000 shares authorized, 14,630,686 issued and outstanding at March 31, 2016 and 14,580,216 at December 31, 2015, respectively10,411
 10,352
Common stock, no par value, 20,000,000 shares authorized, 14,632,507 issued and outstanding at September 30, 2016 and 14,580,216 at December 31, 2015, respectively10,579
 10,352
Additional paid-in capital96,718
 96,194
98,256
 96,194
Retained earnings151,494
 150,651
157,280
 150,651
Total shareholders’ equity258,623
 257,197
266,115
 257,197
Total liabilities and shareholders’ equity$339,168
 $316,923
$337,212
 $316,923
The accompanying notes are an integral part of these financial statements.


GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
 
Three Months Ended 
 March 31,		 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		 
2016 2015 2016 2015 2016 2015 
Revenue$83,979
 $99,233
 $65,384
 $67,531
 $230,864
 $251,102
 
Cost of revenue78,278
 94,785
 60,125
 75,368
 205,839
 248,686
 
Gross profit5,701
 4,448
 
Gross profit (loss)5,259
 (7,837) 25,025
 2,416
 
General and administrative expenses4,485
 4,293
 5,086
 3,798
 14,633
 11,817
 
Operating income1,216
 155
 
Asset impairment—
 6,600
 —
 6,600
 
Operating income (loss)173
 (18,235) 10,392
 (16,001) 
Other income (expense):            
Interest expense(50) (37) (110) (39) (248) (126) 
Interest income6
 6
 12
 8
 20
 21
 
Other income (expense)398
 3
 
Other income, net599
 —
 1,039
 20
 
354
 (28) 501
 (31) 811
 (85) 
Net income before income taxes1,570
 127
 
Net income (loss) before income taxes674
 (18,266) 11,203
 (16,086) 
Income taxes581
 44
 133
 (6,129) 4,134
 (5,389) 
Net income$989
 $83
 
Net income (loss)$541
 $(12,137) $7,069
 $(10,697) 
Per share data:            
Basic and diluted earnings per share - common shareholders$0.07
 $—
 
Basic and diluted earnings (loss) per share - common shareholders$0.04
 $(0.84) $0.48
 $(0.74) 
Cash dividend declared per common share$0.01
 $0.10
 $0.01
 $0.10
 $0.03
 $0.30
 
The accompanying notes are an integral part of these financial statements.


GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share data) 
  Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
  Shares Amount 
  (in thousands, except share data)
 Balance at January 1, 201614,580,216
 $10,352
 $96,194
 $150,651
 $257,197
 Net income—
 —
 —
 989
 989
 Vesting of restricted stock50,470
 (14) (131) —
 (145)
 Compensation expense restricted stock—
 73
 655
 —
 728
 Dividends on common stock—
 —
 —
 (146) (146)
 Balance at March 31, 201614,630,686
 $10,411
 $96,718
 $151,494
 $258,623
  Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
  Shares Amount 
 Balance at January 1, 201614,580,216
 $10,352
 $96,194
 $150,651
 $257,197
 Net income—
 —
 —
 7,069
 7,069
 Vesting of restricted stock52,291
 (16) (147) —
 (163)
 Compensation expense - restricted stock—
 243
 2,209
 —
 2,452
 Dividends on common stock—
 —
 —
 (440) (440)
 Balance at September 30, 201614,632,507
 $10,579
 $98,256
 $157,280
 $266,115
The accompanying notes are an integral part of these financial statements.


GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 (in thousands)
Three Months Ended 
 March 31,
Nine Months Ended 
 September 30,
2016 2015
(in thousands)2016 2015
Cash flows from operating activities:      
Net income$989
 $83
Adjustments to reconcile net income to net cash (used in) provided by operating activities:   
Net income (loss)$7,069
 $(10,697)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Bad debt expense30
 400
422
 400
Depreciation6,567
 6,599
19,262
 19,674
Amortization of deferred revenue(1,160) —
(4,114) —
Gain on sale of asset(360) —
Asset impairment—
 6,600
Gain on sale of assets(924) (10)
Deferred income taxes544
 (149)3,651
 (5,464)
Compensation expense - restricted stock728
 435
2,452
 1,863
Changes in operating assets and liabilities:      
Contracts receivable and retainage5,268
 28,536
22,287
 43,501
Costs and estimated earnings in excess of billings on uncompleted contracts(1,069) 795
(5,834) (237)
Prepaid expenses and other assets650
 897
915
 2,072
Inventory51
 (5)135
 508
Accounts payable(10,679) (14,469)(13,654) (25,402)
Billings in excess of costs and estimated earnings on uncompleted contracts604
 (5,558)(20) (13,494)
Deferred revenue(1,623) —
(8,928) —
Accrued employee costs636
 (932)1,404
 343
Accrued expenses690
 325
2,733
 (2,369)
Accrued contract losses(3,636) (650)(8,001) 1,367
Current income taxes49
 189
413
 —
Net cash (used in) provided by operating activities(1,721) 16,496
Net cash provided by operating activities19,268
 18,655
Cash flows from investing activities:      
Capital expenditures(724) (1,001)(5,415) (5,052)
Net cash received in acquisition1,588
 —
1,588
 —
Proceeds from the sale of equipment5,377
 —
5,813
 10
Net cash provided by (used) in investing activities6,241
 (1,001)
Net cash provided by (used in) investing activities1,986
 (5,042)
Cash flows from financing activities:      
Payments of dividends on common stock(146) (1,465)(440) (4,397)
Net cash used in financing activities(146) (1,465)(440) (4,397)
Net change in cash and cash equivalents4,374
 14,030
20,814
 9,216
Cash and cash equivalents at beginning of period34,828
 36,085
34,828
 36,085
Cash and cash equivalents at end of period$39,202
 $50,115
$55,642
 $45,301
The accompanying notes are an integral part of these financial statements.

GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2016
(Unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Gulf Island Fabrication, Inc., together with its subsidiaries (the “Company”,“Company,” “we” or “our”), is a leading fabricator of offshore drilling and production platforms and other specialized structures.structures for the energy sectors. We operate and manage our business through three segments: Fabrication, Shipyards and Services. The Company’s principal corporate office is located in Houston, Texas and its fabrication facilities are located in Houma, Jennings and Lake Charles, Louisiana and San Patricio County, Texas. The Company’s principal markets are concentrated in the offshore regions and along the coast of the Gulf of Mexico. The consolidated financial statements include the accounts of Gulf Island Fabrication, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Gulf Island Fabrication, Inc. serves as a holding company and conducts all of its operations through its subsidiaries. Our Fabrication segment includes Gulf Island, L.L.C. and Gulf Marine Fabricators, L.P., both of which perform fabrication of offshore drilling and production platforms and other specialized structures used in the development and production of oil and gas reserves. Our Fabrication segment also fabricates structures for alternative energy customers as well as LNG facilities. Our Shipyards segment includes Gulf Island Marine Fabricators, L.L.C., and Gulf Island Shipyards, L.L.C., both of which perform marine vessel fabrication, construction, and repair services. Our Services segment includes Dolphin Services, L.L.C., which performs interconnect piping services and maintenance on offshore platforms and inshore steel structures,onshore facilities, and Dolphin Steel Sales, L.L.C., which sells steel plate and other steel products.
Structures and equipment fabricated by us include: jackets and deck sections of fixed production platforms; hull, tendon, and/or deck sections of floating production platforms (such as “TLPs”, “SPARs”, “FPSOs” and “MinDOCs”); piles; wellhead protectors; subsea templates; various production, compressor and utility modules; offshore living quarters; foundations for offshore wind projects; towboats; tugboats; offshore support vessels; dry docks; liftboats; tanks and barges. The Company also provides offshore interconnect pipe hook-up, inshore marine construction, manufacture and repair of pressure vessels, heavy lifts such as ship integration and TLP module integration, loading and offloading of jack-up drilling rigs, semi-submersible drilling rigs, TLPs, SPARs or other similar cargo, onshore and offshore scaffolding, piping insulation services, and steel warehousing and sales. For definitions of certain technical terms contained in this Form 10-Q, see the Glossary of Certain Technical Terms contained in our Annual Report on Form 10-K for the year ended December 31, 2015.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principlesGAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-monthsthree and nine months ended March 31,September 30, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.
The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principlesGAAP for complete financial statements.
For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
New Accounting Standards
In September 2015, the FASB issued Accounting Standards Update ("ASU") 2015-16, "Business Combinations" (Topic 805), which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The ASU became effective January 1, 2016. See Note 2 for additional disclosure related to the assets and operations acquired in the LEEVAC transaction.

In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation" (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. The application of this ASU is not expected to have a material impact on our future Consolidated Financial Statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases"Leases", which requires lessees to record most leases on their balance sheets but recognize expenses in a manner similar to current guidance. ASU 2016-02 will be effective for annual periods beginning after December 15, 2018. The guidance is required to be applied using a modified retrospective approach. We are currently evaluating the effect that ASU 2016-02 will have on our financial position, results of operations and related disclosures.

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in FASB Accounting Standard Codification (ASC) Topic 605, “Revenue Recognition.” ASU No. 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for

those goods or services. ASU 2014-09 requires retrospective application and will beis effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early applicationadoption is not permitted. The Company ispermitted as of interim and annual reporting periods beginning after December 15, 2016. ASU 2014-09 can be applied either retrospectively to each prior period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the effect of this new standard on itsour financial statements.

NOTE 2 - LEEVAC ACQUISITIONTRANSACTION

On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC Shipyards, L.L.C. and its affiliates (“LEEVAC”). The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar for dollardollar-for-dollar reduction for the assumption of certain net liabilities of LEEVAC and settlement payments received 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. During the quarter ended September 30, 2016, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due from the seller and an adjustment to the initial purchase price accounting values as further discussed below.

Included in our consolidated balance sheet as of September 30, 2016 are assets of $21.4 million and liabilities of $21.1 million from the LEEVAC transaction. The results of LEEVAC are included in our consolidated statements operations for the three and nine months ended September 30, 2016. Revenue and net income (loss) included in our results of operations and attributable to the assets and operations acquired in the LEEVAC transaction were $16.8 million and $(471,000) for the three months ended September 30, 2016, and $55.9 million and $280,000 for the nine months ended September 30, 2016, respectively. Revenue for the three and nine months ended September 30, 2016 included $1.5 million and $4.1 million in non-cash amortization of deferred revenue, respectively, related to the values assigned to the contracts acquired in the LEEVAC transaction.
The facilities acquired in the LEEVAC transaction are leased and operated under lease and sublease agreements as follows:
  
Jennings - Leased facilities from a third party for a 180 acre complex five miles east of Jennings, LA on the west bank of the Mermentau River approximately 25 miles north of the Intracoastal waterway. The Jennings Complexcomplex includes over 100,000 square feet of covered fabrication area and 3,000 feet of water frontage with two launch ways. The lease, including exercisable renewal options, extends through January 2045.

Lake Charles - Subleased facilities from a third party for a 10 acre complex 17 miles from the Gulf of Mexico on the Calcasieu River near Lake Charles, Louisiana. The Lake Charles complex includes 1,100 feet of bulkhead water frontage with a water depth of 40 feet located one mile from the Gulf Intracoastal Waterway and is located near multiple petrochemical plants. The sublease, including exercisable renewal options (subject to sublessor renewals), extends through July 2038.

