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 September 30, 2016March 31, 2017
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-34279
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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 NovemberMay 2, 20162017, was14,644,50714,850,833.
 

GULF ISLAND FABRICATION, INC.
I N D E X
 
      Page
   
PART I
  
FINANCIAL INFORMATION
   
Item 1.
  
Financial Statements
   
   
Consolidated Balance Sheets at September 30, 2016March 31, 2017 (unaudited) and December 31, 20152016
  
3
   
Consolidated Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2017 and 2016 and 2015 (unaudited)
  
4
   
Consolidated Statement of Changes in Shareholders’ Equity for the NineThree Months Ended September 30, 2016March 31, 2017 (unaudited)
  
5
   
Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2017 and 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
  
1514
Item 3.
  
Quantitative and Qualitative Disclosures About Market Risk
  
2622
Item 4.
  
Controls and Procedures
  
2622
PART II
  
Other Information
  
2623
Item 1.
  
Legal Proceedings
  
2623
Item 1A.
  
Risk Factors
  
2723
Item 6.
  
Exhibits
  
2723
Signatures
  
2824
Exhibit Index
  
E-1


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
2016		 December 31,
2015		March 31,
2017		 December 31,
2016
(Unaudited) (Note 1)(Unaudited) (Note 1)
ASSETS      
Current assets:      
Cash and cash equivalents$55,642
 $34,828
$34,663
 $51,167
Contracts receivable and retainage, net26,619
 47,060
21,061
 20,169
Costs and estimated earnings in excess of billings on uncompleted contracts18,679
 12,822
Contracts in progress30,380
 26,829
Prepaid expenses and other assets4,034
 3,418
2,369
 3,222
Inventory18,281
 12,936
11,798
 11,973
Assets held for sale—
 4,805
110,545
 —
Total current assets123,255
 115,869
210,816
 113,360
Property, plant and equipment, net211,215
 200,384
91,014
 206,222
Intangible assets, net2,069
 —
Other assets673
 670
2,830
 2,826
Total assets$337,212
 $316,923
$304,660
 $322,408
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable$8,654
 $13,604
$8,501
 $9,021
Billings in excess of costs and estimated earnings on uncompleted contracts7,154
 7,081
Advance billings on contracts4,762
 3,977
Deferred revenue, current14,178
 —
6,577
 11,881
Accrued contract losses1,494
 9,495
152
 387
Accrued employee costs8,493
 6,831
Accrued expenses and other liabilities3,510
 890
7,541
 10,032
Income tax payable347
 50
Total current liabilities43,483
 37,901
27,880
 35,348
Net deferred tax liabilities20,199
 23,234
Deferred revenue, noncurrent2,029
 —
80
 489
Other long-term liabilities109
 —
Net deferred tax liabilities25,476
 21,825
Other liabilities501
 305
Total liabilities71,097
 59,726
48,660
 59,376
Shareholders’ equity:      
Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding—
 —
—
 —
Common stock, no par value, 20,000,000 shares authorized, 14,632,507 issued and outstanding at September 30, 2016 and 14,580,216 at December 31, 2015, respectively10,579
 10,352
Common stock, no par value, 20,000,000 shares authorized, 14,850,154 issued and outstanding at March 31, 2017, and 14,695,020 at December 31, 2016, respectively10,598
 10,641
Additional paid-in capital98,256
 96,194
98,427
 98,813
Retained earnings157,280
 150,651
146,975
 153,578
Total shareholders’ equity266,115
 257,197
256,000
 263,032
Total liabilities and shareholders’ equity$337,212
 $316,923
$304,660
 $322,408
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 
 September 30,		 Nine Months Ended 
 September 30,		 Three Months Ended 
 March 31,		 
2016 2015 2016 2015 2017 2016 
Revenue$65,384
 $67,531
 $230,864
 $251,102
 $37,993
 $83,979
 
Cost of revenue60,125
 75,368
 205,839
 248,686
 42,890
 78,278
 
Gross profit (loss)5,259
 (7,837) 25,025
 2,416
 (4,897) 5,701
 
General and administrative expenses5,086
 3,798
 14,633
 11,817
 3,930
 4,485
 
Asset impairment—
 6,600
 —
 6,600
 389
 —
 
Operating income (loss)173
 (18,235) 10,392
 (16,001) (9,216) 1,216
 
Other income (expense):            
Interest expense(110) (39) (248) (126) (59) (50) 
Interest income12
 8
 20
 21
 —
 6
 
Other income, net599
 —
 1,039
 20
 9
 398
 
501
 (31) 811
 (85) 
Total other income (expense)(50) 354
 
Net income (loss) before income taxes674
 (18,266) 11,203
 (16,086) (9,266) 1,570
 
Income taxes133
 (6,129) 4,134
 (5,389) (2,812) 581
 
Net income (loss)$541
 $(12,137) $7,069
 $(10,697) $(6,454) $989
 
Per share data:            
Basic and diluted earnings (loss) per share - common shareholders$0.04
 $(0.84) $0.48
 $(0.74) $(0.44) $0.07
 
Cash dividend declared per common share$0.01
 $0.10
 $0.03
 $0.30
 $0.01
 $0.01
 
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 
 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
  Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
  Shares Amount 
 Balance at January 1, 201714,695,020
 $10,641
 $98,813
 $153,578
 $263,032
 Net income—
 —
 —
 (6,454) (6,454)
 Vesting of restricted stock155,134
 (88) (800) —
 (888)
 Compensation expense - restricted stock—
 45
 414
 —
 459
 Dividends on common stock—
 —
 —
 (149) (149)
 Balance at March 31, 201714,850,154
 $10,598
 $98,427
 $146,975
 $256,000
The accompanying notes are an integral part of these financial statements.




GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended 
 September 30,		Three Months Ended 
 March 31,
2016 20152017 2016
Cash flows from operating activities:      
Net income (loss)$7,069
 $(10,697)$(6,454) $989
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Adjustments to reconcile net income (loss) to net cash used in operating activities:   
Bad debt expense422
 400
—
 30
Depreciation19,262
 19,674
Depreciation and amortization4,700
 6,567
Amortization of deferred revenue(4,114) —
(1,552) (1,160)
Asset impairment—
 6,600
389
 —
Gain on sale of assets(924) (10)—
 (360)
Deferred income taxes3,651
 (5,464)(3,035) 544
Compensation expense - restricted stock2,452
 1,863
459
 728
Changes in operating assets and liabilities:      
Contracts receivable and retainage22,287
 43,501
(892) 5,268
Costs and estimated earnings in excess of billings on uncompleted contracts(5,834) (237)
Contracts in progress(3,551) (1,069)
Prepaid expenses and other assets915
 2,072
871
 650
Inventory135
 508
175
 51
Accounts payable(13,654) (25,402)(520) (10,679)
Billings in excess of costs and estimated earnings on uncompleted contracts(20) (13,494)
Advance billings on contracts785
 604
Deferred revenue(8,928) —
(4,162) (1,623)
Accrued employee costs1,404
 343
Deferred compensation196
 —
Accrued expenses2,733
 (2,369)(2,498) 1,471
Accrued contract losses(8,001) 1,367
(235) (3,636)
Current income taxes413
 —
Net cash provided by operating activities19,268
 18,655
Current income taxes and other240
 49
Net cash used in operating activities(15,084) (1,576)
Cash flows from investing activities:      
Capital expenditures(5,415) (5,052)(391) (724)
Net cash received in acquisition1,588
 —
—
 1,588
Proceeds from the sale of equipment5,813
 10
—
 5,377
Net cash provided by (used in) investing activities1,986
 (5,042)
Net cash (used in) provided by investing activities(391) 6,241
Cash flows from financing activities:      
Tax payments made on behalf of employees from withheld, vested shares of common stock(880) (145)
Payments of dividends on common stock(440) (4,397)(149) (146)
Net cash used in financing activities(440) (4,397)(1,029) (291)
Net change in cash and cash equivalents20,814
 9,216
(16,504) 4,374
Cash and cash equivalents at beginning of period34,828
 36,085
51,167
 34,828
Cash and cash equivalents at end of period$55,642
 $45,301
$34,663
 $39,202
The accompanying notes are an integral part of these financial statements.


GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016March 31, 2017
(Unaudited)


NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Gulf Island Fabrication, Inc., ("Gulf Island," and together with its subsidiaries (the “Company,” “we”"the Company," "we" or “our”"our"), is a leading fabricator of offshore drillingcomplex steel structures and marine vessels used in energy extraction and production, platformspetrochemical and otherindustrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation, hookup, commissioning, repair and maintenance services with specialized structurescrews and integrated project management capabilities. We are currently fabricating complex modules for the construction of a new petrochemical plant, completing newbuild construction of a technologically advanced offshore support and two multi-purpose service vessels and recently fabricated wind turbine pedestals for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States. Our customers include U.S. and, to a lesser extent, international energy sectors.producers, petrochemical, industrial, power and marine operators. We operate and manage our business through three segments:operating divisions: Fabrication, Shipyards and Services. The Company’s principalOur corporate officeheadquarters is located in Houston, Texas, and itswith fabrication facilities are located in Houma, Jennings and Lake Charles, LouisianaLouisiana. Our fabrication facilities in Aransas Pass and San Patricio County, Texas. The Company’s principal marketsIngleside, Texas are concentrated in the offshore regions and along the coast of the Gulf of Mexico. currently being marketed for sale.

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 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, 2015.2016.

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 GAAP 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 and nine months ended September 30, 2016March 31, 2017, are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.2017.

The balance sheet at December 31, 20152016, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP 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, 2015.2016.

Reclassifications

We made the following reclassifications to our financial statements for the three months ended March 31, 2016, to conform to current period presentation:

We reclassified $145,000 from operating activities to financing activities in the Company’s consolidated statement of cash flows for the three months ended March 31, 2016, related to tax payments made by the Company to satisfy the employees' income tax withholding obligations arising from vesting shares as a result of the adoption of Accounting Standards Update 2016-09 as discussed in "New Accounting Standards" below. This reclassification had no impact to our financial position or results of operations.

We reclassified corporate administrative costs and overhead expenses previously allocated to the results of operations of our three operating divisions to our Corporate division for the three months ended March 31, 2016, to conform to current period presentation as discussed in Note 8. These reclassifications had no impact to our consolidated financial statements.

New Accounting Standards

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

to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted. We use the percentage-of-completion accounting method to account for our fixed-price or unit rate contracts, computed by the efforts-expended method which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. We understand that this method will still be allowed under the update; however, there are additional criteria to consider for the requirements to recognize revenue under the percentage-of-completion method. We are in process of reviewing our contracts to ensure that we will continue to be able to apply our revenue recognition policies, but we are evaluating whether implementation of this update will have a material effect to our results of operations. We intend to use the modified retrospective model in adopting this standard, which will require a cumulative catch up adjustment, if any, on January 1, 2018.

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting Standards Update ("ASU") 2015-16, "Business Combinations" (Topic 805),for Measurement-Period Adjustments,” 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 are2015-16 is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. The application of2016. We adopted this ASU isguidance effective January 1, 2017, which did not expected to have a materialan impact on our future Consolidated Financial Statementsfinancial position, results of operations 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.disclosures; however, we expect to record our lease obligations on our balance sheet.


On May 28, 2014,In March 2016, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606),2016-09, “Improvements to Employee Share-Based Payment Accounting,” which supersedesamends several aspects of the revenue recognition requirements in FASB Accounting Standard Codification Topic 605, “Revenue Recognition.”accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification within the statement of cash flows. 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 2014-092016-09 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of interim and annual reporting periods beginning after December 15, 2016. We adopted the requirements of ASU 2014-09 can2016-09 effective January 1, 2017. The provisions of ASU No. 2016-09 that are applicable to the Company and affect the Company’s consolidated financial statements include the following:

This ASU requires the recognition of the excess tax benefit or tax deficiency resulting from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes created when common stock vests as an income tax benefit or expense in the Company’s statement of operations. Under previous GAAP, this difference was required to be applied either retrospectivelyrecognized in additional paid-in capital. The expense or benefit required to be recognized is calculated separately as a discrete item each reporting period and not as part of the Company’s projected annual effective tax rate. During the three months ended March 31, 2017, we recorded tax expense of $210,000 (approximate $0.01 loss per share) related to the adoption of this ASU. We have adopted these provisions on a prospective basis and our prior period presented orpresentation has not changed. Future effects to the Company’s income tax expense (benefit) as a cumulative-effect adjustment asresult of the date of adoption. We are evaluating the effectadoption of this new standardASU will depend on our financial statements.

NOTE 2 - LEEVAC TRANSACTION

On January 1, 2016, we acquired substantially allthe timing, number of shares and the closing price per share of the assets and assumed certain specified liabilitiesCompany’s common stock on the dates of LEEVAC Shipyards, L.L.C. and its affiliates (“LEEVAC”). The purchase price forvesting.

This ASU No. 2016-09 also clarifies that cash paid by the acquisition was $20.0 million, subjectCompany to taxing authorities in order to satisfy the employees' income tax withholding obligations from vesting shares should be classified as a working capital adjustment whereby we received a dollar-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 usfinancing activity in the transaction. After taking into account these adjustments, we received approximately $1.6 million inCompany’s statement of 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 inflows. We have reported payments of $880,000 within financing activities within our consolidated balance sheet asstatement 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)cash flows for the three months ended September 30, 2016,March 31, 2017, as a result of adoption of this ASU. We have adopted these provisions retrospectively and $55.9 million and $280,000 for the nine months ended September 30, 2016, respectively. Revenuereclassified $145,000 from cash used in operating activities to cash used in financing activities for the three and nine months ended September 30,March 31, 2016, included $1.5 million and $4.1 million in non-cash amortization of deferred revenue, respectively, relatedto conform to the values assignedcurrent period presentation.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018. We have not elected to early adopt this guidance. The guidance must be applied using a cumulative-effect transition method. We are currently evaluating the effect that ASU 2016-13 will have on our financial position, results of operations and related disclosures.