Houma - Leased facilities from the former owner of LEEVAC Shipyards, currently the Senior Vice President of our Shipyards division, for a 35 acre complex 26 miles from the Gulf of Mexico near Houma, Louisiana. Payment terms are approximately $67,000 per month. The lease expires on the later of December 31, 2016 or 90 days following the completion of the first of two vessels currently under construction at the facility, but no later than August 31, 2017. Upon expiration, we have the option to extend the lease at market rates.

Strategically, the acquisitionLEEVAC transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of acquisition, weWe acquired approximately $112.0$121.2 million of new build construction backlog which includesinclusive of approximately $9.2

million of purchase price fair value allocated to four, new build construction projects to be delivered in 20162017 and 20172018 for two customers. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees.

During the quarter ended September 30, 2016, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due from the seller that is included within prepaid expenses and other assets as of September 30, 2016. We have recorded adjustments to the initial purchase price accounting values based upon the actual working capital values that we presented. Our working capital true-up resulted from a $2.1 million reduction in the seller payment owed for prepaid contracts and a $3.6 million decrease in the actual value of working capital (primarily accounts receivable and accounts payable) that we received. We also recorded an adjustment of $2.1 million to the purchase price valuation allocated to machinery and equipment. The impact to depreciation expense recorded in prior periods as a result of the increase in purchase price allocated to machinery and equipment was determined to be immaterial. We expect to finalize our purchase price allocation during the fourth quarter of 2016. The tables below representspresent the total cash received as reported onin our consolidated statements of cash flows, the amount due from seller and the corresponding preliminary fair values assigned to the assets and liabilities acquired from LEEVAC.LEEVAC which includes the effect of the working capital true-up and our updated valuation of machinery and equipment.
   As of June 30, 2016 Adjustment from working capital true-up Valuation Adjustment Fair Value
Assets:        
 Accounts receivable $3,544
 $(1,882) $—
 $1,662
 Inventory 4,938
 724
 —
 5,662
 Prepaid expenses and other assets —
 57
 —
 57
 Machinery and equipment 23,056
 —
 2,118
 25,174
 Intangible assets (leasehold interests) 2,123
 —
 —
 2,123
Liabilities:       —
 Accounts payable and accrued expenses 6,003
 2,514
 —
 8,517
 Deferred revenue and below market contracts 29,246
 —
 —
 29,246
Net cash received and due from seller upon the acquisition of LEEVAC $1,588
 $3,615
 $(2,118) $3,085

Assets:  
 Accounts receivable $3,544
 Inventory 4,938
 Machinery and equipment 23,056
 Intangible assets (leasehold interests) 2,123
    
Liabilities:  
 Accounts payable and accrued expenses 6,003
 Deferred revenue and below market contracts 29,246
    
Net cash received upon the acquisition of LEEVAC $1,588


Cash received upon acquisition of LEEVAC:  
 As of June 30, 2016 Adjustment from working capital true-up Adjusted
Consideration received upon acquisition of LEEVAC:Consideration received upon acquisition of LEEVAC:      
Owner payment for prepaid contracts (1)
 $16,942
Seller payment for prepaid contracts (1)
 $16,942
 $(2,118) $14,824
Surety payments related to assigned contracts (2)
 7,125
Surety payments related to assigned contracts (2)
 7,125
 —
 7,125
 24,067
  24,067
 (2,118) 21,949
Less:Less:  Less:      
Working capital assumed 2,479
Working capital assumed 2,479
 (3,615) (1,136)
Net cash due to the Company at closing 1,588
Due from seller —
 1,497
 1,497
 4,067
Net cash due to the Company at closing 1,588
 —
 1,588
   4,067
 (2,118) 1,949
Purchase pricePurchase price $20,000
Purchase price $20,000
 $—
 $20,000
__________
(1)Payment from sellers for milestones achievedcustomer payments received in advance of progress on contracts assigned to the Companyus concurrent with the closing of the LEEVAC transaction.

(2)Payments from owner's suretysureties in connection with the release of further obligations related to contracts assigned to the Companyus concurrent with the closing of the LEEVAC transaction.
Our determination and allocation of the values assigned to the assets and liabilities acquired from LEEVAC are preliminary. Amounts settled for working capital are subject to a working capital true up between us and LEEVAC. In addition the valuation of deferred revenue and below market contracts are based upon our best estimate; however, these estimates have not been finalized. Future changes in the above could impact future determinations of depreciation expense as well as revenue recognized from deferred revenue.
Pro Forma Results of Acquisitions
The results of LEEVAC are included in our consolidated statements operations for the three months ended March 31, 2016, as the acquisition was effective January 1, 2016. Revenues and net loss included in our results of operations for the three months ended March 31, 2016 and attributable to LEEVAC were $21.8 million and $(706,000), respectively.

The table below presents our pro forma results of operations for the three and nine months ended March 31,September 30, 2015 assuming that we acquired substantially all of the assets and certain specified liabilities of LEEVAC on January 1, 2015 (in thousands):
   Pro forma adjustments   
Three Months Ended September 30, 2015Three Months Ended September 30, 2015 Pro forma adjustments  
 Historical results LEEVAC Adj  Pro forma results Historical results LEEVAC Adj Pro forma results
Revenue $99,233
 $24,718
 $—
  $123,951
 $67,531
 $20,024
 $—
 $87,555
Net income (loss) $83
 $(4,408) $963
(1) $(3,362) $(12,137) $1,215
 $30
(1) 
 $(10,892)
Nine Months Ended September 30, 2015 Pro forma adjustments   
  Historical results LEEVAC Adj  Pro forma results
Revenue $251,102
 $69,117
 $—
  $320,219
Net income (loss) $(10,697) $(5,359) $3,469
(1) 
 $(12,587)
______________
(1) Adjustments to historical results are as follows:
 Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015
Effect of purchase price depreciation $200
 $266
 $803
Elimination of interest expense 763
 406
 1,692
Income taxes (642) 974
 $963
 $30
 $3,469

NOTE 3 – REVENUE AND CONTRACT COSTS
The Company uses the percentage-of-completion accounting method for fabrication contracts. Revenue from fixed-price or unit rate contracts is recognized on the percentage-of-completion method, computed by the efforts-expended method using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. This progress percentage is applied to our estimate of total anticipated gross profit for each contract to determine gross profit earned to date. Revenue recognized in a period for a contract is the amount of gross profit recognized for that period plus labor costs and pass-through costs incurred on the contract during the period. We define pass-through costs as material, freight, equipment rental, and sub-contractor services included in the direct costs of revenue associated with projects. Consequently, pass-through costs are included in revenue but have no impact on the gross profit realized for that particular period. Our pass-through costs as a percentage of revenue for each period presented were as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
Pass-through costs as a percentage of revenues33.8% 45.3% 35.0% 43.2%
        
Costs and estimated earnings in excess of billings on uncompleted contracts at September 30, 2016 was $18.7 million with $10.2 relating to two major customers. Billings in excess of costs and estimated earnings at September 30, 2016 was $7.2 million and included advances of $5.9 million from four major customers.
Revenues and gross profit on contracts can be significantly affected by change orders and claims that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. At September 30, 2016, we included $87,000 in revenue related to change orders on two projects which have been approved as to scope but not price. We expect to resolve these change orders before the end of the fourth quarter of 2016. During the nine months ended September 30, 2016, we recorded a loss of $358,000 for a single customer related to revenue on change orders recognized in prior periods that were not recovered in our final settlement with the customer.

During the third and fourth quarters of 2015, we recorded contract losses of $24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project we delivered to our customer in November 2015. No amounts with respect to these disputed change orders are included on our consolidated balance sheet or recognized in revenue in our consolidated statement of operations as of and for the three and nine months ended September 30, 2016. In the second quarter of 2016, we initiated legal action to recover our costs from these disputed change orders. We can give no assurance that our actions will be successful or that we will recover all or any portion of these contract losses from our customer. 

NOTE 34 – CONTRACTS RECEIVABLE AND RETAINAGE
Our customers include major and large independent oil and gas companies, marine companies, and their contractors. Of our contracts receivable balance at March 31,September 30, 2016, $23.8$12.1 million, or 52.4%45.6%, is with fourthree customers. The significant projects for these fourthree customers consist of:
offshore services projects for two oil and gas customers in our Services segment;
the fabrication of two offshore support vessels for a marine customer in our Shipyards segment; and
the fabrication and repair to a deepwater structure for one of our oil and gas customers in our Fabrication segment.
At March 31,September 30, 2016, there waswe included an allowance for bad debt of $97,000 included$623,425 in the Company’sour contract receivable balance.


NOTE 4 – CONTRACT COSTS
The Company uses the percentage-of-completion accounting method for fabrication contracts. Revenue from fixed-price or unit rate contracts is recognized on the percentage-of-completion method, computed by the efforts-expended method using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. This progress percentage is applied to our estimate of total anticipated gross profit for each contract to determine gross profit earned to date. Revenue recognized in a period for a contract is the amount of gross profit recognized for that period plus labor costs and pass-through costs incurred on the contract during the period. We define pass-through costs as material, freight, equipment rental, and sub-contractor services included in the direct costs of revenue associated with projects. Consequently, pass-through costs are included in revenue but have no impact on the gross profit realized for that particular period.
Pass-through costs as a percentage of revenue were 40.0% and 44.7% for the three months ended March 31, 2016, and 2015, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts at March 31, 2016, include unbilled costs of $11.3 million relating to seven major customers. Billings in excess of costs and estimated earnings at March 31, 2016, include advances of $3.3 million from two major customers. Revenues and gross profit on contracts can be significantly affected by change orders and claims that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. At March 31, 2016, we included $1.4 million in revenue related change orders on two projects which have been approved as to scope but not price. Total unapproved change orders included within our percent complete estimates as of March 31, 2016 were $3.2 million. We expect to resolve these change orders before the end of the second quarter of 2016. During the three months ended March 31, 2016, we recorded revisions to revenue of $(488,000) related to disputed change orders recognized in prior periods.
During the third and fourth quarter of 2015, we recorded contract losses of $24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project that was delivered during 2015. No amounts with respect to these disputed change orders are included on our balance sheet or in our consolidated statement of operations as of and for the three months ended March 31, 2016. We have recently initiated legal action to recover our costs from these disputed change orders; however, we can give no assurance that our actions will be successful or that we will recover any of these contract losses from our customer. 

NOTE 5 – FAIR VALUE MEASUREMENTS
The Company bases its fair value determinations by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1-inputs are based upon quoted prices for identical instruments traded in active markets.
Level 2-inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3-inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.
Recurring fair value measurements and financial instruments - The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payables, approximate their fair values.

LEEVAC acquisitiontransaction - We preliminarily recorded the assets and liabilities acquired from LEEVAC at their estimated fair values. See Note 2. The preliminary values assigned for the valuation of ourthe machinery and equipment we acquired were estimated primarily using the cost method. The cost method uses the concept of replacement and/or reproductive cost of the asset less depreciation due to physical, functional and economic factors, including obsolescence. The preliminary values assigned to the intangible assets (leasehold interest) and below market contracts were calculated using the income method by applying a discounted cash flow model to the differences between the forecasted cash flows and market rates. The significant estimates and assumptions used in calculating these estimates are generally unobservable in the marketplace and reflect management’s estimates of assumptions that market participants would use. Accordingly, we have determined that the fair values assigned to the assets and liabilities acquired in the LEEVAC acquisitiontransaction fall within Level 3 of the fair value hierarchy.