NOTE 2 – ASSETS HELD FOR SALE
Our South Texas Assets:

On February 23, 2017, our Board of Directors approved management's recommendation to place our South Texas facilities located in Aransas Pass and Ingleside, Texas, up for sale. Our Texas South Yard in Ingleside, Texas, is located on the northwest intersection of the U.S. Intracoastal Waterway and the Corpus Christi Ship Channel. The 45-foot deep Corpus Christi Ship Channel provides direct and unrestricted access to the contracts acquiredGulf of Mexico. Our Texas North Yard in Aransas Pass, Texas, is located along the LEEVAC transaction.
The facilities acquired in the LEEVAC transaction are leasedU.S. Intracoastal Waterway 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 Riveris approximately 25three miles north of the Intracoastal waterway. The Jennings complex includes over 100,000 square feetCorpus Christi Ship Channel. These properties are currently underutilized and represent excess capacity within our Fabrication division. Our net book value of coveredproperty, plant and equipment for these assets was $105.0 million at March 31, 2017. We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell. We have compared the net book value of this asset group to the fair value less cost to sell based upon appraisals obtained which did not result in impairment.

We are working to wind down all fabrication areaactivities at these locations and 3,000 feetre-allocate remaining backlog and workforce to our Houma Fabrication Yard. As a result of water frontagethe decision to place our South Texas facilities up for sale and the underutilization currently being experienced, we expect to incur costs associated with two launch ways. Themaintaining these facilities through their sale that will not be recoverable. These costs include insurance, general maintenance of the properties in its current state, property taxes and retained employees which will be expensed as incurred. We do not expect the sale of these assets to impact our ability to service our deepwater customers or operate our Fabrication division. Our South Texas assets held for sale do not qualify for discontinued operations presentation.

Prospect Shipyard Assets:

We 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 acre35-acre complex 26 miles from the Gulf of Mexico near Houma, Louisiana. PaymentWe have notified the owner of our intention to terminate the lease on mutually beneficial terms are approximately $67,000 per month. The lease expires on the laterto facilitate an orderly disposal of December 31, 2016 or 90 days following the completion of the first of two vessels currently under constructionassets 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 LEEVAC transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. 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 2018 for two customers. Additionally, we hired 380 employees 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.facility. We have recorded adjustments toclassified 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 remaining at this shipyard as assets held for sale at February 6, 2017. Our net book value of property, plant and equipment for these assets was determined$5.5 million at March 31, 2017. We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to be immaterial.sell. We expecthave compared the net book value of this asset group to finalize our purchase price allocation during the fourth quarterestimates of 2016. The tables below present the total cash received as reported in our consolidated statementsfair value less cost to sell and recorded an impairment of cash flows, the amount due from seller and the corresponding preliminary fair values assigned to the assets and liabilities acquired from 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

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

(2)Payments from sureties in connection with the release of further obligations related to contracts assigned to us concurrent with the closing of the LEEVAC transaction.

Pro Forma Results of Acquisitions

The table below presents our pro forma results of operations$389,000 for the three and nine months ended September 30, 2015 assuming that we acquired substantially allMarch 31, 2017. We do not expect the sale of these assets to impact our ability to service our Shipyards customers. The future anticipated costs expected to be incurred prior to the termination of this lease are not significant to our consolidated financial statements. Our Prospect Shipyard assets held for sale do not qualify for discontinued operations presentation.

A summary of the significant assets included in assets held for sale at our South Texas facilities and certain specified liabilities of LEEVAC on January 1, 2015our Prospect Shipyard is as follows (in thousands):
AssetsSouth Texas Fabrication Yards Prospect Shipyard Consolidated 
Land$5,492
 $—
 $5,492
 
Buildings and improvements117,582
 —
 117,582
 
Machinery and equipment100,605
 6,131
 106,736
 
Furniture and fixtures867
 82
 949
 
Vehicles800
 —
 800
 
Other252
 —
 252
 
Less: accumulated depreciation(120,560) (706) (121,266) 
Total assets held for sale$105,038
 $5,507
 $110,545
 

Three Months Ended September 30, 2015 Pro forma adjustments   
  Historical results LEEVAC Adj  Pro forma results
Revenue $67,531
 $20,024
 $—
  $87,555
Net income (loss) $(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 $266
 $803
Elimination of interest expense 406
 1,692
Income taxes (642) 974
  $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 that are 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 March 31, 
 2017 2016 
Pass-through costs as a percentage of revenues29.4% 40.0% 
     

 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 earningsContracts in excess ofprogress at March 31, 2017, was $30.4 million with $22.9 relating to one major customer. Advance billings on uncompleted contracts at September 30, 2016March 31, 2017, 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$4.8 million and included advances of $5.9$3.8 million from fourtwo major customers.
RevenuesRevenue 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,March 31, 2017, we included $87,000no amounts 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 ninethree months ended September 30,March 31, 2016, we recorded a loss of $358,000$488,000 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 4 – CONTRACTS RECEIVABLE AND RETAINAGE
Our customers include major and large independent oil and gas companies, petrochemical and industrial facilities, marine companies and their contractors. Of our contracts receivable balance at September 30, 2016, $12.1March 31, 2017, $9.4 million, or 45.6%44.6%, iswas with threetwo customers. The significant projects for these threetwo customers consist of:
offshore services projectsone large petroleum supply vessel for two oil and gas customersa customer in our Services segment;Shipyards segment that was tendered for delivery on February 6, 2017 (see also Note 9 regarding this receivable as this customer has refused delivery of the vessel); and
the fabrication and repair toof four modules associated with a deepwater structure for one of our oil and gas customers in our Fabrication segment.U.S. ethane cracker project.
At September 30, 2016,March 31, 2017, we included an allowance for bad debt of $623,425$1.2 million in our contract receivable balance.balance which primarily relates to a customer within our Fabrication division for the storage of an offshore drilling platform that was fully reserved in 2016.
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 transactionAssets held for sale - We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell. The determination of fair value can require the use of significant judgment and can vary on the facts and circumstances. We have classified our assets at our South Texas facilities and our Prospect Shipyard as assets held for sale at March 31, 2017. We have compared the net book value of the asset groups to estimates of fair value less cost to sell and recorded an impairment of $389,000 for the three months ended March 31, 2017, related to the assets and liabilities acquired from LEEVACheld for sale at their estimated fair values.our Prospect shipyard. See Note 2. The preliminary values assignedWe had no assets held for the valuation of the 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, wesale at December 31, 2016. We have determined that the fair values assigned to theof these assets and liabilities acquired in the LEEVAC transaction 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, 
 2017 2016 
Basic and diluted:    
Numerator:    
Net income (loss)$(6,454) $989
 
Less: Distributed and undistributed income (unvested restricted stock)(34) 9
 
Net income attributable to common shareholders$(6,420) $980
 
Denominator:    
Weighted-average shares (1)
14,758
 14,601
 
Basic and diluted earnings (loss) per share - common shareholders$(0.44) $0.07
 
 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
Basic and diluted:       
Numerator:       
Net Income (loss)$541
 $(12,137) $7,069
 $(10,697)
Less: Distributed and undistributed income (unvested restricted stock)2
 24
 70
 71
Net income attributable to common shareholders$539
 $(12,161) $6,999
 $(10,768)
Denominator:       
Weighted-average shares (1)
14,633
 14,543
 14,621
 14,541
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 $80.0$40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the credit agreement from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50% per annum; (iii) increases 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) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.estate). 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 beginningWe must comply with the quarter ending March 31, 2016 are as follows:following financial covenants:


(i)minimum net worth requirement of not less than $250.0$255.0 million plus:
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all of our covenants.