Impairment of Assets held for sale - During the third quarter of 2015, we recorded an impairment on assets held for sale consisting of a partially constructed topside, related valves, piping and equipment that we acquired from a customer following its default under a contract for a deepwater project in 2012. Due to the sustained downturn in the oil and gas industry, our ability to effectively market these assets had been significantly limited and potential buyers were no longer expressing interest in the assets. As a result, we reassessed our estimate of fair value and recorded an impairment of $6.6 million. We reclassified the asset’s net realizable value of $3.7 million to inventory based on the estimated scrap value of these materials. We intend to use this inventory on future construction projects at our various fabrication facilities. We determined that our impairment of assets held for sale is a non-recurring fair value measurement that falls within Level 3 of the fair value hierarchy.



NOTE 6 – EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY
Earnings per Share:
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended March 31,Three Months Ended September 30, Nine Months Ended September 30,
2016 20152016 2015 2016 2015
Basic and diluted:          
Numerator:          
Net Income$989
 $83
Net Income (loss)$541
 $(12,137) $7,069
 $(10,697)
Less: Distributed and undistributed income (unvested restricted stock)9
 25
2
 24
 70
 71
Net income attributable to common shareholders$980
 $58
$539
 $(12,161) $6,999
 $(10,768)
Denominator:          
Weighted-average shares (1)
14,601
 14,540
14,633
 14,543
 14,621
 14,541
Basic and diluted earnings per share - common shareholders$0.07
 $—
Basic and diluted earnings (loss) per share - common shareholders$0.04
 $(0.84) $0.48
 $(0.74)
______________
(1) We have no dilutive securities.

NOTE 7 – LINE OF CREDIT
We have 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 Facilitycredit agreement 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 are as follows:

(i)minimum net worth requirement of not less than $250.0 million plusplus:
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. We are in current negotiations with our lenders and intend to renew our credit facility during the fourth quarter of 2016.

NOTE 8 - SEGMENT DISCLOSURES

Effective January 1, 2016, we acquired the assets and certain liabilities of LEEVAC Shipyards, LLC (See Note 2). In connection with the LEEVAC acquisition,transaction (See Note 2), management restructured the operation of our business units into three divisions which we believe meet the criteria of reportable segments under GAAP:GAAP. These segments consist of Fabrication, Shipyards and Services.


Fabrication - Our Fabrication division primarily fabricates structures such as offshore drilling and production platforms and other steel structures for customers in the oil and gas and marine industries including jackets and deck sections of fixed production platforms along with pressure vessels. Our Fabrication segment also fabricates structures for alternative energy

customers (such as the five jackets and piles we constructed for a shallow water wind turbine project off the coast of Rhode Island during 2015) as well floatingas LNG platforms.facilities. We perform these activities out of our fabrication yards in Houma, Louisiana and Ingleside, Texas.

Shipyards - Our Shipyards division primarily fabricates and repairs marine vessels including offshore supply vessels, anchor handling vessels, lift boats, tug boats,tugboats, and towboats. The LEEVAC acquisition expands our marine fabrication capabilities to include non oil and gas marine vessels such as cruise vessels. Our Shipyards division also constructs and owns dry docks to lift marine vessels out of the water in order to make repairs or modifications. Our marine repair activities include steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft and rudder reconditioning. Our Shipyards division also performs conversion projects that consist of lengthening or modifying the use of existing vessels to enhance their capacity or functionality. We perform these activities primarily out of our facilities in Houma, Jennings and Lake Charles, Louisiana.

Services - Our Services division primarily provides interconnect piping services on offshore platforms and inshore steel structures. Interconnect piping services involve sending employee crews to offshore platforms in the Gulf of Mexico to perform welding and other activities required to connect production equipment, service modules and other equipment toon a platform. We also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the southeastSoutheast for various on-site construction and maintenance activities. In addition, our Services division can fabricate large and small packaged skid units and provide various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other levee and drainage projects tofor state and local governments.

We generally evaluate the performance of, and allocate resources to, our segments based upon gross profit (loss) and operating income (loss). Segment assets are comprised of all assets attributable to each segment. Corporate administrative costs and overhead are generally allocated to our segments except for those costs that are not directly identifiable withrelated to the operations of our divisions. Intersegment revenues are priced at the estimated fair value as negotiated between the operating divisions.of work performed. Summarized financial information concerning our segments as of and for the three and nine months ended March 31,September 30, 2016 and 2015 is as follows (in thousands):
Three Months Ended March 31, 2016Three Months Ended September 30, 2016
FabricationShipyardsServicesCorp. & EliminationsConsolidatedFabrication
Shipyards (1), (2)
ServicesCorp. & EliminationsConsolidated
Revenue$23,829
$34,120
$26,559
$(529)$83,979
$22,311
$23,060
$20,928
$(915)$65,384
Gross profit41
2,329
3,331
—
5,701
532
1,877
2,850
—
5,259
Operating income (loss)(1,282)523
2,095
(120)1,216
(949)(188)1,310
—
173
  
Total assets293,049
85,638
93,283
(132,802)339,168
285,320
75,779
100,781
(124,668)337,212
Depreciation expense4,855
1,166
442
104
6,567
4,637
1,183
443
123
6,386
CAPEX(109)(35)(543)(37)(724)1,228
318
565
14
2,125
  
Three Months Ended March 31, 2015Three Months Ended September 30, 2015
FabricationShipyardsServicesCorp. & EliminationsConsolidatedFabrication
Shipyards (1)
ServicesCorp. & EliminationsConsolidated
Revenue$56,933
$19,481
$24,788
$(1,969)$99,233
$32,133
$12,936
$23,487
$(1,025)$67,531
Gross profit (loss)(256)2,441
2,263
—
4,448
(14,009)1,937
4,235
—
(7,837)
Operating income (loss)(2,950)2,010
1,278
(183)155
(22,747)1,545
3,241
(274)(18,235)
  
Total assets377,579
61,411
87,305
(153,378)372,917
363,710
54,726
90,567
(171,967)337,036
Depreciation expense5,560
479
430
130
6,599
5,495
480
432
127
6,534
CAPEX(480)(92)(429)—
(1,001)1,054
662
382
1
2,099
  

 Nine Months Ended September 30, 2016
 Fabrication
Shipyards (1), (2)
ServicesCorp. & EliminationsConsolidated
Revenue$70,436
$86,553
$76,179
$(2,304)$230,864
Gross profit4,418
9,595
11,012
—
25,025
Operating income (loss)(61)3,720
6,893
(160)10,392
      
Total assets285,320
75,779
100,781
(124,668)337,212
Depreciation expense14,081
3,507
1,342
332
19,262
CAPEX2,539
534
1,612
730
5,415
      
 Nine Months Ended September 30, 2015
 Fabrication
Shipyards (1)
ServicesCorp. & EliminationsConsolidated
Revenue$137,431
$47,177
$70,987
$(4,493)$251,102
Gross profit (loss)(14,055)6,022
10,449
—
2,416
Operating income (loss)(27,681)4,779
7,441
(540)(16,001)
      
Total assets363,710
54,726
90,567
(171,967)337,036
Depreciation expense16,554
1,438
1,297
385
19,674
CAPEX2,737
998
1,243
74
5,052
      
____________
(1)Included in our results of operations for our Shipyards segment were revenue and net income (loss) of $16.8 million and $(471,000), for the three months ended September 30, 2016, and $55.9 million and $280,000 for the nine months ended September 30, 2016, respectively, attributable to the assets and operations acquired in the LEEVAC transaction. No amounts were included in the comparable 2015 periods as the LEEVAC transaction was effective January 1, 2016. See also Note 2.
(2)Revenue for the three and nine months ended September 30, 2016 includes $1.5 million and $4.1 million of non-cash amortization of deferred revenue, respectively, related to the values assigned to contracts acquired in the LEEVAC transaction.
NOTE 9 – SUBSEQUENT EVENTS

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.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Statements under “Backlog,” “Results of Operations” and “Liquidity and Capital Resources” and other statements in this report and the exhibits hereto that are not statements of historical fact are forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results and outcomes to differ materially from the results and outcomes predicted in such forward-looking statements. Investors are cautioned not to place undue reliance upon such forward-looking statements. Important factors that may cause our actual results to differ materially from expectations or projections include those described in Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December December��31, 2015.
Executive Summary

Our results of operations are affected primarily by (i) the level of explorationOil and development activity maintained by oil and gas exploration and production companies in the Gulf of Mexico, and to a lesser extent, overseas locations, (ii) our ability to win contracts through competitive bidding or alliance/partnering arrangements, and (iii) our ability to effectively manage contracts to successful completion. The level of exploration and development activity throughout the energy industry is related to several factors, including trends in oil and gas prices, expectations of future oil and gas prices, changes in technology and changes in the regulatory environment.

The slowdown in our industry as a result of crude oil price volatility has created significant uncertainty in global equity prices and overall market fundamentals within the energy industry in general. This uncertainty is the result of several factors including a global supply/demand imbalance for oil and an oversupply of natural gas in the United States; robust non-OPEC supply growth led by expanding unconventional production in the United States; weakening growth in emerging markets; and the decision by OPEC to maintain its current production ceiling.industry. The continued downturn in oil and gas prices presents continued challenges in the near-term. Reductions in capital spending by our customers in the global oil and gas industry, relative to the already reduced spending levels in the prior year for exploration and production, introduces additional uncertainty to short-short and long-term demand in offshore oil and gas project activity. The results of these actions have had an adverse effect on our overall backlog levels and created challenges with respect to our ability to operate our fabrication facilities at desired utilization levels. We anticipate that crude oil prices will increase in the future, as continued growth in demand and a slowing in supply growth should bring global markets into balance; however, the timing and duration of any such increase is unknown.

We continue to respond to expected near-term decreases in capital spending by our customers by reducing our own discretionary spending. Since the beginning of 2016, wage adjustments along with employee benefit reductions and overall cost reductions in all of our facilities have been implemented along with continued examination of all potential cost reductions associated with our business segments. We have adjustedreduced the level of our workforce based on expected near-termbooked work in all of our facilities. As we work through existing backlog, depending on the duration of the downturn, we may need to make additional reductions in labor commensurate with the level of fabrication activity. We have recently undertaken additional efforts to reduce our overall cost structurefacilities and will continue to pursue opportunitiesdo so, as necessary. We continue to eliminate unnecessary spending. We continually evaluate opportunities to dispose of assets that are either underperforming or not expected to provide sufficient long-term value. In addition,

From a marketing perspective, we have increased our focus on fabrication projects outside of the oil and gas sector, including certain large petrochemical plant module work, alternative energy fabrication projects, and other projects that are less susceptible to fluctuations in oil and gas prices. Opportunities for Shipyard related projects remain strong with projects ranging from river cruise vessels to brown water tugs and river barges. Opportunities for our Services segment are expected to remain steady, consistent with current levels.