We are currently in discussions with one of our financial institutions to enter into a new revolving line of credit with comparable availability, but with less restrictive financial covenants and reduced fees as compared to our current negotiations with our lenders and intendrevolving credit facility. We expect to renew ourclose on this new revolving credit facility duringand terminate our existing revolving credit facility in the fourthsecond quarter of 2016.2017.


NOTE 8 - SEGMENT DISCLOSURES


In connectionWe have structured our operations with three operating divisions and a corporate non-operating division. During the LEEVAC transaction (See Note 2),three months ended March 31, 2017, management restructured the operationreduced its allocation of corporate administrative costs and overhead expenses from its corporate, non-operating division to its operating divisions in order to individually evaluate corporate administrative costs and overhead within our Corporate division as well as to not overly burden our operating divisions with costs that do not directly relate to their operations. Accordingly, a significant portion of our business units intocorporate administrative costs and overhead expenses are retained within the results of our corporate division. In addition, we have also allocated certain personnel previously included in the operating divisions to our Corporate division. In doing so, management believes that it has created a fourth reportable segment with each

of its three operating divisions which we believe meetand its Corporate division each meeting the criteria of reportable segments under GAAP. These segments consist of Fabrication, ShipyardsOur operating divisions and Services.Corporate division are discussed below.



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 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 as modules for an LNG facilities.facility. We performhave historically performed these activities out of our fabrication yards in Houma, Louisiana and formerly out of our fabrication yards in Aransas Pass and Ingleside, Texas.


Shipyards - Our Shipyards division primarily fabricates and repairs marine vessels including offshore supply vessels, anchor handling vessels, lift boats, tugboats and towboats. 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 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 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 on 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 Southeast for various on-site construction and maintenance activities. In addition, our Services division can fabricate packaged skid units and provideconstruct various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other projects for state and local governments.


Corporate - Our Corporate division primarily includes expenses that do not directly relate to the operations or shared services provided to our three operating divisions. Expenses for shared services, which include human resources, insurance, business development, accounting salaries, etc., are allocated to the operating divisions. Expenses that are not allocated include, but are not limited to, costs related to executive management and directors' fees, clerical and administrative salaries, costs of maintaining the corporate office and costs associated with overall governance and being a publicly traded company.

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 exceptthree operating divisions for those costsexpenses that are not directly relatedrelate to the operations or relate to shared services as discussed above. During 2016, we allocated substantially all of our corporate administrative costs and overhead to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information concerning our segments as of and for the three and nine months ended September 30,March 31, 2017 and 2016, and 2015 is as follows (in thousands):
 Three Months Ended September 30, 2016
 Fabrication
Shipyards (1), (2)
ServicesCorp. & EliminationsConsolidated
Revenue$22,311
$23,060
$20,928
$(915)$65,384
Gross profit532
1,877
2,850
—
5,259
Operating income (loss)(949)(188)1,310
—
173
      
Total assets285,320
75,779
100,781
(124,668)337,212
Depreciation expense4,637
1,183
443
123
6,386
CAPEX1,228
318
565
14
2,125
      
Three Months Ended September 30, 2015Three Months Ended March 31, 2017
Fabrication
Shipyards (1)
ServicesCorp. & EliminationsConsolidatedFabrication
Shipyards (1)
ServicesCorporateEliminationsConsolidated
Revenue$32,133
$12,936
$23,487
$(1,025)$67,531
$10,209
$18,422
$10,712
$—
$(1,350)$37,993
Gross profit (loss)(14,009)1,937
4,235
—
(7,837)(2,966)(1,704)33
(260)—
(4,897)
Operating income (loss)(22,747)1,545
3,241
(274)(18,235)(3,787)(3,057)(633)(1,739)—
(9,216)
Total assets197,834
88,489
95,562
349,917
(427,142)304,660
Depreciation and amortization expense3,135
1,009
432
124
—
4,700
Capital expenditures102
272
—
17
—
391
  
Total assets363,710
54,726
90,567
(171,967)337,036
Depreciation expense5,495
480
432
127
6,534
CAPEX1,054
662
382
1
2,099
 

 Three Months Ended March 31, 2016
 Fabrication
Shipyards (1)
ServicesCorporateEliminationsConsolidated
Revenue$23,829
$34,120
$26,559
$—
$(529)$83,979
Gross profit (loss)86
2,375
3,376
(136)—
5,701
Operating income (loss)(709)1,079
2,650
(1,804)—
1,216
Total assets293,049
85,638
93,283
347,434
(480,236)339,168
Depreciation and amortization expense4,855
1,166
442
104
—
6,567
Capital expenditures109
35
543
37
—
724
       
 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),Revenue for the three months ended September 30,March 31, 2017 and 2016, and $55.9includes $1.6 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$1.2 million of non-cash amortization of deferred revenue, respectively, related to the values assigned to contracts acquired in the LEEVAC transaction.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

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 months ended March 31, 2017 and 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. 

On October 21, 2016, a customer of our Shipyards division announced it was in noncompliance with certain financial covenants included in the customer’s debt agreements. This customer also stated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. On April 19, 2017, the customer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer concerning these alleged technical deficiencies and have put the customer in default under the terms of the contracts for both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and recover the remaining balances owed to us.

We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of these contracts. Because these vessels have been completed or are substantially complete, we believe that they have significant fair value and that we would be able to fully recover any amounts due to us.

NOTE 910 – SUBSEQUENT EVENTS


On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.

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, 2015.2016.
Executive Summary


OilWe are a leading fabricator of complex steel structures and marine vessels used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation, hookup, commissioning, repair and maintenance services with specialized crews and integrated project management capabilities. We are currently fabricating complex modules for the construction of a new petrochemical plant, completing newbuild construction of a technologically advanced offshore support and two multi-purpose service vessels and recently fabricated wind turbine pedestals for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States. Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power and marine operators.

Our industry environment continues to remain challenged as significant oil and gas price volatility has created significant uncertainty remains. Recent improvements in global equitycurrent oil prices and overall market fundamentals within the energy industry. The continued downturn in oil and gas prices presents continued challenges in the near-term. Reductions in capital spending byhave remained fairly stable since December of 2016; however, our customers in the global oil and gas industry continue to limit capital spending relative to the already reduced spending levels infrom 2015 and 2016. This has also negatively impacted the prior year formarine and offshore services industries that support offshore exploration and production introduces additional uncertainty to short and long-term demand in offshore oil and gas project activity. The results of these actions havewhich has 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. As a result, we have experienced significant decreases in revenue.


Oil and gas producers are expected to cautiously increase drilling activity during 2017; however, we do not anticipate any real movement in the near term as it relates to offshore investment and related project activity as producers may choose to focus on land-based oil and gas production through newly discovered shale finds. We expect new demand for our services in the near to medium term to come from petrochemical projects and other non-upstream projects including government, transportation and renewable energy.