With no debt and $55.6 million in cash, we will continue to conserve our cash due to the uncertainty of both the severity and duration of the current oil and gas market downturn. We will, however, continue to explore opportunities for mergers or acquisitions that may exist. Our recent acquisition of LEEVAC,substantially all of LEEVAC's assets, as further discussed below, has provided assets and operations that are complementary to our existing marine fabrication business at an attractive value. The transaction provides us with more diversified product offerings and added approximately $112.0$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 additional backlog.2017 and 2018 for two customers.

FromAs previously disclosed, Jeff Favret has resigned from his position as Chief Financial Officer for the Company. This was due to personal reasons and not related to any disputes or disagreements with the Company. The company has retained his services as Manager of Strategic Alternatives and Initiatives. Kirk Meche, our President and Chief Executive Officer, has assumed the role of Interim-Chief Financial Officer with an executive search underway for a marketing perspective, we are increasing our focus on obtaining marine fabrication and repair work, certain petrochemical plant work, alternative energy fabrication projects, and other projects that are less susceptible to fluctuations in oil prices.new permanent Chief Financial Officer.

During the third and fourth quarterquarters of 2015, we recorded contract losses of $24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project that was delivered duringin November 2015. No amounts with respect to these disputed change orders are included on our balance sheet or recognized as revenue in our consolidated statement of operations as of and for the three and nine months ended March 31,September 30, 2016. We have recentlyIn the second quarter of 2016, we initiated legal action to recover our costs from these disputed change orders; however, weorders. We can give no assurance that our actions will be successful or that we will recover all or any portion of these contract losses from our customer. 


LEEVAC AcquisitionTransaction

On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC Shipyards, L.L.C. and its affiliates (“LEEVAC”). The purchase price for the acquisition was $20.0 million, subject to a working

capital adjustment whereby we received a dollar for dollardollar-for-dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments received 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. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million of incremental contract backlog primarily for four new build construction projectsdue to be delivered in 2016 and 2017. us.

Strategically, the acquisition expands our marine fabrication and repair and maintenance presence in the Gulf South market, and further diversifies our fabrication capabilities.capabilities and added 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 2016 and 2017 for two customers. A description of the primary fabrication facilitiesfacility leases and subleases assumed and equipment acquired is as follows:

Jennings - Leased facilities from a third party for a 180 acre complex five miles east of Jennings, LA on the west bank of the Mermentau River approximately 25 miles north of the Intracoastal waterway. The Jennings Complexcomplex includes over 100,000 square feet of covered fabrication area and 3,000 feet of water frontage with two launch ways. The lease, including exercisable renewal options, extends through January 2045.

Lake Charles - Subleased facilities from a third party for a 10 acre complex 17 miles from the Gulf of Mexico on the Calcasieu River near Lake Charles, LA. The Lake Charles complex includes 1,100 feet of bulkhead water frontage with a water depth of 40 feet located one mile from the main ship channel and the Gulf Intracoastal Waterway and is located near multiple petrochemical plants. The sublease, including exercisable renewal options (subject to sublessor renewals), extends through July 2038.

Houma - Leased facilities from the former owner of LEEVAC Shipyards, currently the Senior Vice President of our Shipyards division, for a 35 acre complex 26 miles from the Gulf of Mexico near Houma, LA. The lease expires on the later of December 31, 2016 or 90 days following the completion of the first of two vessels currently under construction at the facility, but no later than August 31, 2017. Upon expiration, we will have the option to extend the lease at market rates.

Machinery and equipment - Includes a new plasma cutter installed in 2013, eight crawler cranes ranging from 65-230 tons, 8 track cranes, 10 overhead cranes, six drydocksdry docks ranging from 1,500 to 3,500 tons, and a 200 ton module transporter.

At the date of acquisition, we acquired approximately $112.0 million of new build construction backlog which primarily includes 4 new build construction projects to be delivered in 2016 and 2017 for two customers. The ultimate dollar amount of acquired backlog is subject to a change in value in connection with our purchase price allocation. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees.

Operating Segments

In connection with the LEEVAC acquisition,transaction, management restructured the operations of our business units into three divisions which we believe meet the criteria of reportable segments under GAAP:GAAP. These segments consist of Fabrication, Shipyards and Services.

Fabrication - Our Fabrication division primarily fabricates structures such as offshore drilling and production platforms and other steel structures for customers in the oil and gas and marine industries including jackets and deck sections of fixed production platforms along with pressure vessels. Our Fabrication segment also fabricates structures for alternative energy customers (such as the five jackets and piles we constructed for a shallow water wind turbine project off the coast of Rhode Island during 2015) as well floatingas LNG platforms.facilities. We perform these activities out of our fabrication yards in Houma, Louisiana and Ingleside, Texas.

Shipyards - Our Shipyards division primarily fabricates and repairs marine vessels including offshore supply vessels, anchor handling vessels, lift boats, tug boats,tugboats, and towboats. The LEEVAC acquisition expands our marine fabrication capabilities to include non oil and gas marine vessels such as cruise vessels. Our Shipyards division also constructs and owns dry docks to lift marine vessels out of the water in order to make repairs or modifications. Our marine repair activities include steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft and rudder reconditioning. Our Shipyards division also performs conversion projects that consist of lengthening or modifying the use of existing vessels to enhance their capacity or functionality. We perform these activities primarily out of our facilities in Houma, Jennings and Lake Charles, Louisiana.


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Table of Contents

Services - Our Services division primarily provides interconnect piping services on offshore platforms and inshore steel structures. Interconnect piping services involve sending employee crews to offshore platforms in the Gulf of Mexico to perform welding and other activities required to connect production equipment, service modules and other equipment toon a platform. We also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays

throughout the southeastSoutheast for various on-site construction and maintenance activities. In addition, our Services division can fabricate large and small packaged skid units and provide various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other levee and drainage projects tofor state and local governments.