Accordingly, we have increased our focus on fabrication projects outside of the upstream 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 and may actually benefit in the longer term from reliable, lower cost environment of commodity prices. We are currently fabricating complex modules for the construction of a new petrochemical plant. Opportunities for Shipyard-related projects remain largely outside of the oil and gas sector including passenger cruise vessels and government contracts. Opportunities for our Services division are expected to remain challenging over the next several months, but not as severe as the challenges facing our Fabrication and Shipyard divisions.

We have seen improved bidding opportunities beginning in the fourth quarter of 2016 and extending through the first quarter of 2017 primarily for our Fabrication and Shipyard divisions. We are actively competing for these bidding opportunities and believe that we will be successful in obtaining new backlog awards in 2017; however, management believes that even if we are successful in obtaining these awards that there is an expected lag of several months before these awards will materialize into work at our facilities. We were successful in obtaining new backlog of $56.5 million within our Fabrication division during the fourth quarter of 2016, for the fabrication of four modules associated with a U.S. ethane cracker project; however, this backlog was received during a period of very competitive pricing with low margins and the revenue from these awards will not begin to be realized until later in 2017.

We continue to respond to 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.divisions. We have reduced the level of our workforce based on booked work in all of our facilities and will continue to do so, as necessary. We reduced our capital expenditures and continue to evaluate opportunities to dispose of assets that are either underperformingunder utilized, under

performing or not expected to provide sufficient long-term value.value which include our South Texas assets and expected termination of the Prospect Shipyard lease as further discussed below.


FromOur South Texas Assets - On February 23, 2017, our Board of Directors approved management's recommendation to market our South Texas facilities located in Aransas Pass and Ingleside, Texas, for sale. Our Texas South Yard in Ingleside, Texas, is located on the northwest intersection of the U.S. Intracoastal Waterway and the Corpus Christi Ship Channel. The 45-foot deep Corpus Christi Ship Channel provides direct and unrestricted access to the Gulf of Mexico. Our Texas North Yard in Aransas Pass, Texas, is located along the U.S. Intracoastal Waterway and is approximately three miles north of the Corpus Christi Ship Channel. These facilities are currently underutilized and represent excess capacity within our Fabrication division. Our net book value of for these assets was $105.0 million at March 31, 2017. We are working to wind down all fabrication activities at these locations and re-allocate remaining backlog and workforce to our Houma Fabrication Yard as necessary. As a marketing perspective,result of the decision to market our South Texas facilities for sale and the underutilization currently being experienced, we expect to incur costs associated with the maintaining of the facility through its sale that will not be recoverable. These costs include insurance, general maintenance of the property in its current state, property taxes, and retained employees which will be expensed as incurred. We do not expect the sale of these assets to impact our ability to service our deepwater customers or operate our Fabrication division.

In anticipation of the proceeds to be received from the sale of our South Texas assets, we have increasedengaged in a strategic financial analysis project with advisors to determine the appropriate use of proceeds from this transaction. We will be evaluating a mix of options including tactical capital improvement projects, strategic growth investment opportunities that support our focusbusiness plan, stock buy-backs and/or dividends and working capital reinvestment.

Prospect Shipyard Assets - We lease a 35-acre complex 26 miles from the Gulf of Mexico near Houma, Louisiana. We have notified the owner of our intention to terminate the lease on fabrication projects outsidemutually beneficial terms to facilitate an orderly disposal of assets at the facility. We have classified the machinery and equipment remaining at this shipyard as assets held for sale at February 6, 2017. Our net book value of property, plant and equipment for these assets was $5.5 million at March 31, 2017. We recorded an impairment of $389 for the three months ended March 31, 2017 related to these assets. See Note 2 of the oil and gas sector, including certain large petrochemical plant module work, alternative energy fabrication projects, and other projects that are less susceptibleNotes 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 areConsolidated Financial Statements. The future anticipated costs expected to remain steady, consistentbe incurred prior to the termination of this lease are not significant to our consolidated financial statements. We do not expect the sale of these assets to impact our ability to service Shipyards customers.

We are currently in discussions with one of our financial institutions to enter into a new revolving line of credit with comparable availability, but with less restrictive financial covenants and reduced fees as compared to our current levels.revolving credit facility. We expect to close on this new revolving credit facility and terminate our existing revolving credit facility in the second quarter of 2017.


With no debt and $55.6$34.7 million in cash at March 31, 2017, 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 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 $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 2018 for two customers.

As 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 new permanent Chief Financial Officer.

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 that was delivered in 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 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. 


LEEVAC Transaction

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-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 transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing. 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 due to us.

Strategically, the acquisition expands our marine fabrication and repair and maintenance presence in the Gulf South market, further diversifies our fabrication 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 facility 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 complex 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 dry docks ranging from 1,500 to 3,500 tons, and a 200 ton module transporter.

Operating Segments

In connection with the LEEVAC transaction, management restructured the operations of our business units into three divisions which we believe meet the criteria of reportable segments under 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 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 as LNG 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, tugboats, and towboats. 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 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 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 on 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 Southeast for various on-site construction and maintenance activities. In addition, our Services division can fabricate packaged skid units and provide various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other projects for 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 related to the operations of our divisions. Intersegment revenues are priced at the estimated fair value 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, 2015.2016. There have been no changes in our evaluation of our critical accounting policies since December 31, 2015.2016.


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, 2016March 31, 2017, and MarchDecember 31, 2016, consisted of the following (in thousands, except for percentages):
September 30, 2016 June 30, 2016 March 31, 2016March 31, 2017 December 31, 2016 
Segment
___________
1.Backlog as of September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease) Three Months Ended March 31, Increase or (Decrease)
 2016 2015 Amount Percent 2017 2016 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)% $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 % (2,966) 86
 (3,052) (3,548.8)%
Gross profit percentage 2.4% (43.6)%   46.0 %
Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)% 821
 795
 26
 3.3%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)     (3,787) (709)   


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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) Three Months Ended March 31, Increase or (Decrease)
 2016 2015 Amount Percent 2017 2016 Amount Percent
Revenue (1)
 $23,060
 $12,936
 $10,124
 78.3 % $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (1)
 $1,877
 $1,937
 $(60) (3.1)%
Gross profit percentage 8.1% 15.0%   (6.9)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses $2,065
 $392
 $1,673
 426.8 % 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 $(188) $1,545
     (3,057) 1,079
   
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 
Fabrication84,940
841
 $41,126
431
 $48,828
524
$54,022
582 $65,444
707 
Shipyards78,886
582
 93,912
629
 119,984
843
45,592
295 59,771
457 
Services17,386
163
 22,540
209
 28,316
308
14,829
201 7,757
101 
Intersegment eliminations—
—
 (41)—
 (60)—
(1,226)— —
— 
Total backlog (1)
$181,212
1,586
 $157,537
1,269
 $197,068
1,675
$113,217
1,078 $132,972
1,265 
            
NumberPercentage NumberPercentage NumberPercentageNumberPercentage NumberPercentage 
Major customers (2)
three75.3% two57.4% three70.0%two81.1% two80.5% 
            
___________
1.Backlog as of September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 locations15,775
8.7% $31,272
19.9% $41,269
20.9%
Foreign locations13,519
7.5% $15,917
10.1% $16,984
8.6%
        
Backlog is expected to be recognized in revenue during:
___________
1.Backlog as of September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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 September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 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)
71,841
39.6%      
2017 (3)
87,255
48.2%      105,391
93.1%   
2018 (3)
22,116
12.2%      7,826
6.9%   
$181,212


 

    $113,217

 

 
            
___________
1.Backlog as of September 30, 2016March 31, 2017, includes commitments received through October 27, 2016.April 26, 2017. We exclude suspended projects from contract backlog thatwhen they 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.
2.At September 30, 2016,March 31, 2017, projects for our threetwo largest customers in terms of revenue backlog consisted of:
(i)two large petroleum supply vessels for one customer in our Shipyards segment, which commenced in the second quarter of 2013 and will be completed during the first and second quarter of 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 quarterquarters of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
(ii)the fabrication of 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 September 30, 2016,March 31, 2017, we had 1,336922 employees and 163133 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,2551,178 employees and 7192 contract employees as of December 31, 2015.

2016.
Labor hours worked were 2.3 million479,000 during the ninethree months ended September 30, 2016,March 31, 2017, compared to 2.1 million695,000 for the ninethree months ended September 30, 2015.March 31, 2016. The overall increasedecrease in labor hours worked for the three months ended September 30, 2016March 31, 2017, was due to 636,000 labor hours worked from projects acquired in the LEEVAC transaction partially offset by a reduction in fabrication activity due primarily to the downturn in the oil and gas 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 September 30, 2016 Compared to Three Months Ended September 30, 2015 (in thousands, except for percentages):
Consolidated
 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 %

Revenue - Our revenue for the three months ended September 30, 2016 and 2015 was $65.4 million and $67.5 million, respectively, representing a decrease of 3.2%. The decrease is primarily attributable to an overall decrease in work experienced in our fabrication yardsfacilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions.


Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016 (in thousands, except 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.percentages):
Consolidated
 Three Months Ended March 31, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$37,993
 $83,979
 $(45,986)(54.8)%
Cost of revenue42,890
 78,278
 (35,388)(45.2)%
Gross profit (loss)(4,897) 5,701
 (10,598)185.9%
Gross profit (loss) percentage(12.9)% 6.8%   
General and administrative expenses3,930
 4,485
 (555)(12.4)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(9,216) 1,216
 (10,432)(857.9)%
Other income (expense):      
Interest expense(59) (50) (9) 
Interest income—
 6
 (6) 
Other income, net9
 398
 (389) 
Total other income (expense)(50) 354
 (404)(114.1)%
Net income (loss) before income taxes(9,266) 1,570
 (10,836)(690.2)%
Income taxes(2,812) 581
 (3,393)(584.0)%
Net income (loss)$(6,454) $989
 $(7,443)(752.6)%

Revenue - Our decrease in revenue earned from offshore fabrication work was partially offset by the results of the assets and 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.March 31, 2017 and 2016, was $38.0 million and $84.0 million, respectively, representing a decrease of 54.8%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Pass-through costs as a percentage of revenue were 33.8%29.4% and 45.3%40.0% for the three-months ended September 30,March 31, 2017 and 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 (loss)- Our gross profit (loss)loss for the three months ended September 30, 2016 and 2015March 31, 2017, was $5.3$4.9 million (8.0% of revenue) and $(7.8) million, respectively. Ourcompared to a gross profit improved compared to third quarter of 2015$5.7 million for the three months ended March 31, 2016. The decrease was 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 deckdecreased revenue as discussed above 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 wastighter margins on current work partially offset by tighter margins within all of our segments due to a decreasedecreases in work as a result of the downturn in the oil and gas industry.costs resulting from additional cost cutting measures implemented by management.


General and administrative expenses - Our general and administrative expenses were $5.1$3.9 million for the three months ended September 30, 2016,March 31, 2017, compared to $3.8$4.5 million for the three months ended September 30, 2015.March 31, 2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 2016March 31, 2017, was primarily attributable to the operations acquired in the LEEVAC transaction and bonus expense, partially offset by cost cutting effortsmeasures implemented by management during 2016.the first part of 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.


Asset impairmentImpairment - During the three months ended September 30, 2015,March 31, 2017, we recorded an asset impairment charge of $6.6 million$389 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 valueheld for sale at our Prospect Shipyard. See also Note 2 of the assets. We had no such impairments during the three months ended September 30, 2016.Notes to Consolidated Financial statements.
Interest expense,
Other income, net - The Company had net interest expense of $98,000Other income decreased $389,000 for the three months ended September 30, 2016 compared to net interest expense of $31,000 for the three months ended September 30, 2015.March 31, 2017. 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 increasedecrease was primarily due to gains on sales of assets from our Fabrication division.division recorded during three months ended March 31, 2016.

Income taxes - Our effective income tax rate for the three months ended September 30, 2016March 31, 2017, was 19.7%30.3%, compared to an effective tax rate of 34.0%37.0% for the comparable period during 2015.2016. The changedecrease in ourthe effective tax rate is duethe result of limitations on the deductibility of executive compensation and $210,000 in tax expense recognized during the three months ended March 31, 2017, for the tax effect of the difference between the actual tax deduction allowed upon vesting of common stock and the compensation cost recognized for financial reporting purposes resulting from the adoption of Accounting Standards Update 2016-09 as further discussed in Note 1 of the Notes to the decrease in our effective rate for the year-to-date period.Consolidated Financial Statements.

Operating Segments

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three months ended March 31, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and it's Corporate division each meeting the criteria of reportable segments under GAAP. During the three months ended March 31, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended March 31, 2017 and 2016, are presented below (in thousands, except for percentages).

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)    
Fabrication Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,209
 $23,829
 $(13,620) (57.2)%
Gross profit (loss) (2,966) 86
 (3,052) (3,548.8)%
   Gross profit (loss) percentage (29.1)% 0.4%   (29.5)%
General and administrative expenses 821
 795
 26
 3.3%
Operating income (loss) (3,787) (709)    


Revenue - Revenue from our Fabrication division decreased $9.8$13.6 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015.March 31, 2016. 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. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets.


Gross profit increased $14.5 million to $532,000(loss) - Gross loss from our Fabrication division for the three months ended September 30, 2016March 31, 2017, was $3.0 million compared to a gross lossprofit of $14.0 million$86,000 for the three months ended September 30, 2015March 31, 2016. The decrease was due to contract losseslower revenue as discussed above, payment of $14.3termination benefits as we reduce our South Texas workforce and depreciation expense of $1.9 million that were recorded during the third quarter of 2015related to our South Texas assets prior to their classification as assets held for sale. This was partially offset by decreases in costs 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 implementedadditional cost cutting measures in response to decreases in work at our fabrication facilities.implemented by management.


General and administrative expenses - General and administrative expenses decreased $657,000for our Fabrication division increased $26,000 for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016. The increase is primarily due to cost cutting measures implemented during 2016 in responseexpenses incurred to decreases in work atmarket our fabrication facilities.South Texas assets for sale and payment of termination benefits as we reduce its workforce and complete those operations.