We generally evaluate the performance of, and allocate resources to, our segments based upon gross profit (loss) and operating income (loss). Segment assets are comprised of all assets attributable to each segment. Corporate administrative costs and overhead are generally allocated to our segments except for those costs that are not directly identifiable withrelated to the operations of our divisions. Intersegment revenues are priced at the estimated fair value as negotiated between the operating divisions.of work performed.

Critical Accounting Policies and Estimates
For a discussion of critical accounting policies and estimates we use in the preparation of our Consolidated Financial Statements, refer to  Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2015. There have been no changes in our evaluation of our critical accounting policies since December 31, 2015.

Backlog
Our backlog is based on management’s estimate of the direct labor hours required to complete, and the remaining revenue to be recognized with respect to those projects for which a customer has authorized us to begin work or purchase materials pursuant to written contracts, letters of intent or other forms of authorization. As engineering and design plans are finalized or changes to existing plans are made, management’s estimate of the direct labor hours required to complete a project and the price of a project at completion is likely to change.
All projects currently included in our backlog are generally subject to suspension, termination, or a reduction in scope at the option of the customer, although the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or reduction in scope. In addition, customers have the ability to delay the execution of projects.
We continue to explore markets outside the oil & gas sector. We were recently awarded the fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication segment. Included within our backlog is $60.4 million and approximately 602,000 labor hours associated with this project. We intend to perform this work at our Louisiana fabrication facilities.


Our backlog at September 30, 2016, June 30, 2016 and March 31, 2016 and December 31, 2015 consisted of the following (in thousands, except for percentages):
March 31, 2016 December 31, 2015September 30, 2016 June 30, 2016 March 31, 2016
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 AmountPercent2016 2015 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%60,125
 75,368
 (15,243)(20.2)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage6.8% 4.5%   8.0% (11.6)%   
General and administrative expenses4,485
 4,293
 192
4.5 %5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income1,216
 155
 1,061
684.5 %173
 (18,235) 18,408
100.9 %
Other income (expense):            
Interest expense(50) (37) (13)

(110) (39) (71)

Interest income6
 6
 —


12
 8
 4


Other income (expense)398
 3
 395


Other income, net599
 —
 599


354
 (28) 382
1,364.3 %501
 (31) 532
1,716.1 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes581
 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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
s		Labor hours
Fabrication$48,828
524
 $62,006
724
84,940
841
 $41,126
431
 $48,828
524
Shipyards119,984
843
 131,660
886
78,886
582
 93,912
629
 119,984
843
Services28,316
308
 38,761
304
17,386
163
 22,540
209
 28,316
308
Intersegment eliminations(60)—
 (16)—
—
—
 (41)—
 (60)—
Total backlog (1)
$197,068
1,675
 $232,411
1,914
$181,212
1,586
 $157,537
1,269
 $197,068
1,675
             
NumberPercentage NumberPercentageNumberPercentage NumberPercentage NumberPercentage
Major customers (2)
three70.0% five76.1%three75.3% two57.4% three70.0%
             
___________
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
s		Percentage
Deepwater locations$41,269
20.9% $47,077
20.3%15,775
8.7% $31,272
19.9% $41,269
20.9%
Foreign locations$16,984
8.6% $26,184
11.3%13,519
7.5% $15,917
10.1% $16,984
8.6%
             
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1
s		Percentage      
2016(3)$170,146
86.3%(3)  71,841
39.6%      
2017(3)$26,922
13.7%(3)  87,255
48.2%      
2018 (3)
22,116
12.2%      
$197,068
    $181,212


 

    
             
___________
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 AmountPercent
Revenue$83,979
 $99,233
 $(15,254)(15.4)%
Cost of revenue78,278
 94,785
 (16,507)(17.4)%
Gross profit5,701
 4,448
 1,253
28.2 %
Gross profit percentage6.8% 4.5%   
General and administrative expenses4,485
 4,293
 192
4.5 %
Operating income1,216
 155
 1,061
684.5 %
Other income (expense):      
Interest expense(50) (37) (13)

Interest income6
 6
 —


Other income (expense)398
 3
 395


 354
 (28) 382
1,364.3 %
Net income before income taxes1,570
 127
 1,443
1,136.2 %
Income taxes581
 44
 537
1,220.5 %
Net income$989
 $83
 $906
1,091.6 %
 Three Months Ended September 30, Increase or (Decrease)
 2016 2015 AmountPercent
Revenue$65,384
 $67,531
 $(2,147)(3.2)%
Cost of revenue60,125
 75,368
 (15,243)(20.2)%
Gross profit (loss)5,259
 (7,837) 13,096
167.1 %
Gross profit percentage8.0% (11.6)%   
General and administrative expenses5,086
 3,798
 1,288
33.9 %
Asset impairment—
 6,600
 (6,600)n/a
Operating income173
 (18,235) 18,408
100.9 %
Other income (expense):      
Interest expense(110) (39) (71)

Interest income12
 8
 4


Other income, net599
 —
 599


 501
 (31) 532
1,716.1 %
Net income (loss) before income taxes674
 (18,266) 18,940
103.7 %
Income taxes133
 (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 AmountPercent
Revenue$230,864
 $251,102
 $(20,238)(8.1)%
Cost of revenue205,839
 248,686
 (42,847)(17.2)%
Gross profit25,025
 2,416
 22,609
935.8 %
Gross profit percentage10.8% 1.0%   
General and administrative expenses14,633
 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 income20
 21
 (1)

Other income, net1,039
 20
 1,019


 811
 (85) 896
1,054.1 %
Net income (loss) before income taxes11,203
 (16,086) 27,289
169.6 %
Income taxes4,134
 (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.
Item 6. Exhibits.
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.
31.2and 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.
31.2and 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.

E-1