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
    
Shipyards Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $18,422
 $34,120
 $(15,698) (46.0)%
Gross profit (loss)(1)
 (1,704) 2,375
 (4,079) (171.7)%
   Gross profit (loss) percentage (9.2)% 7.0%   (16.2)%
General and administrative expenses 964
 1,296
 (332) (25.6)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (3,057) 1,079
    
___________
(1)Revenue for the three months ended September 30,March 31, 2017, and 2016, includes $1.5$1.6 million and $1.2 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.transaction, respectively.


Revenue increased $10.1- Revenue from our Shipyards division decreased $15.7 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015March 31, 2016, due to the operations acquiredoverall decreases in work as we complete work under our contracts

including completion of a vessel that we assumed in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8 million in revenue forand delivered to a customer on February 6, 2017, with less new, replacement work starting during the three months ended September 30, 2016.

Gross profit decreased $60,000 for the three months ended September 30, 2016period as compared to the three months ended September 30, 2015March 31, 2016. The decrease in new, replacement work is due to tighter marginsdepressed oil and gas prices and the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry.

Gross profit (loss) - Gross loss from our Shipyards division was $1.7 million for the three months ended March 31, 2017, compared to a gross profit of $2.4 million for the three months ended March 31, 2016. The decrease was due to:

continued cost overruns on new work and inefficiencies incurred on the contracts acquiredthat were assigned to us in the LEEVAC transaction transaction;
holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); and
overall decreases in work under other various contracts as discussed above;
partially offset by savings realized from cost cutting measures implemented by management during 2016.


General and administrative expenses - General and administrative expenses increased $1.7for our Shipyards division decreased $332,000 for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, primarily due to cost cutting measures implemented by management during 2016 as well as lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated gross loss.

Asset Impairment - During three months ended March 31, 2017, we recorded an impairment of $389 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial statements.

Services Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $10,712
 $26,559
 $(15,847) (59.7)%
Gross profit 33
 3,376
 (3,343) (99.0)%
   Gross profit (loss) percentage 0.3% 12.7%   (12.4)%
General and administrative expenses 666
 726
 (60) (8.3)%
Operating income (loss) (633) 2,650
    

Revenue - Revenue from our Services division decreased $15.8 million for the three months ended September 30, 2016March 31, 2017, compared to the three months ended September 30, 2015 primarilyMarch 31, 2016, 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 inoil and gas related service projects.

Gross profit - Gross profit from 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 $55.9Services division decreased $3.3 million in revenue for the ninethree months ended September 30, 2016. Pass-through costs as a percentage of revenue were 35.0% and 43.2% forMarch 31, 2017, compared to the ninethree months ended September 30,March 31, 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 nine months ended September 30, 2016 and 2015 was $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015 primarily due to the LEEVAC transactiondecreased revenue discussed above and contract losses of $14.3 million that were recordedtighter margins on new work performed 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.2017.


General and administrative expenses - Our general and administrative expenses were $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015. The increase in generalGeneral and administrative expenses for our Services division decreased $60,000 for the ninethree months ended September 30,March 31, 2017, compared to the three months ended March 31, 2016, was primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017, as a result of a combination of a smaller workforce and the downturnreduction in the oil and gas industry.gross profit.
Asset impairment
Corporate Three Months Ended March 31, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross loss (260) (136) (124) (91.2)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 1,479
 1,668
 (189) (11.3)%
Operating loss (1,739) (1,804) 65
  

Gross loss - 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 acquiredGross loss 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 $228,000 for the nine months ended September 30, 2016 compared to net interest expense of $105,000 for the nine months ended September 30, 2015. The increase in net interest expense for the nine months ended September 30, 2016 was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
Other income, net - Other incomeCorporate division increased $1.0 million for the nine months ended September 30, 2016. The increase was primarily due to gainsa restructuring of $924,000 relatedour corporate division with additional personnel allocated to the sale of three cranes at our Texas facilitycorporate division during 2017 as well as sales of smaller assets bydiscussed above.

General and administrative expenses - General and administrative expenses for our Shipyards division.
Income taxes - Our effective income tax rate for the nine months ended September 30, 2016 was 36.9%, compared to an effective tax rate of 34.0% for the comparable period during 2015. The increase in our effective rate isCorporate division decreased primarily 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 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 $67.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease is attributable to an overall decrease in work experienced in our fabrication yardsbonuses as a result of depressed oil and gas prices and the corresponding reduction in customer 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 with no similar project in 2016.
Gross profit increased $18.5 million to $4.4 million for the nine months ended September 30, 2016 compared to aour consolidated gross loss, of $14.1 million for the nine months ended September 30, 2015. The increase is 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 $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 2016 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 dueadditional personnel allocated to the downturn in the oil and gas industry.

Gross profit increased $3.6 million for the nine months ended September 30, 2016 compared to the nine 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.

General and administrative expenses increased $4.6 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to the expenses associated with the operations acquired in the LEEVAC transaction and bonuses.
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 $5.2 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in the scope of two large offshore service projectsour corporate division during the first half of 2016.

Gross profit increased $563,000 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to increases in revenues and improved absorption of fixed costs resulting from an increase in labor hours worked.

General and administrative expenses increased $1.1 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activity and bonuses.2017.

Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 2016March 31, 2017, we had no amounts outstanding under our credit facility, $4.5$4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $55.6$34.7 million, compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$182.9 million and our ratio of current assets to current liabilities was 2.837.56 to 1 at September 30,March 31, 2017, compared to $78.0 million and 3.2 to 1, respectively, at December 31, 2016. Working capital at March 31, 2017, includes $110.5 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash during the three months ended March 31, 2017, was due to:
Operating losses for the nine months ended September 30, 2016, wasquarter exclusive of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the collection of accounts receivable under various customer contracts and sales of three cranes atLEEVAC transaction.While our Texas facility for $5.8 million. At September 30, 2016, our contracts receivable balance was $26.6 million of which we have subsequently collected $12.1 million through 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 of the LEEVAC assets during 2016 was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-

dollar reductionnet $3.0 million in cash from the seller for the assumption of certain net liabilities of LEEVAC at closing and settlement payments from sureties on certain ongoing fabricationshipbuilding projects of $23.0 million that were assigned to us in the transaction. After taking into accountWe have significantly progressed these adjustments, wecontracts which in turn, has resulted in utilization of the working capital and settlement payments received approximately $1.6during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million in cash at closing. Duringfrom one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the quarter we presentedto enforce our working capital true-uprights under our construction contract, and
Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisitionlater stages of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presenceprojects which are expected to occur beginning in the Gulf South market. third quarter of 2017 through the first quarter of 2018.
At the date of transaction, we acquired approximately $121.2March 31, 2017, our contracts receivable balance was $21.1 million of new build construction backlog inclusive of approximately $9.2which we have subsequently collected $4.1 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

through April 21, 2017.
As of September 30, 2016,March 31, 2017, we had a credit agreement with Whitney Bank and JPMorgan Chase Bank N.A. that provides for an $80.0a $40.0 million revolving credit facility maturing January 2, 2017.November 29, 2018. 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(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) extends the term of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment feeestate). Commitment fees on undrawn amounts from 0.25% to 0.50%are 0.5% per annum; (iii) increases theannum and letter of credit fee,fees, subject to certain limited exceptions, to 2.00%are 2.0% per annum on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limits the maximum amount of loans outstanding at any time for general corporate purposes to $20.0 million.lenders. 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 ourOur financial covenants beginning with the quarter endingat March 31, 20162017, are as follows:


(i)minimum net worth requirement of not less than $250.0255.0 million plus
a)50% of net income earned in each quarter beginning MarchDecember 31, 2016, and
b)100% of proceeds from any issuance of common stock;
c)less the amount of any impairment on certain assets owned by Gulf Marine Fabricators, L.P. (our South Texas assets held for sale) up to $30.0 million;
(ii)debt to EBITDA ratio not greater than 3.02.5 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.


At September 30, 2016,March 31, 2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5$4.6 million, reducing the unused portion of our credit facility for additional letters of credit and borrowings to $75.5$35.4 million. As of September 30, 2016,March 31, 2017, we were in compliance with all covenants. During the fourth quarter, we expect

We are currently in discussions with one of our financial institutions to enter into a two-year, $40.0 million amendednew revolving line of credit with comparable availability, but with less restrictive financial covenants and restatedreduced fees as compared to our current revolving credit facility. We expect to close on this new revolving credit facility withand terminate our current lenders that will be secured by substantially all of our assets (other than real property). We anticipate the amendedexisting revolving 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 amountsecond quarter 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.2017.


Our primary liquidity requirements are for the costs associated with servicingfabrication projects, and capital expenditures inand payment of dividends to 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.shareholders. We anticipate capital expenditures for the remainder of 20162017 to be approximately $1.8range between $6.0 million to $8.0 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.Jennings and Lake Charles leased shipyards,

improvement to the bulkhead at our Houma facility, and
computer system upgrades.

On October 21, 2016, a customer of our Shipyards’ segmentShipyards division announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect towas in noncompliance with certain financial covenants included in the customer’s debt agreements. TheThis customer also announcedstated it had received limited waivers from its lenders and noteholders, but its debt agreements will require further negotiation and amendment. InOn April 19, 2017, the eventcustomer stated it had allowed the waivers to expire and remains in default of its covenants.

This same customer has rejected delivery of the vessel that we tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel and is seeking recovery of all purchase price amounts previously paid by the customer under the contract. We are also building a second vessel for this customer that is scheduled for delivery during the second quarter of 2017. We disagree with our customer is unsuccessful inconcerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under Chapter 11the terms of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable werefor both vessels. As of March 31, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us upon delivery for a second vessel which is expected in May of this year, is approximately $4.9 million. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter. We intend to take all legal action as may be necessary to protect our rights under the contracts and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. recover the remaining balances owed to us.

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,these contracts. Because these vessels have been completed or are substantially complete, we do not believe that they have significant fair value, and that we would be able to fully recover any loss on this contract is probable or estimable at this time.amounts due to us.



In February 2016,anticipation of the proceeds to be received from the sale of our BoardSouth Texas assets, we have engaged in a strategic financial analysis project with advisors to determine the appropriate use of Directors approvedproceeds from this transaction. We will be evaluating a decrease inmix of options including tactical capital improvement projects, strategic growth investment opportunities that support our quarterly dividend to $0.01 in an effort to conserve cash. business plan, stock buy-backs and/or dividends and working capital reinvestment.

On October 27, 2016,April 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 2016May 25, 2017, to shareholders of record on November 10, 2016.May 11, 2017.


We believe our cash and cash equivalents generated by our operating activities and funds available under our credit facilityproceeds to be received from future assets sales 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. Additionally, we expect to close on a new revolving line of credit during the second quarter of 2017 as discussed above. We believe that the new facility will provide us with additional working capital flexibility to ramp up our operations quickly in times of rapid increasing demand, to continue to issue future letters of credit and to quickly take advantage of market opportunities.

Cash Flow Activities

For the ninethree months ended September 30, 2016March 31, 2017, net cash provided byused in operating activities was $19.3$15.1 million, compared to $18.7$1.6 million for the ninethree months ended September 30, 2015.March 31, 2016. The increase in cash provided byused in operations was primarily due to increased gross profitthe following:

Operating losses for the quarter in excess of non-cash depreciation, amortization, impairment and collectionsstock compensation expense of contract receivablesapproximately $3.7 million,
Payment of year-end bonuses related to 2016,
Progress on liabilities from assumed contracts in the LEEVAC transaction.While our purchase price for the acquisition of the LEEVAC assets during 2016 somewhat offset bywas $20.0 million, we received a net $3.0 million in cash from the seller for the assumption of certain net liabilities and settlement payments required for trade payableson ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts which in turn, has resulted in utilization of the working capital and settlement payments received during 2016.
Fewer receipts from accounts receivable, primarily $4.6 million from one customer that refused delivery of a vessel on February 6, 2017, and has not paid. We have initiated arbitration proceedings during the ninequarter to enforce our rights under our construction contract, and

Build-up of costs for contracts in progress related to a customer in our Shipyards division with significant milestone payments occurring in the later stages of the projects which are expected to occur beginning in the third quarter of 2017 through the first quarter of 2018.

Net cash used in investing activities for the three months ended September 30, 2016 asMarch 31, 2017, was $391,000, compared to 2015.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.0 million, compared to cash used in investing activities of $5.0$6.2 million for the ninethree months ended September 30, 2015.March 31, 2016. The increasechange in cash used in/provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8$5.4 million and $1.6 million of cash acquired in the LEEVAC transaction.

Net cash used in financing activities for the ninethree months ended September 30,March 31, 2017 and 2016, was $1.0 million and 2015 was $440,000 and $4.4 million,$291,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction in the cash dividend in 2016.payments made to taxing authorities on behalf of employees' for their vesting of common stock.

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, 2015.2016. 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, 2015.2016.
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, 2015.2016.
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 September 30, 2016.March 31, 2017. 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, 2015.2016.
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, hashave 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 hashave 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 September 30, 2016March 31, 2017, 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, 2015.2016.
Item 6. Exhibits.
2.1
Exhibit
Number
  Asset Purchase Agreement, dated December 23, 2015 by and among Gulf Island Shipyards, LLC, LEEVAC Shipyards, LLC and certain related affiliates, incorporated by reference toDescription of 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 Amended and Restated 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).November 4, 2016.
10.1 Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form of Long-Term Performance-Based Cash Award Agreement.10-K for the year ended December 31, 2016 filed on March 2, 2017.
3131.1  CEO and Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO CertificationCertifications 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
101Attached 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 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/ David S. Schorlemer
David S. Schorlemer
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)

Date: May 2, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1Composite Articles of Incorporation of the Company on October 27, 2016, incorporated by reference to Exhibit 99.13.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed November 4, 2016.
10.1Change of Control Agreement, dated March 1, 2017, between the Company and David S. Schorlemer, incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 2016 filed on October 27, 2016.March 2, 2017.
31.1CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
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 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/ Kirk J. Meche
Kirk J. Meche
President, Chief Executive Officer, Director and Interim Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: 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.

3.1Composite Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.
3.2Bylaws 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.
4.1Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101Attached 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 Operations,
(iii)Consolidated Statement of Changes in Shareholders’ Equity,
(iv)Consolidated Statements of Cash Flows and
(v)Notes to Consolidated Financial Statements.


E-1